Presented by Mark Gallagher
General market news
• The 10-year Treasury opened at 2.369 percent early Monday, well above last Monday’s 2.21 percent. The 30-year was also higher at 2.86 percent, but it seems to still be holding strong below 3 percent. The 2-year reached a new post-recession high of 1.48 percent. It seems that Trump’s tax plan may have infused the markets with more optimism, but time will tell whether it will have any long-term effect.
• The three major U.S. indices were up last week. Weekly gains were led by the Nasdaq Composite Index, which moved by up by 1.09 percent. The S&P 500 and Dow Jones Industrial Average trailed with gains of 0.72 percent and 0.25 percent, respectively.
• The largest market gain last week occurred in the Russell 2000, which jumped by 2.83 percent as the GOP’s tax reform plan rolled out on Wednesday. As a feature of the plan is lower corporate tax rates, this index of small-cap domestic companies, which tend to be subject to higher tax rates than large-cap multinationals, was decidedly optimistic.
• Other headlines last week included Federal Reserve (Fed) Chair Janet Yellen’s speech at the National Association for Business Economics meeting on Tuesday. Yellen’s speech had hawkish undertones as she stated that it would be “. . . imprudent to keep monetary policy on hold until inflation is back to 2 percent.”
• Overseas last week, the German election resulted in a three-party coalition, as Angela Merkel’s Christian Democratic Union of Germany lost votes to the Alternative for Germany and the Free Democratic Party. Meanwhile, Japanese Prime Minister Shinzo Abe called for a snap election in Japan. Shinzo sees an immediate need to rebalance the country’s social security system to handle its growing number of retirees.
• Last week’s economic data was mixed, with the effects from the recent hurricanes likely playing a role. The week began with the release of new home sales data, which disappointed by declining against expectations for a slight increase. This figure was likely dragged down by a slowdown in August sales in the South, but it may rebound in the coming months.
• Last Wednesday’s durable goods orders also came in below expectations; however, this was mainly due to a large decrease in transportation spending. The core reading, which excludes volatile airline orders, rose by more than expected.
• Thursday saw the release of the third and final estimate for second-quarter gross domestic product, which was revised up to 3.1-percent annualized growth, primarily due to increases in inventory.
• Finally, on Friday, personal income and spending figures disappointed, although this was again likely due in large part to the hurricanes.
| Equity Index | Week-to-Date | Month-to-Date | Year-to-Date | 12-Month |
| S&P 500 | 0.72% | 0.00% | 14.24% | 19.55% |
| Nasdaq Composite | 1.09% | 0.00% | 21.73% | 24.80% |
| DJIA | 0.25% | 0.00% | 15.45% | 26.59% |
| MSCI EAFE | –0.02% | 0.00% | 20.47% | 19.38% |
| MSCI Emerging Markets | –1.84% | 0.00% | 28.08% | 21.53% |
| Russell 2000 | 2.83% | 0.00% | 10.93% | 22.07% |
Source: Bloomberg
| Fixed Income Index | Month-to-Date | Year-to-Date | 12-Month |
| U.S. Broad Market | –0.48% | 3.14% | 0.07% |
| U.S. Treasury | –0.86% | 2.26% | –1.67% |
| U.S. Mortgages | –0.22% | 2.32% | 0.30% |
| Municipal Bond | –0.51% | 4.66% | 0.87% |
Source: Morningstar Direct
What to look forward to
This week’s economic data is all about business. We should get a sense of whether the high levels of business confidence survived the hurricanes, as well as how the storms affected hiring.
On Monday, the Institute for Supply Management (ISM) will release its manufacturing survey, which is expected to remain steady at 58.8 for September. This is a diffusion index, with numbers greater than 50 indicating growth. So, if the survey comes in as expected, this would be good news. With regional manufacturing surveys also increasing, another strong result would suggest that the hurricanes didn’t significantly affect the manufacturing sector.
On Wednesday, the ISM will release its survey of the nonmanufacturing sector, which is expected to improve from 55.3 in August to 57.0 in September. As with the manufacturing survey, if the index comes in as expected, this would signal continued strong business confidence, despite the storms.
Finally, on Friday, the employment report is expected to drop sharply. Job growth is expected to decline from 156,000 in August to 88,000 in September, while the unemployment rate remains constant at 4.4 percent. Wage growth is expected to pick up from a 0.1-percent gain in August to a 0.3-percent gain in September. If the job gains drop while unemployment and wage growth meet expectations, the effects would presumably be due to the storms. In any event, markets will take any change in the report with a grain of salt. Past storms have produced similar results, so any decline would be grounds for watchfulness, but not serious concern.
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.
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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®