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Perspectives from Above the Noise -- Week of September 10th, 2018

Perspectives from Above the Noise -- Week of September 10th, 2018

September 10, 2018
Trade Tensions Spark Technology Reversal

September 3 - 7, 2018 Recap

Week Long Tech Losses. U.S. stocks fell for a fourth day after President Trump threatened an additional $267B in tariffs on Chinese imports on top of $200B in tariffs he previously threatened. The Nasdaq Composite capped its worst week since March after a leading smartphone maker warned that increased duties on Chinese goods will broadly raise prices. The S&P 500’s decline last week was its largest since June.

Weekly Performance. For the week, the S&P 500 fell 0.98%, the Dow Industrials dipped 0.19%, and the tech-heavy Nasdaq Composite retreated 2.53%.

Wage Data Seals September Rate Hike. The economy added 201,000 new jobs in August, surpassing forecasts for 191,000, and wages rose 0.4%, enough to lift its year-over-year increase to 2.9%, the strongest annualized increase since 2009. The unemployment rate held steady at 3.9%, while the U-6 underemployment rate fell to a 17-year low.

Tech Stocks Lead the Way Down. Seven of the 11 major sectors ended negative last week, with Technology (-2.91%) more than erased the prior week’s gain. Energy (-2.18%) and Real Estate (-1.23%) also led to the downside. Utilities (+1.14%) and Consumer Staples (+1.09%) led to the upside.

Treasurys Weaken, Yields Rise. Treasury prices fell following the inflationary wage data within the jobs report, sending yields higher. The yield on the Fed-sensitive 2-year notes rose 7 basis points to 2.70%, while the yield on 10-year notes rose 6.7 basis points to end at 2.94%. For the week, the U.S. Dollar Index climbed 0.24% to 95.365, while crude oil futures retreated 2.94% to end the week at $67.75/barrel.

 What We’re Reading

Goldman’s Bear Signal Falter

China Warns of Retaliation

Natural Gas Seen Dominating

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 Week’s Economic Calendar

Monday, September 10: Consumer Credit;

Tuesday, September 11: Small Business Optimism, JOLTS Job Openings, Wholesale Trade & Inventories;

Wednesday, September 12: Producer Prices, Fed Beige Book;

Thursday, September 13: Jobless Claims, Consumer Prices, Budget Statement;

Friday, September 14: Retail Sales, Import/Export Prices, Industrial Production, Business Inventories, Consumer Sentiment.

Market Watch
Dow Jones-0.19%-0.19%2.67%4.84%18.98%
S&P 500-0.98%-0.98%4.16%8.86%18.78%
Russell 3000-1.06%-1.06%3.96%9.22%19.36%
MSCI EAFE-2.83%-2.83%-5.27%-5.05%0.44%
MSCI Emerging Markets-3.06%-3.06%-10.02%-10.03%-3.98%
Barclays Agg Bond-0.45%-0.45%0.65%-1.40%-1.79%
Barclays Municipal-0.27%-0.27%0.43%-0.02%-0.06%
Barclays US Corp High Yield-0.13%-0.13%1.57%1.86%3.02%
Bloomberg Commodity-1.33%-1.33%-7.82%-5.15%-2.02%
S&P GSCI Crude Oil-2.94%-2.94%2.75%12.13%38.04%
S&P GSCI Gold-0.52%-0.52%-7.87%-8.32%-11.11%
Source: Morningstar
Chart of the Week
Manufacturing is Signaling Strong Growth
View larger image »

The upward trend in U.S. manufacturing activity continued in August, despite headwinds from tariffs and a strong dollar. The Institute for Supply Management (ISM) Manufacturing PMI (purchasing manager’s index) climbed to a 14-year high of 61.3 in August and the 12-month average remains in a solid uptrend. A PMI reading above 50 is expansionary, and a level above 60 is high by historical standards. The uptick in manufacturing activity has resulted in the strongest annualized growth in manufacturing employment in 20 years.

There are however, concerns about the sustainability of manufacturing activity remaining at this level. Fiscal stimulus and strong U.S. economic growth has accelerated domestic demand, but there are issues overseas that may slow exports. The New Export Orders Index dropped in August and the strong U.S. Dollar will likely erode foreign demand at some point. We are also seeing the pace of global manufacturing growth slow. The global manufacturing PMI dropped to 52.5 in August and has been trending lower since December 2017. For now, despite the weakness overseas, domestic manufacturing is signaling strong growth for the U.S. economy and early evidence suggests U.S. GDP growth in Q3 is likely to remain strong.

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The Bloomberg Barclays US Aggregate Bond Index, which was originally called the Lehman Aggregate Bond Index, is a broad based flagship benchmark that measures the investment grade, US dollar-denominated, fixed-rate taxable bond market. The index includes Treasuries, government–related and corporate debt securities, MBS (agency fixed-rate and hybrid ARM pass-throughs), ABS and CMBS (agency and non-agency) debt securities that are rated at least Baa3 by Moody’s and BBB- by S&P. Taxable municipals, including Build America bonds and a small amount of foreign bonds traded in U.S. markets are also included. Eligible bonds must have at least one year until final maturity, but in practice the index holdings has a fluctuating average life of around 8.25 years. This total return index, created in 1986 with history backfilled to January 1, 1976, is unhedged and rebalances monthly.

The Bloomberg Barclays US Corporate High Yield Index measures the USD-denominated, non-investment grade, fixed-rate, taxable corporate bond market. Securities are classified as high yield if the middle rating of Moody's, Fitch, and S&P is Ba1/BB+/BB+ or below, excluding emerging market debt. Payment-in-kind and bonds with predetermined step-up coupon provisions are also included. Eligible securities must have at least one year until final maturity, but in practice the index holdings has a fluctuating average life of around 6.3 years. This total return unhedged index was created in 1986, with history backfilled to July 1, 1983 and rebalances monthly.

The Bloomberg Barclays US Municipal Bond Index covers the USD-denominated long-term tax exempt bond market. The index has four main sectors: state and local general obligation bonds, revenue bonds, insured bonds, and pre-refunded bonds. Many of the subindicies of the Municipal Index have historical data to January 1980. In addition, several subindicies based on maturity and revenue source have been created, some with inception dates after January 1980, but no later than July 1, 1993. Eligible securities must be rated investment grade (Baa3/BBB- or higher) by Moody’s and S&P and have at least one year until final maturity, but in practice the index holdings has a fluctuating average life of around 12.8 years. This total return index is unhedged and rebalances monthly.

The Bloomberg Commodity Index is a broadly diversified index that measures 22 exchange-traded futures on physical commodities in five groups (energy, agriculture, industrial metals, precious metals, and livestock), which are weighted to account for economic significance and market liquidity. No single commodity can comprise less than 2% or more than 15% of the index; and no group can represent more than 33% of the index. However, between rebalancings, group weightings may fluctuate to levels outside the limits. The index rebalances annually, weighted 2/3 by trading volume and 1/3 by world production.

The CBOE Volatility Index® (VIX®) is a key measure of market expectations of near-term volatility conveyed by S&P 500 stock index option prices. Introduced in 1993, the VIX Index has been considered by many to be the world's premier barometer of investor sentiment and market volatility.

The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ.

The MSCI All-Country World Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed and emerging markets. The SMCI ACWI consists of 46 country indexes comprising 23 developed and 23 emerging market country indexes. The developed country indexes include: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, the United Kingdom and the Uninted States. The emerging market country indexes included are: Brazil, Chile, China, Colombia, Czech Republic, Eygpt, Greece, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Peru, Philippines, Poland, Qatar, Russia, South Africa, Taiwan, Thailand, Turkey and United Arab Emirates.

The MSCI EAFE Index is designed to measure the equity market performance of developed markets (Europe, Australasia, Far East) excluding the U.S. and Canada. The Index is market-capitalization weighted.

The MSCI Emerging Markets Index is designed to measure equity market performance in global emerging markets. It is a float-adjusted market capitalization index.

The MSCI Europe Index is a free float-adjusted market capitalization index that is designed to measure developed market equity performance in Europe.

The MSCI Pacific Index captures large and mid-cap representation across five Developed Markets (DM) countries in the Pacific region. With 470 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in each country.

The NASDAQ Composite Index includes all domestic and international based common type stocks listed on The NASDAQ Stock Market. The NASDAQ Composite Index is a broad based index.

The Russell 2000 Index measures the performance of the small-cap segment of the U.S. equity universe and is a subset of the Russell 3000 Index representing approximately 10% of the total market capitalization of that index. It includes approximately 2000 of the smallest securities based on a combination of their market cap and current index membership.

The Russell 3000 Index measures the performance of the largest 3,000 U.S. companies representing approximately 98% of the investable U.S. equity market.

The Russell Midcap Index measures the performance of the mid-cap segment of the U.S. equity universe and is a subset of the Russell 1000 Index. It includes approximately 800 of the smallest securities based on a combination of their market cap and current index membership. The Russell Midcap represents approximately 31% of the total market capitalization of the Russell 1000 companies.

The S&P 500 is an index of 500 stocks chosen for market size, liquidity and industry grouping (among other factors) designed to be a leading indicator of U.S. equities and is meant to reflect the risk/return characteristics of the large cap universe.

The S&P GSCI Crude Oil Indexis a sub-index of the S&P GSCI, provides investors with a reliable and publicly available benchmark for investment performance in the crude oil market.

The S&P GSCI Gold Index a sub-index of the S&P GSCI, provides investors with a reliable and publicly available benchmark tracking the COMEX gold futures market.

West Texas Intermediate (WTI) is a crude oil stream produced in Texas and southern Oklahoma which serves as a reference or "marker" for pricing a number of other crude streams. WTI is the underlying commodity of the New York Mercantile Exchange's oil futures contracts.

The U.S. Dollar Index is a weighted geometric mean that provides a value measure of the United States dollar relative to a basket of major foreign currencies. The index, often carrying a USDX or DXY moniker, started in March 1973, beginning with a value of the U.S. Dollar Index at 100.000. It has since reached a February 1985 high of 164.720, and has been as low as 70.698 in March 2008.