Market Summary
U.S. equities continued their climb upward last week with strong momentum on the back of positive economic data, primarily an upward revision of second quarter GDP growth from 4.1% to 4.2%, as well as the bilateral trade agreement between the U.S. and Mexico to restructure NAFTA. For the week, the tech-laden NASDAQ index notched the best performance with a 2.07% return, while the S&P 500 and Dow Jones also recorded strong gains of 0.98% and 0.79%, respectively. Additionally, the U.S. Dollar Index declined and the Treasury curve steepened last week, which are both indications of investors shifting demand from safe haven assets to “risk-on” assets such as equities as a result of the positive sentiment.
Although U.S. officials successfully came to an agreement with Mexico early last week on NAFTA reforms, they were unable to secure a consensus with Canada on Friday regarding the proposed reforms. President Trump has indicated his willingness to move ahead with a sole bilateral trade agreement with Mexico and abandon NAFTA, if the U.S. and Canada are continually unable to see eye-to-eye. Ultimately, however, Congress has final authority over all trade agreements and lawmakers have asserted that the deal is to include Canada. Officials from the U.S. and Canada will resume NAFTA negotiations this Wednesday.
The revised increase in U.S. GDP growth primarily resulted from stronger than expected consumption, but intellectual property growth, net exports, and business equipment spending were all revised upward as well. Investors will continue to watch economic news closely in the coming week as a flurry of manufacturing and service activity, employment, and trade data are all set to report. Consensus estimates show expectations of an increased trade deficit resulting from the strengthening dollar, but a positive early week reading of manufacturing activity from the Institute for Supply Management has come in well above expectations.
Economic Highlights
- Inflation: The US Personal Consumption Expenditures Price (PCE) core index came in at just under 2.0% Year-over-Year in July, which is in-line with the Fed’s 2.0% target.
- Consumer Sentiment: The Index of Consumer Sentiment from the University of Michigan exceeded consensus expectations for August, with a 96.2 reading versus estimates of 95.5. However, the month’s reading was the lowest since September 2017 amid less favorable market prices for household durables.
US Economy - The Week Ahead
Tuesday, 9/4/2018
ISM Manufacturing PMI – Actual: 61.3, Consensus Estimate: 57.6, Prior Month: 58.1
Construction Spending Month-over-Month – Actual: 0.09%, Consensus Estimate: 0.45%, Prior Month: -1.1%
Wednesday, 9/5/2018
Trade Balance – Consensus Estimate: -$50.0B (-8.0% MoM), Prior Month: -$46.3B (-7.4% MoM)
Thursday, 9/6/2018
Initial Jobless Claims – Consensus Estimate: 214,500 (0.7% WoW), Prior Week: 213,000 (1.4% WoW)
ISM Non-Manufacturing PMI – Consensus Estimate: 56.5 (1.4% MoM), Prior Month: 55.7 (-5.6% MoM)
Durable Goods Orders Month-over-Month (Final) – Consensus Estimate: -1.7%, Prior Month: -1.7%
Factory Orders Month-over-Month – Consensus Estimate: -0.6%, Prior Month: 0.7%
Friday, 9/7/2018
Hourly Earnings Growth Year-over-Year – Consensus Estimate: 2.8%, Prior Month: 2.7%
U.S. Unemployment Rate – Consensus Estimate: 3.8%, Prior Month: 3.9%
