Market Perspective for September 17, 2018

Stocks were mixed on Monday. Consumer staples, utilities and materials rose, offset by weakness in technology and consumer discretionary. The Dow Jones Industrial major index performance with a 0.35-percent decline.

SPDR Consumer Staples (XLP) gained 0.38 percent, SPDR Materials (XLB) 0.35 percent and SPDR Utilities (XLU) 0.33 percent. SPDR Technology (XLK) and SPDR Consumer Discretionary (XLY) fell 1.25 and 1.24 percent. Amazon (AMZN) weighed on consumer discretionary after news of bribes and data leaks. Employees at the firm have offered to share company data with merchants, as well as delete negative reviews, in return for cash. Twitter (TWTR) and Netflix (NFLX) were among the top-10 largest decliners on Monday. Online pharmacy Express Scripts (ESRX) and supermarket Kroger (KR) were among best performers.

Homebuilder confidence for September will be out on Tuesday, followed by August housing starts, building permits and existing home sales over the next two days. Economists are looking for a very slight downtick in homebuilder confidence, an uptick in starts, flat permits and slightly weaker home sales.

Economists also see jobless claims staying near four-decade lows at 208,000. Last week’s 204,000 initial claims brought the 4-week moving average to its lowest point since December 1969.

Flash manufacturing PMIs are due at the end of the week. The key figure to watch will be Europe’s PMIs relative to the U.S. because it will impact currency markets. The euro rallied versus the dollar last week after European Central Bank President Mario Draghi sounded hawkish on inflation. However, some investors have grown cautious over signs of slowing European growth. Europe’s manufacturing PMI was higher than the U.S. figure for all of 2017, but fell below the U.S. PMI in 2018. The shifting pace of growth in both economies contributed to this year’s strength in the dollar.

President Trump will announce a new round of tariffs on China later tonight. Although there was talk of restarting negotiations, both sides have intensified their rhetoric. National Economic Council Director Larry Kudlow said the U.S. was ready to talk whenever China shows they’re ready for “serious and substantive negotiations.” Over the weekend, China’s former Minister of Finance said the country could block key exports as part of a retaliation strategy.

The 10-year Treasury yield climbed past 3 percent on Monday. It cracked 3 percent back in April and held above that level for about a month before falling back into a tight trading range between 2.80 and 3.00 percent. Rates started moving across the board in late August with a September rate hike less than two weeks away. Libor, 3-month Libor, the 2- through 30-year Treasury yields have all been climbing as investors price in that hike. December rate hike odds are above 80 percent.

Crude oil rallied above $69 per barrel in early Monday trading, but settled back to $68 later in the day.

FedEx (FDX) and Oracle (ORCL) headline an otherwise light week for earnings news. Analysts predict $3.71 per share in earnings from FedEx and $0.69 per share from Oracle. Micron (MU) will report later this week. Shares have declined nearly 30 percent since March. Autozone (AZO) and General Mills (GIS) will also report this week.


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