United States Treasuries yields continue to move higher among Federal Reserve rate increases and a healthy economy. In many of last week’s bank earnings reports, the higher yields were seen pressuring bank’s ability to grow loans, but credit provisions are low thanks to low unemployment, and a steepening of the yield curve could benefit net interest margins as banks usually borrow short and lend long. Last week saw the release of the Federal Open Market Committee’s (FOMC) September 26 notes. In them, emerging market economies were called out as volatile; Chinese equity markets specifically. The U.S. equity markets were praised for strong gains amid rising corporate earnings. Regarding the economy, the committee noted that GDP appeared to be rising in the third quarter at a rate similar to the first half of the year. Labor market conditions continue to strengthen and in last week’s economic releases both retail sales and industrial production were seen rising in September. In contrast, home sales and starts both fell in September. Inventory levels are low, and rates rising, which are headwinds at current. However, low unemployment, population growth, and higher wages should help to counteract these headwinds.
Following the previous week’s 4.07% drop and three straight weeks of declines, the S&P 500 Index broke the trend posting a flat week with a positive 4 basis point return. The index showed volatility but managed to post its second-best day of the year last Tuesday with a 2.15% return. Tuesday’s rally was led by technology and healthcare stocks. The healthcare sector was buoyed by positive earnings releases from both Johnson & Johnson and UnitedHealth Group Inc. The index changed direction with a decline of 1.43% on Thursday as the consumer discretionary and the information technology sectors fell the most. Consumer discretionary stocks showed the worst performance for the week while consumer staples, real estate, and utilities climbed as defensive positioning increased. US initial jobless claims of 210K were close to the consensus estimate of 211K and lower than the previous week’s 214K. Crude oil prices closed the week at $69.12 per barrel, decreasing 3.11% for the week. The Interpublic Group of Companies Inc., a global advertising and marketing services conglomerate, was the week’s best performing stock in the S&P 500 Index returning 15.03%. The stock jumped on Friday after their earnings announcement revealed a 5.4% organic sales increase. United Rentals Inc., an equipment rental company, declined 15.06% last week. The stock declined after their earnings announcement as rental rates appeared to have slowed from July to September. The Procter & Gamble Company, a large manufacturer and marketer of consumer products, climbed 11.41% last week. The stock legged up on Friday after releasing earnings which showed larger than expected organic sales growth. Earnings season is underway with over 150 S&P 500 Index companies reporting this week. Companies such as Amazon.com, Microsoft Corp, Alphabet Inc., Visa Inc., AT&T Inc., Intel Corp, McDonald’s Corp and many others will report.
Charles and Brian
Source: First Trust Market Commentary
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