Performance for Week Ending 9/21/18:
The Dow Jones Industrial Average (Dow) added 2.25%, the Wilshire 5000 Total Market IndexSM (Wilshire 5000SM) gained 0.50%, the Standard & Poor’s 500 Index (S&P 500) closed up 0.85% and the Nasdaq Composite Index (NASDAQ) shed 0.29%. Sector breadth was positive with 8 of the 11 S&P sector groups finishing the week higher. The Materials sector (+2.30%) was the best performer while the Utilities sector (-1.53%) was the worst.
||Closing Price 9/21/2018
||Percentage Change for Week Ending 9/21/2018
||Year-to-Date Percentage Change Through 9/21/2018
*See below for Index Definitions
MARKET OBSERVATIONS: 9/17/2018 – 9/21/2018
The major market indices finished the week mostly higher with both the Dow and S&P 500 posting new all-time highs during the week. The record highs suggest investors remain comfortable with the outlook for corporate profits and economic growth, even in the face of trade tensions and an uptick in borrowing costs. On the trade front, President Trump announced that he will press ahead with a 10% tariff on $200bn of Chinese imports, beginning this Monday (9/24). China responded by announcing a 5-10% tariff on $60bn of US exports. The positive reaction in markets suggests investors were bracing for an even steeper tariff rate, with the 25% level having been mentioned in recent weeks. Later in the week, investors focused on news that China was planning to cut the average tariff rate it charges on imports from the majority of its trading partners as soon as next month. The move was viewed as an effort by China to ease the simmering tensions.
Last week’s economic data continued to suggest the US economy remains on firm footing. During the week, the Labor Department reported that initial jobless claims were lower than expected, with claims slipping last week to 201K. the lowest level since November 1969. Elsewhere, an economic index from the Philadelphia Federal Reserve also topped forecasts while the Conference Board's index of leading economic indicators (LEI), designed to anticipate economic conditions three to six months out, rose 0.4 percent last month. The year-over-year change in the LEI is watched very closely as it has a good track record of forecasting upcoming recessions. On a year-over-year basis, the LEI grew by 6.4%, well above the 0% to negative readings that tend to foreshadow a looming recession. The overall report is broadly positive for the growth outlook for the rest of this year and in early 2019.
Focus on the Fundamentals: The S&P 500 has now delivered two consecutive quarters of 20%-plus earnings growth, the economy grew by 4.2% during the second quarter and according to the Atlanta Fed’s GDP Now model, Q3 GDP is tracking at a 4.4% pace. The markets valuation has contacted since the start of the year, leaving the S&P at a less demanding P/E multiple of 16-times the 2019 consensus earnings forecast. The headline noise surrounding tariffs and political dysfunction in Washington is not likely to go away anytime soon, however as long as the economy and earnings continue to grow, the market is likely to follow suit.
While we are currently in the midst of the traditionally seasonally weak period for the market and the risk of a market pullback has grown, assuming that macro fundamentals remain stable, any sharp drawdowns would be viewed as a tactical opportunity to add equity exposure to portfolios.
The Week Ahead: The focal point of the coming week will be the two-day Federal Open Market Committee (FOMC) on Tuesday and Wednesday. The FOMC is widely expected to announce its third quarter-point (0.25%) increase in interest rates for this year. The meeting statement and updated committee member forecasts will be released at approximately 2:00 p.m. Eastern Time on Wednesday. A quarterly press conference with Chairman Powell will be held at 2:30 p.m. Investors will sift through the after meeting notes and listen intently to Powell’s press conference for clues on the path forward.
Third quarter earnings season will begin to creep back into the picture with six members of the S&P 500 scheduled to report. Included in this group is Dow-component Nike, which will report on Tuesday. On the data front, reports of interest include; the Conference Board’s September consumer confidence survey, August new homes sales, August durable goods orders, the final revision to second-quarter GDP, August pending home sales, August personal income and spending, and the September Chicago Purchasing Managers’ Index.
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.
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