Market Perspective for September 18, 2017

Stocks started the week at new all-time highs. The Dow Jones Industrial Average and S&P 500 finished last week at record highs and the Nasdaq joined them on Monday. The Russell 2000 is less than 1 percent off its all-time high. Technology, industrials and materials also moved into record territory on Monday. Healthcare is also on track for a new high this week.

The Fed is expected to announce the start of its balance sheet reduction at Wednesday’s meeting. The Fed isn’t expected to raise interest rates at this meeting, but it could open the door to a December rate hike. The odds of a December increase hit 57 percent on Monday.

The 10-year Treasury yield rallied for a seventh consecutive trading session on Monday, from a low of 2.05 percent to nearly 2.25 percent. SPDR S&P Regional Banking (KRE) gained nearly 8 percent over this period.

The NAHB home builders index eased to 64 in September, but it was due primarily to concerns about the cost of labor and materials, a sign of robust demand in the sector. On Tuesday, housing starts and building permits for August will be released, followed by existing home sales on Wednesday. iShares U.S. Home Construction (ITB) is trading very close to its all-time high.

Federal Reserve Chair Yellen will hold her quarterly press conference on Wednesday. Along with the policy statement, Fed officials will release an update of their interest rate “dot plot.”

Defense stocks rallied strongly on Monday as rhetoric around North Korea heated up. iShares U.S.  Aerospace & Defense (ITA) climbed to a new all-time high.

Congressional Republicans are close to an Obamacare repeal. The new bill would abolish the individual mandate, but not cut funding. Instead, states would receive block grant funding. Those that wish to continue with Obamacare policies would be free to do so, while those opposed could design alternative programs. iShares U.S. Healthcare Providers (IHF) fell on the day, but the rest of the sector was flat or higher.

SPDR Energy (XLE) climbed to its highest level since early August on Monday. Crude oil hovered near $50 a barrel. Gasoline prices have stabilized after correcting about 10 percent. Natural gas prices appear to be bottoming as the last week of summer gives way to autumn. Industrial commodities rebounded on Monday after sliding last week on weaker Chinese economic data.

Several retailers will report earnings this week, including Bed Bath & Beyond (BBBY) and AutoZone (AZO), Adobe Systems (ADBE) and General Mills (GIS).  FedEx (FDX) will report on Tuesday. Analysts forecast $3.17 per share in earnings, up from $2.90 a year ago.

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