Weekly market update

The major averages moved higher again last week as trade developments improved investor sentiment. The Dow rose 1.53%, the S&P 500 rose 1.83% and the NASDAQ rose 1.78%.

Despite last week’s strength in stocks, the market arguably remains in caution mode and is barely up year-over-year. Tariff worries continue to hang over everything, and the stock market might continue to be only as happy as the latest tweet or Chinese state media headlines allows. China and the U.S. will restart stalled trade talks in October, though neither has given any indication they are ready to break the deadlock by offering concessions. To be clear, these are October talks on a deal that was 90% done this spring after the September talks were canceled because everyone raised tariffs on each other in tweets.

U.S. Treasury yields fell last week based partly on a soft headline number (130,000), with the 10-year yield sinking back to 1.55%. But on a positive note, the yield curve ended the week out of inversion with the 10-year yield just above the 2-year yield. That jobs number was a bit light and represented the 3rd straight month of failing growth. Still August is always a strange report, so it’s important to take the data in context.

There was also the anomaly of the government hiring 25,000 workers for the census last month. You normally don’t see that and it is likely repeatable.

The dollar fell slightly last week but still remains relatively high as investors gravitate toward U.S. assets due to the idea that the economy here is weathering global turbulence better than some other countries. That turbulence includes unrest in Hong Kong, political strife over Brexit in the UK and tensions with Iran or North Korea. All wait in the wings as possible clouds that could spread over the markets at any time.

On the economic front, U.S. ISM Manufacturing slipped below 50 (contraction territory) and the markets don’t like that, but easing trade tensions outweighed those numbers.

In trying to figure out the narrative for this week, a meeting among OPEC members will be a highlight of the week as well as this month’s ECP meeting where Europe’s central bank is widely expected to roll out new stimulus measures. We will get inflation data and retail sales, two key numbers our central bank will be watching ahead of next week’s FOMC meeting. So, maybe we just grind sideways this week and pray for no tariff-related tweets. At any rate, stay tuned and we’ll keep you posted.

 

Todd Day, MBA
Portfolio Manager
Horizon Financial Services, LLC

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