Major indexes were lower this week as interest rates broke out to the upside. The Dow Jones Industrial Average finished the week with a loss of 0.06 percent.
U.S. treasury yields exited a seven-month consolidation pattern this week. The 10-year treasury yield hit 3.23 percent on Wednesday. The next target is 3.50 percent. iShares U.S. 20+ Year Treasury (TLT) fell 3.38 percent on the week, but PowerShares Senior Loan Portfolio (BKLN), which holds floating-rate securities, gained 0.09 percent.
Yields rose following hawkish comments from Fed chair Jerome Powell, a strong ADP payroll report and a solid employment report on Friday. The ADP reported 230,000 new private sector jobs. The government came in lower at 134,000, missing expectations of 168,000, but hurricanes were blamed for the miss. The government revised job growth in July and August higher and unemployment fell to 3.7 percent. Wage growth moderated from August.
Earlier in the week, manufacturing and services PMIs showed robust U.S. expansion. Auto sales hit an annualized pace of 17.4 million in September, beating expectations of 17.0 million and the prior month’s 16.7 million pace. Factory orders increased 2.3 percent in August, exceeding forecasts. In light of this week’s data, the Atlanta Federal Reserve’s GDP Now model increased its third-quarter GDP growth estimate to 4.1 percent.
Rising yields benefited financials and industrials. SPDR Financials (XLF) gained 1.56 percent on the week and SPDR Industrials (XLI) gained 0.73 percent. SPDR Consumer Discretionary (XLY) slid 4.22 percent, hurt by growing concerns about retail wages. Amazon (AMZN) announced it would raise its minimum wage to $15 an hour and raises to other hourly workers, but it comes at the expense of incentives and stock options. Although SPDR Utilities (XLU) initially fell when rates broke higher, it gained 1.90 as some traders positioned defensively.
Rising interest rates sent the U.S. dollar higher versus major currencies, while a battle over the Italian budget weighed on the euro. The U.S. Dollar Index advanced 0.60 percent on the week. SPDR S&P 500 (SPY) outperformed its foreign competition by a wide margin despite losing 0.97 percent. iShares MSCI EAFE (EFA) slid 2.28 percent and iShares MSCI Emerging Markets (EEM) tumbled 4.82 percent. Domestic equities remain in a strong bull market and a relative bull market versus foreign shares.