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Perspectives from Above the Noise -- Week of September 24th, 2018

Perspectives from Above the Noise -- Week of September 24th, 2018

September 24, 2018
S&P 500 Reaches New Record

September 17 - 21, 2018 Recap

Second Weekly Gain. U.S. stocks finished mixed last Friday with the S&P 500 breaking a three-day rally, as declines in technology mega caps weighed on sentiment amid quarterly rebalancing and quadruple witching, when futures and options on indexes and stocks expire. More than 10 billion shares traded hands on Friday, 64% above the three-month average. World stocks were upbeat for the week amid widespread optimism that trade tensions will ultimately be contained or prove insufficient to curtail the global economic recovery.

Weekly Performance. For the week, the S&P 500 gained 0.86%, the Dow Industrials advanced 2.25%, and the tech-heavy Nasdaq Composite fell 0.28%. The S&P 500 reached a new record high on Thursday (2,930) and posted a second weekly gain, its fifth winning period in the past six weeks.

Raw Material Producers Performed Best. Eight of the 11 major sectors advanced for the week, with Materials (+2.33%), Financials (+2.27%) and Energy (+1.92%) up the most. Utilities (-1.47%), Real Estate (-0.35%) and Technology (-0.04%) lagged.

Treasurys Weakened Last Week. Treasurys were unchanged on Friday, while overall prices declined last week, sending the yield on benchmark 10-year notes up 6.7 basis to end the week at 3.064%. The U.S. Dollar Index climbed Friday, but capped the week down 0.75% at 94.220. Meanwhile, the Bloomberg Commodity Index gained 2.40% last week, reaching its highest level in a month. U.S. crude oil rallied 2.92% last week, ending at $70.78/barrel, a four-year high.

 What We’re Reading
 

Fed Rate Hike Expected This Week

Major Sector Classification Changes

OPEC Won’t Raise Production

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 Week’s Economic Calendar
 

Monday, September 24: Chicago Fed National Activity Index;

Tuesday, September 25: Case-Shiller Home Price Index, Consumer Confidence Index;

Wednesday, September 26: New Home Sales, FOMC Announcement and Press Conference;

Thursday, September 27: Weekly Jobless Claims, 2Q GDP Final, Durable Goods Orders, Pending Home Sales;

Friday, September 28: Personal Income & Spending, Consumer Sentiment, Core Inflation.

Market Watch
Stocks1-WkMTD3-MonthYTD1-Year
Dow Jones2.25%3.00%9.33%8.19%19.62%
S&P 5000.86%1.08%7.05%11.13%19.45%
NASDAQ-0.28%-1.45%3.82%16.59%25.69%
Russell 30000.60%0.70%6.29%11.16%19.41%
MSCI EAFE2.90%1.77%2.04%-0.55%4.07%
MSCI Emerging Markets2.27%-0.27%-1.58%-7.44%-2.89%
Bonds1-WeekMTD3-MonthYTD1-Year
Barclays Agg Bond-0.26%-0.81%0.17%-1.76%-1.40%
Barclays Municipal-0.36%-0.82%-0.20%-0.57%-0.11%
Barclays US Corp High Yield0.07%0.39%1.69%2.39%3.17%
Commodities1-WeekMTD3-MonthYTD1-Year
Bloomberg Commodity2.40%0.92%-1.83%-2.98%1.22%
S&P GSCI Crude Oil2.92%1.40%8.00%17.15%40.05%
S&P GSCI Gold0.02%-0.45%-5.45%-8.25%-7.23%
Source: Morningstar
Chart of the Week
The LEI is a Reliable Economic Indicator
 
View larger image »
 

The Conference Board Leading Economic Index (LEI) increased by a modest 0.4% in August, pushing the year-over-year (YoY) increase to 6.4%. The LEI, which is an aggregate of several leading economic indicators, has been trending higher since early 2016 and the current reading is signaling sustained growth in the months ahead. This indicator has been positive YoY for 105 straight months, nearly the entire length of the current economic expansion.

The LEI has been a reliable indicator historically in gauging the future path of the economy. This indicator rises ahead of economic strength and falls ahead of economic weakness. The LEI peaked an average of 12 months ahead of the last six recessions. At this time, the LEI remains strong, and we anticipate robust economic growth through year-end.
 
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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.