Market Perspective for September 7, 2018

The week ended with a strong jobs report. Employers added 201,000 new jobs in August and average hourly earnings doubled forecasts with a 0.4-percent increase. Rising wages pushed the 10-year Treasury yield up to 2.94 percent, its highest level in nearly a month. The odds of a December rate hike jumped from 71 to 80 percent on the news.

Earlier in the week, the ISM manufacturing index climbed to 61.3 percent, crushing forecasts of 57.9 percent. It was the highest reading since 2004. The ISM services index was strong too, rising to 58.5 percent from 55.7 percent in July. Both indexes signal expansion when above 50 percent. Motor vehicle sales eased to an annualized pace of 16.7 million, down 0.1 million from July.

The trade deficit widened to a higher-than-expected $50.1 billion in August, signaling a stronger economy.

The Dow Jones Industrial Average fell 0.27 percent this week, best among the major indexes. Weakness was concentrated in technology and pulled the Nasdaq down 2.30 percent. SPDR Consumer Staples (XLP) rallied 1.06 percent and SPDR Utilities (XLU) 0.74 percent. SPDR Industrials (XLI) gained 0.70 percent on the week. The Dow Transportation Index gained 0.33 percent.

SPDR Communications Services (XLC) fell 4.01 percent and SPDR Technology (XLK) declined 2.59 percent.

The U.S. Dollar Index climbed 0.8 percent on the week on strong economic data and weakness abroad. SPDR S&P 500 (SPY) fell 0.93 percent versus losses of 3.61 and 3.26 percent for iShares MSCI EAFE (EFA) and iShares MSCI Emerging Markets (EEM).

EEM just missed closing at a new 52-week low on Friday following political violence in Brazil. The leading presidential candidate was stabbed late Thursday but remains stable following surgery. His economic policies have bolstered Brazilian stocks and currency.

Crude oil declined about 3 percent on the week and copper 3.5 percent. Agricultural commodities climbed 1.5 percent.

President Trump has threatened additional tariffs on $200 billion of Chinese goods and tariffs on an additional $267 billion of Chinese imports could follow. iShares China Large Cap (FXI) moved in sympathy with emerging markets and lost 3.29 percent on the week.

Earnings news was light this week. Broadcom (AVGO) beat estimates and shares rallied 7.7 percent on Friday. Drone maker AeroVironment (AVAV) gained 16.7 percent for the week following its strong report.


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