Market Summary

Last week, U.S. equities broadly advanced as investors shrugged off concerns from international trade tensions and maintained confidence that the strength of U.S. economy would keep the bull market running. Investors placed over $34 billion into U.S. stock ETFs, the largest inflow since mid-March, pushing year-to-date inflows to over $105 billion, according to FactSet.  The S&P 500 and Dow indices closed the week at all-time highs as the S&P gained 0.86% while the Dow climbed 2.3% driven by trade-sensitive manufacturers. However, the Nasdaq index lost -0.3% as the Information Technology sector lagged.

As announced this past week, the U.S. has officially imposed new trade tariffs on $200 billion worth of Chinese goods.  The tariffs start at 10% and will rise to 25% at the end of January 2019, which brought some relief to market participants who expected the tariffs to initially be set at 25%. In response, China has retaliated with tariffs on another $60 billion of U.S. products and has canceled trade talks with the U.S. that were planned to begin later this week, as expected. Talks have broken down, with no date set for their continuation, but there are hopes that the two nations will return to the table within the next two months to continue negotiations. The news of implementation of tariffs and China’s retaliatory response has weighed on returns in this week’s early trading.

Also beginning this week, the equity index providers have changed the way that some companies are classified by their sectors.  The old Telecommunication sector has been renamed as the Communication Services sector and will now include some stocks formerly classified as tech companies, including Facebook, Twitter, and Alphabet. Disney, Netflix, Comcast and some other companies will also move to the new sector from their previous designation of Consumer Discretionary.

The Federal Open Market Committee will meet this Wednesday to discuss the federal funds rate, which currently sits between 1.75% and 2.00%. It is expected with near certainty from market participants that the Fed will hike rates at least another 0.25% at this meeting.

Economic Highlights

• Oil: Crude oil prices continued their rally for the third week in a row with U.S. crude oil prices rising over 2.5% this past week as oil inventories fell for the fifth consecutive week. OPEC and allied non-OPEC producers voted against any immediate increase in crude output at their weekend gathering in Algiers, according to Reuters, despite urging by President Trump to increase supply in order to bring prices down. However, Saudi Energy Minister al-Falih responded that markets are sufficiently supplied and an output increase in 2019 is unlikely unless there are notable supply and demand shocks.
• Foreign Exchange: The U.S. dollar index slid down 0.6% after the announcement of the U.S.-China tariffs last week, which were less aggressive than originally anticipated.

US Economy - The Week Ahead

Tuesday, 9/25/2018

S&P/Case-Shiller Home Price Index Year-over-Year Growth – Consensus Estimate: 6.3%, Prior Month: 6.3%

Wednesday, 9/26/2018

New Home Sales – Consensus Estimate: 630K (0.5% MoM), Prior Month: 627K (-0.6% MoM)
Federal Open Market Committee (FOMC) Meeting

Thursday, 9/27/2018

Initial Jobless Claims – Consensus Estimate: 210,000 (4.5% WoW), Prior Week: 201,000 (-1.5% WoW)
Final Reading of U.S. 2Q18 GDP Growth (Quarter-over-Quarter) – Consensus Estimate: 4.2%, Prior Quarter: 2.2%
Wholesale Inventories Month-over-Month Growth – Consensus Estimate: 0.3%, Prior Month: 0.6%
U.S. Durable Goods Orders Month-over-Month Growth – Consensus Estimate: 1.8%, Prior Month: -1.7%

Friday, 9/28/2018

Personal Consumption Expenditure (PCE) Index Year-over-Year – Consensus Estimate: 2.3%, Prior Month: 2.3%
University of Michigan Consumer Sentiment Survey (Final) – Consensus Estimate: 100.4 (-0.4% MoM), Prior Month: 100.8 (3.0% MoM)