Market Summary
Last week marked the current bull market run as the longest in U.S. stock market history as the S&P 500 surpassed the previous 3,453 day expansion record on Wednesday. The S&P 500, which closed at a record high on Friday, has returned over 415% including dividends since hitting its low back in March of 2009. Among the factors that fueled positive returns this past week, positive sentiment from economic and monetary policy commentary from Federal Reserve Chairman Jerome Powell and progress on trade policy between the U.S. and Mexico have been cited as two of the largest driving forces. The S&P 500 gained 0.88% for the week, while the Dow and Nasdaq returned 0.51% and 1.67%, respectively.
At the Jackson Hole Federal Reserve retreat on Friday, Powell affirmed the Fed’s strategy of gradual rate hikes and normalization of monetary policy, highlighting the strength in the economy and strong corporate results that have helped to support the strength in equities. Concerns over the flattening yield curve and its effect on the future ability to raise rates remain in focus, but investor sentiment from the meeting was broadly positive due to the upbeat economic picture and a lack of need for more aggressive monetary policy.
As of Monday morning, the U.S. and Mexico have officially signed off on a bilateral trade agreement to restructure NAFTA as significant breakthroughs were made on contentious areas of autos and energy. However, there may still be complications and disagreement when Canada is brought back to the table for negotiations, which are expected to stretch into September.
Progress on trade negotiations with Mexico helped to overshadow a decided lack of progress with China. The U.S. officially implemented tariffs on $16 billion worth of Chinese imports on Thursday, bringing the total amount of Chinese imports subject to a 25% tariff to $50 billion. As promised, the Chinese government responded in kind with levies on American goods worth the same amount. Trade discussions between the two nations last week didn’t produce any notable progress and tensions remain elevated as the U.S. continues to push for broad structural changes from Beijing, such as improved protection of intellectual property. The continued entrenchment of either side increases the odds that Washington will impose tariffs on another $200 billion worth of Chinese goods, which would amount to half of all imports from China.
Economic Highlights
- Commodities: Prices of industrial metals like copper and aluminum rebounded strongly this past week after a significant slide in the previous week and year-to-date driven largely by a slowdown in the Chinese economy. Industrial metals serve as important manufacturing components, thus a drop in prices may portend declining future construction and manufacturing activity. Copper and aluminum are down over 16% and 8% this year, respectively.
- Housing: Existing and new home sales fell 0.7% and 1.7% month-over-month in July against consensus expectations for an increase in home sales in the month. Tight housing supply and rising mortgage rates continue to be cited as the primary factors in rising home prices and falling sales volume.
US Economy - The Week Ahead
Tuesday, 8/28/2018
Wholesale Inventories Month-over-Month Growth – Consensus Estimate: 0.1%, Prior Month: 0.1%
S&P/Case-Shiller Home Price Index Year-over-Year Growth – Consensus Estimate: 6.4%, Prior Month: 6.5%
Wednesday, 8/29/2018
Pending Home Sales Index – Consensus Estimate: 107.3 (0.4% MoM), Prior Month: 106.9 (0.94% MoM)
Thursday, 8/30/2018
Initial Jobless Claims – Consensus Estimate: 214,000 (1.9% WoW), Prior Week: 210,000 (-1.4% WoW)
Personal Consumption Expenditure (PCE) Index Year-over-Year – Consensus Estimate: 2.3%, Prior Month: 2.2%
Friday, 8/31/2018
University of Michigan Consumer Sentiment Survey (Final) – Consensus Estimate: 95.3 (-2.7% MoM), Prior Month: 97.9 (0.8% MoM)
