Presented by Mark Gallagher
General market news
• The 10-year Treasury opened at 2.16 percent early Monday, down from a high of 2.22 percent last week. This marks the third time in a week that the 10-year has tested the 2.16 percent level. The 30-year yield opened at 2.74 percent, its lowest level since June 26 and its second-lowest level since the November election.
• U.S. markets bounced back from two consecutive down weeks as Washington returned its focus to tax reform. As a result, the Nasdaq Composite moved 0.80 percent higher. It was followed by the S&P 500 Index and the Dow Jones Industrial Average, which gained 0.75 percent and 0.71 percent, respectively.
• In an interview last week, Gary Cohn, director of the White House Economic Council, stated that a lot of progress had been made on tax reform and that he ultimately believed a tax reform bill could be passed by year-end. Unfortunately, this positive news was offset somewhat by a statement from President Trump that he would allow a government shutdown October 1 if Congress didn’t approve funding for a border wall with Mexico.
• Both Federal Reserve (Fed) Chair Janet Yellen and European Central Bank President Mario Draghi offered little in terms of monetary policy at the annual Fed meeting in Jackson Hole last Friday. The next Fed meeting will come with much anticipation, as investors wait for more information regarding rates and the schedule to reduce the Fed’s balance sheet.
• New home sales came in much lower than expected, with 571,000 new homes sold versus the consensus estimate of 610,000. The prior month’s numbers were revised up from 610,000 to 630,000. There was a slight increase in supply, which was a positive sign. Existing home sales also came in at the low end of the consensus estimate with a reading of 5.44 million homes sold. The weakness in existing home sales has been affected by supply, which also fell, by 1 percent, for the month.
• Durable goods orders declined as expected with a month-over-month change of –6.8 percent. This was largely due to a steep decline in aircraft orders; taking transportation out of the equation results in a 0.5-percent increase in orders. A sharp pickup in shipments of core capital goods—with an increase of 1 percent for the month (and a revised increase of 0.2 percent in the prior month)—will help increase the overall gross domestic product for the quarter.
| Equity Index | Week-to-Date | Month-to-Date | Year-to-Date | 12-Month |
| S&P 500 | 0.75% | –0.90% | 10.58% | 14.80% |
| Nasdaq Composite | 0.80% | –1.16% | 17.32% | 21.69% |
| DJIA | 0.71% | –0.05% | 12.22% | 21.22% |
| MSCI EAFE | 0.62% | –0.18% | 17.32% | 16.97% |
| MSCI Emerging Markets | 2.46% | 1.95% | 28.20% | 24.02% |
| Russell 2000 | 1.46% | –3.26% | 2.31% | 12.60% |
Source: Bloomberg
| Fixed Income Index | Month-to-Date | Year-to-Date | 12-Month |
| U.S. Broad Market | 0.65% | 3.38% | 0.57% |
| U.S. Treasury | 0.83% | 2.89% | –0.80% |
| U.S. Mortgages | 0.53% | 2.34% | 0.76% |
| Municipal Bond | 0.63% | 5.06% | 0.74% |
Source: Morningstar Direct
What to look forward to
There wasn’t a lot of economic news to review last week. This week, we’ll see a number of data points that have the potential to move markets.
First, we’ll get a look at consumer confidence with the Conference Board’s survey. Last week, another popular measure of consumer confidence produced by Bloomberg rose to a 16-year high. A similar increase is expected for the Conference Board’s measure.
On Thursday, personal income and spending data will be released. Given the ongoing strength of the job market, both of these figures are expected to increase. A surge in retail sales data earlier this month indicates that there might be some upside potential here as well.
Speaking of the job market, on Friday we’ll see the August employment report. Consensus forecasts call for an addition of 180,000 jobs, with the unemployment rate staying at 4.3 percent. Because of the tight labor situation, average hourly earnings are expected to increase.
Finally, the Institute for Supply Management will release its manufacturing index on Friday. This measure is expected to increase slightly from 56.3 to 56.4, due in large part to a recovery in manufacturing activity. The recent decline of the U.S. dollar has helped manufacturers compete globally, and an increase in this measure will be considered a boon for the economy.
Disclosures: Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. All indices are unmanaged and are not available for direct investment by the public. Past performance is not indicative of future results. The S&P 500 is based on the average performance of the 500 industrial stocks monitored by Standard & Poor’s. The Nasdaq Composite Index measures the performance of all issues listed in the Nasdaq Stock Market, except for rights, warrants, units, and convertible debentures. The Dow Jones Industrial Average is computed by summing the prices of the stocks of 30 large companies and then dividing that total by an adjusted value, one which has been adjusted over the years to account for the effects of stock splits on the prices of the 30 companies. Dividends are reinvested to reflect the actual performance of the underlying securities. The MSCI EAFE Index is a float-adjusted market capitalization index designed to measure developed market equity performance, excluding the U.S. and Canada. The MSCI Emerging Markets Index is a market capitalization-weighted index composed of companies representative of the market structure of 26 emerging market countries in Europe, Latin America, and the Pacific Basin. The Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000® Index. The Bloomberg Barclays US Aggregate Bond Index is an unmanaged market value-weighted performance benchmark for investment-grade fixed-rate debt issues, including government, corporate, asset-backed, and mortgage-backed securities with maturities of at least one year. The U.S. Treasury Index is based on the auctions of U.S. Treasury bills, or on the U.S. Treasury’s daily yield curve. The Bloomberg Barclays US Mortgage Backed Securities (MBS) Index is an unmanaged market value-weighted index of 15- and 30-year fixed-rate securities backed by mortgage pools of the Government National Mortgage Association (GNMA), Federal National Mortgage Association (Fannie Mae), and the Federal Home Loan Mortgage Corporation (FHLMC), and balloon mortgages with fixed-rate coupons. The Bloomberg Barclays US Municipal Index includes investment-grade, tax-exempt, and fixed-rate bonds with long-term maturities (greater than 2 years) selected from issues larger than $50 million.
Mark Gallagher is a financial advisor located at Gallagher Financial Services at 2586 East 7th Ave. Suite #304, North Saint Paul, MN 55109. He offers securities and advisory services as an Investment Adviser Representative of Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. He can be reached at 651-774-8759 or at mark@markgallagher.com.
Authored by the Investment Research team at Commonwealth Financial Network.
© 2017 Commonwealth Financial Network®