Telemus Weekly Market Review

October 8 – 12, 2018

The markets sold off sharply last week, sending the S&P 500 lower by 4.1%, the blue chip Dow by 4.19% and the tech heavy Nasdaq by 3.74%. Fears over rising interest rates, potentially weakening economic activity and slower earnings growth helped fuel the selling, leaving stocks at three month lows going into the third quarter earnings season.

On Tuesday the International Monetary Fund (IMF) cut its 2018 and 2019 global growth outlook to 3.7% from 3.9%, citing trade uncertainties that include tariffs between the U.S. and China, a pending Brexit deal, and the new trilateral agreement between the U.S., Canada, and Mexico that’s supposed to replace NAFTA. On a related note, President Trump and Chinese leader Xi Jinping have reportedly agreed to meet at next month’s G-20 summit with hopes of resolving their trade conflict.

A third quarter earnings warning from specialty chemicals company PPG Industries weighed on sentiment last week, dampening hopes of another strong quarter of growth. Financial giants JPMorgan Chase, Citigroup, and Wells Fargo kicked off the Q3 earnings season on Friday with mixed results. The financial sector initially had a positive reaction to the earnings, but later rolled over to close the week with a total loss of 5.6%.

The yield on the benchmark 10 year Treasury note, which spiked to a seven year high the previous week, hovered between 3.12% and 3.26% before eventually settling Friday at 3.14%. Meanwhile, the yield on the more Fed-sensitive 2 year Treasury note fell four basis points to 2.84%, leaving the much watched 2 year -10 year spread with a five basis point loss for the week.

President Trump blamed the week’s selling on the Federal Reserve, which he says has “gone crazy” with its rate hikes. The Fed has raised rates three times this year with the most recent hike coming in September, and it appears to be on track to raise rates again at its December meeting. The CME FedWatch Tool places the chances of a December rate hike at 79.7%; that’s down slightly from 80.0% last Friday.

All the major indices ran into technical trouble last week only adding to the market’s misery. The S&P 500 breached its 50-day moving average on Wednesday and then its 200-day moving average on Thursday. The benchmark index tried to reclaim its 200-day moving average on Friday, but closed right at the key technical level. The Dow Jones Industrial Average and the Nasdaq Composite breached their 200-day moving averages as well; the Dow eventually reclaimed the key technical mark, but the Nasdaq did not.

Also of note, the CBOE Volatility Index, commonly known as the VIX and, often referred to as the “investor fear gauge,” touched its highest level since late March before pulling back a bit on Friday. Still, the VIX finished last week roughly 40% higher.

In other major news, Hurricane Michael made landfall in the Florida Panhandle on Thursday as a Category 4 storm. The storm devastated the region, causing billions of dollars in damages and killing at least 13 people as of now. Many oil producers in the Gulf of Mexico halted operations in anticipation of the storm, but WTI crude fell this week nonetheless, dropping 3.9% to $71.41 a barrel, and the S&P 500’s energy sector lost 5.4%.

Looking ahead, earnings season will ramp up this week with Bank of America, UnitedHealth, Johnson & Johnson, Morgan Stanley, Goldman Sachs, IBM, Netflix, American Express, PayPal, Procter & Gamble, and a host of others scheduled to report their quarterly results. Hopefully a batch of good news will calm investors fear and the markets.

October 15 – October 19 Economic Calendar

  • Monday
  • Retail Sales
    8:30 AM ET
  • Empire State Mfg Survey
    8:30 AM ET
  • Business Inventories
    10:00 AM ET
  • JOLTS
    10:00 AM ET
  • Treasury International Capital
    4:00 PM ET
  • Fed Balance Sheet
    4:30 PM ET
  • Money Supply
    4:30 PM ET
  • Tuesday
  • Redbook
    8:55 AM ET

  • Industrial Production
    9:15 AM ET

  • Housing Market Index
    10:00 AM ET
  • JOLTS
    10:00 AM ET
  • Treasury International Capital
    4:00 PM ET
  • Fed Balance Sheet
    4:30 PM ET
  • Money Supply
    4:30 PM ET
  • Wednesday
  • MBA Mortgage Applications
    7:00 AM ET
  • Housing Starts
    8:30 AM ET
  • EIA Petroleum Status Report
    10:30 AM ET
  • FOMC Minutes
    2:00 PM ET
  • Treasury International Capital
    4:00 PM ET
  • Fed Balance Sheet
    4:30 PM ET
  • Money Supply
    4:30 PM ET
  • Thursday
  • Jobless Claims
    8:30 AM ET

  • Philadelphia Fed Business Outlook Survey
    8:30 AM ET
  • James Bullard Speaks
    9:00 AM ET

  • Leading Indicators
    10:00 AM ET
  • EIA Natural Gas Report
    10:30 AM ET
  • Fed Balance Sheet
    4:30 PM ET
  • Money Supply
    4:30 PM ET
  • Friday
  • Existing Home Sales
    10:00 AM ET

  • Raphael Bostic Speaks
    12:00 PM ET

  • Baker-Hughes Rig Count
    1:00 PM ET
  • JOLTS
    10:00 AM ET
  • Treasury International Capital
    4:00 PM ET
  • Fed Balance Sheet
    4:30 PM ET
  • Money Supply
    4:30 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.