Are Investors Whistling Past the Graveyard?

The major market indices finished the week little changed after the Fed reiterated that a December rate hike remains on the table.

September 25, 2017    |    By Mike Schwager

Performance for Week Ending 9/22/2017:

The Dow Jones Industrial Average (Dow) rose 0.36%, the Wilshire 5000 Total Market IndexSM (Wilshire 5000SM) finished up 0.24%, the Standard & Poor’s 500 Index (S&P 500) gained 0.08% and the Nasdaq Composite Index (NASDAQ) fell 0.33%. Sector performance was mixed with 5 of the S&P groups finishing higher and 6 closing lower. The Telecom sector (+3.8%) was the best performer while Real Estate (-2.83%) was the worst.

Index* Closing Price 9/22/2017 Percentage Change for Week Ending 9/22/2017 Year-to-Date Percentage Change Through 9/22/2017
Dow 22349.59 +0.36% +13.09%
Wilshire 5000 26001.28 +0.24% +10.99%
S&P 500 2502.22 +0.08% +11.76%
NASDAQ 6426.92 -0.33% +19.39%

*See below for Index Definitions

MARKET OBSERVATIONS: 9/18/2017 – 9/22/2017

The major market indices finished the week little changed after the Fed reiterated that a December rate hike remains on the table. An uptick in tensions with North Korea added to the cautious tone. President Trump ordered a new round of sanctions against North Korea and the country responded by threatening to test a hydrogen bomb in the Pacific Ocean. Oil prices finished higher for a third straight week and economic data continued to signal a generally healthy economy.

FOMC Meeting: As expected the Fed left the federal funds rate unchanged at a range of 1% to 1.25% at the conclusion of last week’s meeting. The committee also laid the groundwork for reducing its $4-plus trillion balance sheet, beginning next month. The reduction will start at $10 billion a month and increase by $10 billion a quarter. A year from now that would put the rate at $50 billion a month.

With recent readings on inflation well below the Fed’s 2% target, some investors were looking for the Fed to turn a bit more dovish and lower the forward rate path. The Fed, however, reiterated that they still expect to hike rates at the December meeting and three times next year. Prior to the conclusion of the meeting, Bloomberg’s World Interest Rate Probability function was showing less than a 50% chance of a December hike. However, following the announcement the December odds jumped to just over 63%.

Steady as she goes: Over the past few weeks the market has faced massive hurricanes, rising tensions with North Korea and ongoing uncertainty surrounding domestic policy. Despite it all, the S&P 500 continues to trade near record levels. This raises the question of whether investors are “whistling past the graveyard?” While a pullback in the market wouldn’t be surprising, the market’s resiliency seems to underscore the simple fact that at the end of the day it’s fundamentals that drive equity markets. To wit, the economy is in good shape, earnings are growing, and interest rates and inflation are both low.

Market View – Stay the Course: We believe the bull market remains intact and the “Goldilocks” economic environment (not too hot, not too cold) should help limit downside risk in the event of a correction. From a macro point of view, the world is enjoying a period of synchronized global growth, which has resulted in a favorable turn in the earnings environment. In addition, valuation levels—while elevated—are far from extreme. If the market were to stage a pullback in the coming months, it would be viewed as healthy and corrective in nature and not the start of a broader leg lower - in other words, a good buying opportunity, especially for longer-term investors.

The Week Ahead: The focal point of the upcoming week will be the release of the Republican tax plan. According to Bloomberg, House Republicans are scheduled to hold a retreat on Wednesday to discuss tax-overhaul options. Shortly thereafter party leaders are expected to unveil a consensus framework of the plan. Since there has been a lack of consensus surrounding tax reform, the plan will likely be vague and may initially disappoint the market.

Highlights of the data calendar include; the July S&P Case-Shiller home price index, August new home sales, the Conference Board’s September consumer confidence survey, August durable goods orders, August pending home sales, the final revision to second-quarter GDP and August personal income and spending.

The Fed speaking calendar will be chock full with over a dozen events scheduled, including a speech by Fed Chair Yellen Tuesday.


The Dow Jones Industrial Average is a price-weighted average of 30 blue-chip stocks that are generally defined as the leaders in their industry. It has been a widely followed indicator of the stock market since October 1, 1928.

Wilshire 5000 Total Market IndexSM represents the broadest index for the U.S. equity market, measuring the performance of all U.S. equity securities with readily available price data. The index is comprised of virtually every stock that: the firm's headquarters are based in the U.S.; the stock is actively traded on a U.S. exchange; the stock has widely available pricing information (this disqualifies bulletin board, or over-the-counter stocks). The index is market cap weighted, meaning that the firms with the highest market value account for a larger portion of the index.

Standard and Poor's 500© Index is a capitalization-weighted index of 500 stocks. The index is designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

The NASDAQ Composite Index is a broad-based capitalization-weighted index of stocks in all three NASDAQ tiers: Global Select, Global Market and Capital Market. The index was developed with a base level of 100 as of February 5, 1971.

Indices do not include any expenses, fees, or sales charges, which would lower performance. Indices are unmanaged and should not be considered an investment. It is not possible to invest directly in an index.

The individual companies mentioned in this piece were for informational purposes only and should not be viewed as recommendations.

The comments should not be construed as a recommendation of individual holdings or market sectors, but as an illustration of broader themes. This document contains forward-looking statements about various economic trends and strategies. You are cautioned that such forward-looking statements are subject to significant business, economic and competitive uncertainties and actual results could be materially different. There are no guarantees associated with any forecast and the opinions stated here are subject to change at any time and are the opinion of the individual strategist. Information in this report does not pertain to any investment product and is not a solicitation for any product. This material has been prepared using sources of information generally believed to be reliable. No representation can be made as to its accuracy.

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