Telemus Weekly Market Review

October 1- October 5, 2018 

It was a tough week for the markets last week. The S&P 500 fell 0.95%, weighed down by a surge in bond yields, which rose to multi-year highs. The tech heavy Nasdaq and the small cap Russell 2000 were the worst performers, losing 3.21% and 3.78%, respectively. The blue chip Dow escaped the damage however, finishing unchanged on the week.

Stocks began the week on a positive note, boosted by Canada joining Mexico and the United States in a trade agreement. On Sunday night, Canada agreed to allow greater dairy market access to the U.S., while also capping its automobile exports to the States. The deal, also known as the United States-Mexico-Canada Agreement (USMCA) replaces the 24-year old NAFTA deal between the countries. However, Congress still has to approve the deal, which likely won’t be easy.

Investors awoke to continued Italian drama on Tuesday, when Italy’s anti establishment government defended its plan to increase the country’s budget deficit target despite pushback from the EU. However, on Wednesday, Italy’s government decided to cede to some of the EU’s budget demands. Italy’s budget deficit target will be reduced from 2.4% of GDP in 2019 to 2.2% in 2020 and then to 2.0% in 2021.

That news helped push bond yields higher overnight. Yields then extended those gains after the September ADP Employment Change report, a prelude to the much watched nonfarm payrolls reading, showed an estimated 230K positions were added to private sector payrolls well above the consensus view. The ISM Services Index for September also came in better than expected on Wednesday, hitting a record high of 61.6%, clearly indicating that business activity in the service providing sector of the economy is strong.

Bond yields continued to climb on Thursday and then again on Friday following the release of the Employment Situation report for September. The report showed a smaller than expected increase in nonfarm payrolls, but the August increase underwent a large upward revision. As for the rest of the report, average hourly earnings increased 0.3%, the average workweek was reported at 34.5, and the unemployment rate dropped to 3.7% from 3.9%.

Looking at last week’s S&P sector standings, most groups finished in negative territory. The consumer discretionary sector led the retreat and information technology and communication services also showed relative weakness. On a positive note, the financial sector advanced, benefiting from rising bond yields and a steepening of the yield curve. The benchmark 10-yr U.S. Treasury yield jumped 16 basis points in total, closing Friday at 3.23% which marks its highest level since 2011 while the 2-yr yield jumped five basis points to 2.88%.

In corporate news, General Electric replaced CEO John Flannery with former Danaher CEO Larry Culp; Tesla’s CEO, Elon Musk, agreed to settle charges with the SEC, in which Mr. Musk and Tesla are to pay $20 million each, and Mr. Musk is to step down as chairman for three years; Amazon announced that it will be raising its minimum wage to $15 an hour for all U.S. employees, pressuring other retailers to do the same; and General Motors announced that it will be partnering with Honda Motor, who agreed to invest $2.5 billion, to build autonomous vehicles.

Crude futures closed at $74.39 Friday after climbing to four year highs earlier in the week. Price gains were limited by Saudi Arabia and Russia’s saying they would raise output to at least partly make up for expected disruptions from Iran, OPEC’s No. 3 producer, due to the U.S. sanctions that take effect on November 4th.

October 8 – October 12 Economic Calendar

  • Monday
  • US Holiday: Columbus Day
  • Redbook
    8:55 AM ET

  • Charles Evans Speaks
    10:00 AM ET
  • John Williams Speaks
    9:15 PM ET
  • John Williams Speaks
    10:35 PM ET
  • Raphael Bostic Speaks
    6:00 PM ET
  • Tuesday
  • NFIB Small Business Optimism Index
    6:00 AM ET

  • Redbook
    8:55 AM ET

  • Charles Evans Speaks
    10:00 AM ET
  • John Williams Speaks
    9:15 PM ET
  • John Williams Speaks
    10:35 PM ET
  • Raphael Bostic Speaks
    6:00 PM ET
  • Wednesday
  • MBA Mortgage Applications
    7:00 AM ET
  • PPI-FD
    8:30 AM ET
  • Atlanta Fed Business Inflation Expectations
    10:00 AM ET
  • Wholesale Trade
    10:00 AM ET
  • Charles Evans Speaks
    12:15 PM ET
  • Raphael Bostic Speaks
    6:00 PM ET
  • Thursday
  • CPI
    8:30 AM ET
  • Jobless Claims
    8:30 AM ET
  • EIA Natural Gas Report
    10:30 AM ET
  • Treasury Budget
    2:00 PM ET
  • Fed Balance Sheet
    4:30 PM ET
  • Money Supply
    4:30 PM ET
  • Friday
  • Import and Export Prices
    8:30 AM ET

  • Charles Evans Speaks
    9:30 AM ET
  • Consumer Sentiment
    10:00 AM ET
  • Raphael Bostic Speaks
    12:30 PM ET
  • Baker-Hughes Rig Count
    1:00 PM ET
  • Raphael Bostic Speaks
    6:00 PM ET

PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. This market commentary is a matter of opinion and is for informational purposes only.  It is not intended as investment advice and does not address or account for individual investor circumstances.  Investment decisions should always be made based on the client’s specific financial needs, goals and objectives, time horizon and risk tolerance.  The statements contained herein are based solely upon the opinions of Telemus Capital, LLC.  All opinions and views constitute our judgments as of the date of writing and are subject to change at any time without notice. Information was obtained from third party sources, which we believe to be reliable, but not guaranteed.