Month: September 2018

The Nasdaq climbed 0.74 percent. SPDR Technology (XLK) rallied 0.95 percent and SPDR Healthcare (XLV) rose 0.89 percent. Although the 10-year treasury yield crossed 3.10 percent mid-week, it ended down for the week at 3.06 percent. Utilities rallied in response to lower rates, while financials declined.

The Dow Jones Industrial Average led third-quarter index performance with a gain of 9.01 percent. The S&P 500 Index climbed 7.20 percent, the Nasdaq 7.14 percent and the Russell 2000 3.26 percent.

SPDR Healthcare (XLV) advanced 14.45 percent in the third quarter, SPDR Industrial (XLI) 9.98 percent, and SPDR Technology (XLK) 8.80 percent.

The Federal Reserve hiked interest rates a quarter point this week, as expected. The accompanying policy statement removed language calling the current level of interest rates “accommodative.” Interest rate forecasts over the next two years moved in a slightly hawkish direction. The odds of a fourth rate hike at the December meeting, peaked at 83 percent on Thursday before ending the week at 76 percent.

New home sales reached an annualized pace of 629,000 in August, better than the consensus forecast of 625,000. The third and final estimate of second-quarter GDP growth held steady at 4.2 percent. August personal income, consumer consumption and core inflation numbers all missed forecasts, but only by 0.1 percentage points. Durable goods orders climbed 4.5 percent in August, beating estimates of 2.2 percent and above July’s decrease of 1.2 percent.

Consumer confidence surged in September to 138.4, the highest since the year 2000. Crude oil rallied past $73 a barrel this week. The high for the year is $75 a barrel, set in early July.

The Fed rate hike and a resumption of debt worries in Italy sent the greenback higher by 1 percent this week. Nearly all gains came at the expense of the euro and yen. Emerging-market currencies rallied. WisdomTree Emerging Markets Currency (CEW) rose 0.55 percent.  iShares MSCI EAFE (EFA) and iShares MSCI Emerging Markets (EEM) fell 0.95 and 0.72 percent, respectively. For the quarter, SPDR S&P 500 (SPY) gained 7.65 percent, handily beating EFA and EEM’s returns of 1.51 and negative 0.95 percent.

Nike (NKE) delivered solid earnings results, but shares dipped 0.97 percent for the week.

Shares of Tesla (TSLA) fell 11.48 percent on the week after the SEC announced it was suing CEO Elon Musk. The SEC is focused on Elon’s tweet about having “funding secured” for going private at $420 per share. They want Musk barred from being an officer in any public firm.

The Federal Reserve raised interest rates a quarter point today, as expected. The accompanying policy statement was hawkish on rate hikes in 2019.

Bonds reacted favorably to the Fed’s statement, except for long-term U.S. treasuries. iShares 20+ Year Treasury (TLT) slumped as traders digested the news.

The Nasdaq was the best performing index over the past week. Transportations stocks consolidated after a strong multi-week rally.

Healthcare and technology led the week’s sector performance. Industrial and financials trailed after outperforming last week. Energy also performed well following crude oil’s rally past $72 a barrel.

Large-cap biotechnology and pharmaceuticals remain below their 2015 highs, but they’ve stopped dragging on healthcare performance. The sector has been outperforming technology since late spring.

Media powered the communication services sector this week. Comcast (CMCSA) fell after winning a bid for Sky Broadcasting over the weekend.

Utilities underperformed last week as long-term interest rates increased. Today’s Federal Reserve meeting will be a key factor for interest rates and utilities moving forward. Utilities typically move inverse to interest rates over the long-term, but with greater variability in the short-term. Utilities held steady as long-term rates increased in August, but only started dropping in recent weeks.

The 10-year Treasury yield came into Wednesday near 3.10 percent, slightly above its high in 20

The yield curve has compressed as the Federal Reserve hikes short-term interest rates. At 2.83 percent, the 2-year Treasury yield is only 0.40 percentage points away from the 30-year Treasury.

Assuming the yield curve doesn’t invert in response to Fed rate hikes, the 10-year treasury yield should breakout to the upside in the next few months as rate are priced into the curve.

Developed and emerging markets outperformed the S&P 500 this week as the weaker U.S. dollar boosted their returns. iShares MSCI Emerging Markets (EEM) has failed to break out of a downtrend this year, though it is testing resistance this week.

August new homes sales were in line with estimates, but homebuilders continued moving lower this week. KB Home (KBH) initially rallied in the morning following strong earnings, but it quickly reversed those gains. Lumber prices soared from a long in 2015 after hurricane damage in 2017 fueled demand for housing materials but has reversed.

The Federal Reserve will likely raise interest rates by 25 basis points this week. Bond markets started pricing in the move in late August.

The 10-year Treasury yield traded near 3.10 percent on Monday, a four-month high. Floating-rate and short-term bond funds benefit from rising rates as the interest on their securities resets higher. Investors have priced higher rates into the short-end of the yield curve. Spreads risk widening as higher rates are priced into the long-end of the yield curve.

Economists expect second-quarter GDP growth will be revised higher to 4.3 percent. Analysts see new home sales holding steady at an annualized pace of 625,000. August durable goods orders should rise 2.2 percent after dipping 1.7 percent in July. The Bureau of Economic Analysis will release its inflation measure on Friday. August core PCE is forecast to have risen 0.1 percent, down from 0.2 percent in July.

State Street rebalanced their Select Sector ETFs last week and quickly made an impact on returns today. Comcast (CMCSA) left the consumer discretionary sector for the new communication services sector. Shares slid after the company acquired Sky Broadcasting over the weekend, weighing on SPDR Communication Services (XLC). SPDR Disney (DIS) and Netflix (NFLX) both rallied on the news. SPDR Technology (XLK), now free of Facebook (FB) and Alphabet (GOOG), rose 0.50 percent as software stocks rallied. iShares North American Software (IGV) gained 0.73 percent.

Crude oil climbed to a two-month high on Monday and closed above $72 a barrel. SPDR Energy (XLE) climbed 1.46 percent to a two-month high. The U.S. Dollar Index was flat and stable versus most emerging-market currencies. Nevertheless, selling resumed in emerging markets with iShares MSCI Emerging Markets (EEM) losing 1.13 percent on the day.

Nike (NKE) will headline a light week in earnings reports. KB Home (KBH), CarMax (KMX), Accenture (ACN), Carnival (CCL), ConAgra (CAG) will also report.