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Weekly Market Commentary

September 9th – September 13th

Retail Sales in August exceeded forecasts at 0.4% versus a consensus estimate of 0.2% with a lift from strong auto sales.  The headline reading was also revised up a tick to 0.8% from July.  Sales excluding autos and gasoline were weaker than anticipated; however, the critical Control Group (excluding food services, building materials, autos and gas) which factors into GDP growth was right in line with estimates at 0.3%.   

The Core Consumer Price Index (CPI), which excludes weaker food and energy prices, rose by 0.3% in August for a third consecutive month, ahead of expectations.  This brings the year-on-year reading a tenth higher to 2.4%.  Core Producer Prices (PPI) were modestly higher than anticipated in the month as well

The average conventional 30-year mortgage rate fell to 3.82% this week leading to a strong 9% year-on-year increase in purchase applications.  The precipitous fall in rates earlier in the month is serving as a positive catalyst to the sluggish housing sector. 

The European Central Bank (ECB) cut deposit rates as expected and restarted the bond buying program of 20 billion EUR per month.  With a promise of holding rates at or lower than the new level until signs of robust inflation appear, pundits broke out the “QE Infinity” label once again signifying accommodative quantitative easing expected out of Europe for the foreseeable future. 

The 10-Year U.S. Treasury yield rose during the week by 35 basis points to 1.90%.  The yield up – price down movement in longer maturity Treasuries over the past eight trading days is beginning to normalize the shape of the yield curve.  The 2-Year and 10-Year Treasury spread remains in positive territory at a healthier 10 basis points. 

Easier talk on tariffs and agricultural purchases out of China and the U.S. struck a positive tone for equity investors.  The S&P 500 advanced once again through the 3,000 level, ending the week ahead by 1.0% at 3,007 and nearing a new high.  The DOW advanced through the 27,000 level as well, up by 1.6% to 27,219 and the NASDAQ by 0.9% to 8,176 with some of the technology stocks coming under pressure late in the week due to added regulatory scrutiny.

In addition to a much anticipated FOMC meeting with an expected rate cut, important economic releases next week include Housing Starts, Existing Home Sales and Industrial Production. 


Weekly Market Commentary

September 2nd – September 6th

The closely watched August jobs report came in below expectations at 130k versus the 163k consensus estimate and the prior two month’s reports were revised down by a collective 17k.  The pullback comes even though the government added approximately 30k new temporary census worker jobs.  The unemployment rate remains at 3.7%.  The consumer got a modest boost to their wallets with wage growth a tick over expectations at 3.2% and the prior month revised up from 3.2 to 3.3%.  The data is supportive of the expectation of a rate cut in the upcoming meeting but is rather unlikely to have influenced Chairman Powell’s remarks at the economic outlook summit in Zurich Switzerland later in the day. 

U.S. manufacturing slowed further with another key measure, the ISM Manufacturing report, falling into contraction (a sub-50 reading) for the first time since 2016.  The key components of New Orders, Production and Employment all fell to 40-handle levels and New Export Orders at 43.3 is the lowest since 2009 and points to trade concerns hampering manufacturing.  The services industries measured by the ISM Non-manufacturing Index easily beat expectations however at 56.4, ahead of the 53.7 July reading.  The Business Activity Index advanced by eight points to 61.5, although similar to goods manufacturing, services exports were weak. 

The 10-Year U.S. Treasury yield ticked up in the holiday shortened trading week trading in a wide range of 1.44% to 1.60% before settling back at 1.55% to close the final session.  The spread between the 2-Year and 10-Year Treasuries shifted back into positive territory by 2 basis points.  The S&P 500 and NASDAQ indices advanced on the week by 1.8% to 2,978 and 8,103 respectively.

Important economic releases next week include the JOLTS jobs report, Retail Sales as well as CPI and PPI inflation. 


Weekly Market Commentary

August 26th – August 30th

Q2 GDP growth was revised down modestly to 2.0% from 2.1%, but there was more good news than bad as the critical component of personal consumption rose from 4.3% to 4.7%.  This is the highest reported consumer spending level since 2014.  Backed by a strong labor market, consumers did their part to maintain the longest economic expansion in history.  Business investment, net exports and inventories weighed on the revision.  A pull back in inventories bodes well however for third quarter manufacturing.

Amid all the negative headlines on trade wars and economic growth, consumer confidence was well ahead of expectations in August after an equally stellar July.  Sentiment on current situation reached a 19-year high, with forward expectations paring back modestly.  Personal Consumption Expenditures (PCE) rose by 0.2% in July.  On a year-on-year basis this key measure of inflation advanced 1.4% and the Core reading by 1.6%, both in line with the prior month and consensus expectations.

Durable Goods Orders in July exceeded consensus estimates led by a 49% jump in civilian aircraft orders.  Total orders increased 2.1% while the Ex-Transportation reading contracted by -0.4%.  Core Capital Goods Orders (non-defense and aircraft) were positive at 0.4%. 

The 10-Year U.S. Treasury yield slid further during the week closing at 1.50%.  The negative spread between the 2-Year and 10-Year Treasuries widened out to a level not seen since 2007 before ending the final trading session inverted by just over one basis point.

Renewed hope for progress on the trade front between the U.S. and China (after both sides reigned in retaliatory tariff threat rhetoric) reinvigorated the stock market.  The S&P 500 snapped a four-week losing streak to close higher by 2.7% to 2,926.  The NASDAQ advanced by 2.5% to 7,962.

Important economic releases in the holiday-shortened trading week next week include Manufacturing Indices, Factory Orders and Employment


Weekly Market Commentary

August 19th – August 23rd

Existing Home Sales exceeded expectations, coming in at 5.42mm, a 2.5% increase from last month’s reading, which was revised upward to 5.29mm.  The New Home Sales report was mostly positive despite coming in slightly below estimates at 635k vs. 645k.  The prior month saw a sharp upward revision from 646k to 728k.  July also saw a rise in in supply, up 1.2% to 337,000.  The housing market has been stop and go over the past six months but an increase in supply coupled with low mortgage rates could be a positive catalysts moving forward.

FOMC minutes were released on Wednesday.  There was a slight change in language from last month's FOMC press conference.  The 25 basis-point cut which was labeled a "mid-cycle policy adjustment" in the press conference, was described in the minutes as a "recalibration" of policy.  Either way, there was no mention of further rate cuts which weighed on equity markets.  Chairman Powell seemingly doubled down on this sentiment during his speech in Jackson Hole on Friday signaling that the Fed “will act as appropriate” to keep the economic expansion going but wasn’t clear on when further cuts would be coming.

U.S. rates had another rough week.  The 10-Year U.S. Treasury yield fell 9 bp on Friday to 1.523%.  The 2-Year yield closed at 1.528%, modestly above the 10-Year yield, inverting the curve again this week and further stoking recession concerns.

Retaliatory tariffs announced by China followed by a series of Trump tweets sent the Dow tumbling -2.37% to 25,630.  The S&P 500 finished the week at 2,847, down -2.6% while the NASDAQ Index ended the week at 7,751, off by -3.0%.

Important economic releases next week include Durable Goods Orders, a revised estimate of Q2 GDP and Personal Income.


Weekly Market Commentary

August 12th – August 16th

The Consumer Price Index (CPI) rose 0.3% in July, in line with expectations.  The Core CPI (excluding the volatile food and energy segments) reading was also 0.3%, modestly ahead of expectations.  Computer prices (+2.8%) and airline fares (+2.3%) were key components of the increase.  Marginally higher Core CPI at 2.2% on a year-on-year basis may be due to temporary tariff-related price increases.

Retail Sales bucked the dour mood on economic growth with July readings ahead of expectations.  The monthly change of 0.7% was more than twice the consensus estimate.  Excluding the weaker auto segment the reading was 1.0%, as was the important Control Group reading tied directly to GDP. 

Nonfarm Productivity of 2.3% for the second quarter was also a positive surprise.  The -0.4% manufacturing component of the latest Industrial Production report however, highlighted continued slowing in factories.  Construction supplies were a key driver of weakness and motor vehicle production edged lower. 

Housing Starts in July declined by 4% at a 1.19 mm annualized pace missed the mark by a significant amount and continue to point to weakness.  Although single family homes increased on a year-on-year basis, the report showed a sharp falloff in multi-family structures.  The more forward-looking Building Permits reading was ahead of expectations at 1.33 mm, partially making up for the sharp decline in the prior month. 

U.S. rates continued to plummet during the week.  The 30-Year Treasury reached a new record low yield at 1.98%.  The 10-Year U.S. Treasury yield fell to an eye popping low of 1.48% before ending the week at 1.55%.  The yield curve between the 2-Year and 10-Year Treasuries inverted for the first time since before the 2008 financial crisis, closing the week modestly positive at 6 basis points.  An inversion in this segment of the yield curve has historically predated a recession by 12-18 months so the financial press likely broke records on use of the “R” word in single week. 

The S&P 500 Index volatility spiked with each push and pull on global trade comments out of Washington and Beijing, including a dramatic mid-week 3% single day drop…the worst of the year.  A rise in the final trading session led the index to a change of 1.0% for the week to 2,888.  The NASDAQ Index ended the week at 7,895, off by -0.8%.

Notable economic releases next week include Existing and New Home Sales along with a release of the FOMC minutes from the latest meeting. 


Weekly Market Commentary

August 5th – August 9th

Equity markets started the week with the steepest one-day decline of the year on reignited global trade and tariff concerns.  With the U.S. proposing increased tariffs on Chinese goods, Beijing retaliated by halting agricultural purchases and allowing the Yuan to devalue.  Stocks went on a roller coaster ride from there with risk shifting form on again to off again throughout the week.  When the dust finally settled, the S&P 500 Index ended the week nearly back where it started, down by -0.5% at 2,918.  The Nasdaq Index closed lower by -0.6% to 7,959.

The ISM Non-manufacturing Index report for July was disappointing.  After holding up far better than the ISM Manufacturing segment thus far this year, the services measure fell to 53.7, a three year low and well below the consensus range. 

The JOLTS jobs report was marginally lower than the previous reading, but ahead of expectations at 7.35 million.  The quit rate leveled off, job openings at hotels and restaurants declined, while new state and local government positions hit a new high. 

Core Producer Prices (PPI), which exclude food and energy, declined for the first time in two years.  The negative -0.1% reading in July pulled the year-on-year change down to 2.1%.  Monetary doves have another talking point to make their cases for further rate cuts.

Global central banks moved further into an easing cycle in what is being referred to as a “race to the bottom” for interest rates around the world.  New Zealand, India and Thailand all cut rates this week.  The probability priced in by the futures market of a second rate cut in the U.S. in September spiked to 100%.

A flight to quality into the safety of government bonds drove the yield on the 10-Year U.S. Treasury down a meaningful 10 basis points on the week to 1.74%.  The 30-Year Treasury approached a record low yield at 2.13% midweek before closing the final session at 2.25%.  The yield curve between the 3-Month and 10-Year Treasuries inverted to the widest level since April 2007, ending the week at -26 basis points and the 2-10 Treasury spread narrowed to a mere 10 basis points. 

Notable economic releases next week include CPI Inflation, Retail Sales, Housing Starts and Import Export Prices. 


Weekly Market Commentary

July 29th – August 2nd

The FOMC decided to cut rates by 25 basis points in their July 30-31 meeting, as was widely expected.  In addition, they announced the end of their balance sheet drawdown a month ahead of schedule.  Chairman Powell referred to the move as a “midcycle adjustment,” which was viewed as hawkish guidance.  There were two dissenters voting for no cut, so it seemed those looking for a 50-basis point reduction had misread the Fed.  In response, the closely watched 2-10 spread tightened from 21 to 14 basis points as the 10-year yield retreated.

Despite rising wages and a robust employment picture, inflation pressures remain low, with the Core PCE posting a muted reading of 1.6%.  This was another impetus for the Fed’s rate cut.  Consumer data continues to paint a picture of a strong economy, with the Conference Board’s Consumer Confidence number coming in at a sky-high 135.7 reading.

Friday’s jobs report showed a strong economy drawing people off the sidelines.  The labor force participation rate ticked up to 63% (including more seniors rejoining the workforce) and headline payrolls clocked in at a steady 164k.  There were soft spots in the report however, net revisions for the past two months were -41K while weekly hours worked dropped to 34.3.  The most likely explanation is the low end of the labor pool is taking part-time positions when transitioning back to work

The Dallas Fed continued a trend of disappointing manufacturing reports, posting a -6.3 reading.  The Chicago PMI plunged to a dreadful 44.4, with the production index hitting a 10-year low.  ISM Manufacturing came in at 51.2.  While still expansionary, this composite report shows the effect that the trade war and global slowdown is having on U.S. manufacturers.  New Orders surprised to the upside, while employment and prices paid faltered.  Among other data points coming in below expectations were annualized auto sales and construction spending.  

Speaking of the trade war, President Trump announced an additional 10% tariff on $300 billion in Chinese imports on Thursday afternoon, to go into effect September 1st.  Equity markets sold off in response, adding to losses after the Fed’s announcement lacked clarity on future rate cuts.  The Dow Jones wound up down -2.6% for this week to 26,485.  The S&P was off -3.1% to 2,932, and the Nasdaq fell even further, down -3.9% to 8,004.  The 10-Year Treasury yield finished the week at 1.84%, its lowest mark since November 2016.

Notable economic releases next week include the ISM and PMI Non-manufacturing Indices and JOLTS jobs report. 


Weekly Market Commentary

July 22nd - July 26th

The first estimate of 2nd quarter GDP came in ahead of expectations at 2.1%, supported by strong spending from consumers and Uncle Sam.  While consumer spending rose 4.4% from last year, business investment declined -0.6%, the first decline in over three years.  

Existing Home Sales disappointed, coming in at 5.27mm, a -1.7% decline from last month’s reading.  Many buyers seem content to hold off despite rising wages, a strong employment situation and low mortgage rates.  New Home Sales rose from last month, but the prior three months were all subject to downward revisions.  Seasonally adjusted sales came in at 646k, well below the 658k estimate.

In manufacturing data, the Richmond Fed survey came in at a -12 reading, well below expectations, running counter to the strong regional surveys out of New York and Philadelphia last week.  Kansas City Fed also slowed to a -1 reading.  Markit PMI surprised to the upside on services, which account for over 70% of the economy, but the closely watched manufacturing reading came in at a flat 50, indicating stagnation.

Durable Goods Orders surprised to the upside surging 2.0% in June, 1.2% excluding volatile transportation orders.  While both measures were ahead of consensus ranges, it was Capital Goods Orders that showed the most promise for new production equipment, coming in at 1.9% versus an estimated 0.2%.  Retail inventories fell 0.1%, an unexpected decline after last month’s 0.5% bump.

The week’s most important political development was a two-year bipartisan budget agreement that raised the debt ceiling once again.  The agreement is in place until July 2021, removing any chance of a showdown before the 2020 election.  Priorities for both parties were achieved, including increased spending for the military and domestic social programs.

Robust earnings from major companies, including Google and McDonald’s, supported equity markets this week.  The S&P 500 advanced 1.6% to a record 3,024.  The NASDAQ was volatile due to tech earnings, but a surge Friday helped the index climb 2.3% for the week to a record 8,330.  The yield on the 10-Year U.S. Treasury closed at 2.07% Friday, settling lower than the 3-Month yield of 2.12%.  The yield curve flattened a bit, with the spread between the 2-Year and 10-Year Treasuries at roughly 22 bps.

The widely anticipated Fed meeting will occur next week, from July 30-31, with an announcement schedule for 2 PM Wednesday.  The consensus is still a 25 bp rate cut, with the possibility of 50 bps looming.  Nonfarm payrolls and unemployment will be released as well as construction spending, consumer spending, and trade deficit figures.


Weekly Market Commentary

July 15th - July 19th

June Retail Sales were much stronger than expected, capping a solid quarter for consumption.  For the month Retail Sales rose by 0.4%, well ahead of the 0.2% consensus estimate.  The figure excluding autos and gas was reported at 0.7%, also well ahead of the estimated 0.3%.  The critical Control Group measure that flows into GDP calculation was a strong 0.7% and the May figure was revised 0.1% higher.  Internet sales were a key contributor to the strength, up 1.7% in back-to-back months of May and June. 

The Philly Fed Index jumped in the biggest increase in a decade from 0.3 to 21.8.  Higher employment figures were the largest component of the surprise result. 

The latest Import Export Prices indicate a slowdown in cross-border trade and inflation.  On a year-on year basis Import Prices are down -2.0% and Export Prices down -1.6%. 

Housing Starts were reported as expected at a 1.253 million annualized pace.  New Permits were well off the mark however, at 1.22 million, a -6.1% decline and the lowest level in two years.  The data gave the rate cut doves more to talk about.

New York Fed Chairman John Williams comments on the merits of acting quickly and decisively to keep recession at bay during an “academic” talk led market participants to believe a 50 basis point rate cut later this month was once again a possibility.  Not to be outdone, Fed Vice Chair Clarida noted “disinflationary pressures” and the rationale for acting preemptively on where the economy may be headed rather than where it currently stands.  Rate cut probabilities skewed enough to be best interpreted as “confused” for the time being.  Fortunately, the comment black out period before the July FOMC meeting begins next week so the opinions of individual Committee members won’t need to be parsed any further. 

Equity markets ebbed and flowed in a week with mixed economic data reports and much speculation on the level of expected Fed Funds rate cuts.  The S&P 500 ended the week marginally lower at 2,996, off by -0.5%.  The NASDAQ was -1.2% lower to 8,146.  The yield on the 10-Year U.S. Treasury was lower by -7 basis points in the final trading session, closing at 2.05%.  Rates pulled back across the curve with the 3-Month T-Bill now in now nearly in line with the 10-Year rate at 2.06% and the 2-Year closing at 1.81%.

Notable economic reports next week include New and Existing Home Sales, Retail Inventories and a preliminary estimate of Q2 GDP. 


Weekly Market Commentary

July 8th - July 12th

The minutes of the June FOMC meeting struck the expected dovish tone delivered in the post meeting press conference.  The shift toward rate cut sentiment by the Committee was evident.  The message from Fed Chairman Powell to Congress and the Senate Banking Committee was measured and on point in response to the broad array of questions he received.  Market participants cheered the statement that the stronger than anticipated employment report did not change the Fed’s outlook.  Powell further stated that the uncertainties around global growth and trade continue to weigh on the economic outlook, reinvigorating the anticipation of a near-term rate cut.

The Core Consumer Price Index (CPI) excluding the volatile food and energy segments advanced by 2.1% on a year-on-year basis, modestly higher than the 2.0% prior reading and consensus estimate.  A 1.1% jump in apparel prices (a better late than never prediction by J. Powell back in May) led to an increase of 0.3% in Core CPI in June.  The critical components of housing and medical care were each up by 0.3% in the period.  Declining energy prices weighed on the headline inflation figures at 0.1% for the month and 1.6% on the year.  Core Producer Prices (PPI) were also 0.1% ahead of estimates at 2.3% on a year-on-year basis. 

The JOLTS jobs report showed that job openings in the U.S. pulled back modestly from the peak hit earlier this year to 7.32mm.  Jobs in the manufacturing sector however, continued to hit new highs.  The number of new hires in the manufacturing industry are not keeping pace, indicating that employers continue to have trouble finding the right people for their available jobs.  The biggest pullback in openings comes from the retail sector.

Equities markets once again broke into record high territory following dovish Fed comments.  After a sluggish start to the week, the S&P 500 advanced to 3,013 at the final bell, a 0.8% increase.  The NASDAQ advanced by 1.0% to 8,244.

The yield on the 10-Year U.S. Treasury advanced by 8 basis points to 2.11%.  Shorter rates pulled back modestly adding some slope to the yield curve.  The spread between the 10-Year Treasury and 2-Year stands at 26 basis points and 3-Month at a much narrower -3 basis points.

Notable economic reports next week include Retail Sales, Industrial Production, Import/Export Prices and Housing Starts.


Weekly Market Commentary

July 1st - July 5th

The Nonfarm Payrolls Report for June jumped to 224k new jobs, a meaningful upside surprise from the 160k expected.  The headline Unemployment Rate came in at 3.7%, a tenth higher due to an increasing labor force.  Average Hourly Earnings were a tenth less than expected at a 3.1% annualized pace.  In a case of “good news is bad news”, speculation began immediately following the report on whether it impacts an expected Fed rate cut. 

The Global PMI Index fell further below 50, indicative of a global manufacturing slowdown.  The ISM Manufacturing Index pulled back as well to a 51.7 level but held up better than the consensus estimate and remains modestly in expansionary territory. 

The S&P 500 advanced following the weekend meeting between Presidents Trump and Xi to advance U.S. – China trade talks.  The S&P 500, Dow and NASDAQ all touched new highs during the week before pulling back in the final trading session on rate cut speculation.  For the week, the S&P 500 held onto a 1.6% gain closing at 2,990.  The NASDAQ closed 1.9% higher at 8,161.

The yield on the 10-Year U.S. Treasury dropped back below 2% early in the week and stayed there until the jobs report when yields ran up 10 basis points to 2.06%.  For the week, the bellwether Treasury rose 4 basis points to 2.04%.  The Yield curve between the 2-Year and 10-Year Treasuries flattened modestly following the stronger than expected economic news on the labor market on Friday.  The implied probability of a rate cut at the July 31 Fed meeting continues to be fully priced in through the futures market for a 25 basis point move, but the probability of a 50 basis point cut has all but disappeared at the time of this writing to 2%.

In addition to the release of the FOMC minutes and a number of speaking engagements for Fed Chair Jerome Powell as well as other Fed Governors next week, notable economic reports include CPI and PPI Inflation reports and the JOLTS jobs report. 



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