Markets "In a Nutshell" for September 26, 2018Sep 25, 2018
Investment Week at a Glance
Stocks finished higher for the week. The Dow Jones Industrial Average was up 2.25%, the S&P 500 rose 0.85%, the New York Stock Exchange Composite (2,000 stocks) was up 1.42% and the average investors index (Value Line Index) was up 0.41%. Foreign stocks (DJ Global ex U.S.) were up 2.54%. Bond prices were lower for the week, pushing the yield on the 10-year U.S. Treasury up 7 basis point to finish the week at 3.06%. (Data sources: Barron’s Financial, Wall Street Journal)
Dow Jones Industrial Average & S&P 500 Reach All Time Highs
Domestic stocks ascended to fresh highs last week, eclipsing over 11% for 2018 and 429% since this historic bull market began in early 2009. The S&P 500 has now risen 15% from its low early this year when stocks experienced a correction for the first time in two years.
The sharp increase in yields on the longer end of the yield curve boosted stocks in the financial sector by improving bank lending margins while weighing on defensive stocks, such as utilities, whose high dividend became less attractive. The strong financial sector performance coupled with the relative underperformance of the Technology sector helps value stocks outperform their growth stock rivals for the first week in over a month. Growth stocks remain firmly ahead of its value counterpart’s year to date.
Last week we saw a further escalation between the United States and China when it comes to trade. Stocks dipped early in the week as reports came out of the White House that another tariff announcement will soon be made. After the trading day closed on Monday, President Trump declared $200 billion of goods from China will be subject to a 10% tariff effective immediately and rising to 25% by year end. In what can be considered unexpected, stocks rose solidly at market open on Tuesday and gained momentum that carried it through the rest of the week. It’s possible that investors were satisfied with the somewhat low level of tariff, which may be a signal that the Trump Administration is willing to negotiate. China seems to reciprocate, indicating they would not continue to let the yuan devalue further. Since April the value of the yuan has fallen nearly 8% compared to the U.S. dollar, which has made Chinese goods more affordable globally and somewhat offsetting the tariff.
Later this week the Federal Reserve is expected to hike interest rates. A 0.25% hike will bring the Federal Funds rate to 2.25%. When was the last time the Federal Funds rate was that high?
Have a good week!
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