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Market Summary

A series of trade concessions between the U.S. and China in addition to favorable U.S. economic data that reduced recessionary fears helped boost U.S. equity markets within striking distance of their all-time highs. For the week, the Dow index jumped 1.6%, while the S&P 500 and Nasdaq Composite each recorded 0.9% gains. However, the bond market had even more notable movement with the 10-year U.S. Treasury yield rocketing to 1.90% from 1.55% in the week prior driven by the improvement in the economic growth outlook and an uptick in inflation beyond expectations. The significant jump in long-term bond yields helped ignite a rotation in the stock market out of high-flying momentum stocks into cyclically sensitive value stocks with financial service companies leading the way.

Both the U.S. and China took a more conciliatory stance on trade this past week ahead of next month’s formal negotiations, as China moved to exempt 16 U.S. products from import tariffs and the U.S. delayed tariff hikes on $250 billion of Chinese goods. Furthermore, despite last month’s escalation in tensions, the American consumer continued to seem unfazed as retail sales growth in August handily beat expectations rising 0.4% for the month versus the consensus for 0.2% growth.

In early trading this week, crude oil prices have posted their largest-ever jump in a single day, as Saudi Arabia continues to uncover the damage caused by missile strikes this weekend on its state-owned petroleum giant, Saudi Aramco, that disrupted about 5% of the global oil supply in the largest single disruption on record. As a result, the price of Brent oil futures rose up as much as 19% pre-market on Monday, the largest increase since the benchmark was created 30 years ago.

Investors will continue to assess the global repercussions of growing Middle East tensions in the week ahead. Additionally, all eyes will be on the Federal Reserve following conclusion of its meeting on Wednesday. Markets are currently pricing in a 73% probability of a 0.25% rate cut this week, according the CME FedWatch Tool, with the remaining 27% probability for no change.

Economic Highlights

  • Inflation: The U.S. core consumer price index (CPI) continued to firm in August posting a 2.4% increase over the prior year compared to expectations for a 2.3% growth rate. The increase was driven by outsized growth in medical care, recreation, and apparel expenses. Further increases in inflation could temper market expectations for future rate cuts.
  • Consumer Sentiment: The University of Michigan consumer sentiment survey rebounded to 92.0 in August from 89.8 in July and beat expectations for a 90.9 reading. Higher current and expected economic conditions provided the boost.

US Economy – The Week Ahead

Tuesday, 9/17/2019

  • Industrial Production (Month-over-Month) – Consensus Estimate: 0.2%, Prior Month: -0.2%

Wednesday, 9/18/2019

  • Federal Open Market Committee (FOMC) Meeting – Consensus expectation for a 0.25% rate cut
  • Housing Starts – Consensus Estimate: 1,250K (4.95% MoM), Prior Month: 1,191K (-4.0% MoM)

Thursday, 9/19/2019

  • Initial Jobless Claims – Consensus Estimate: 211,000 (3.4% WoW), Prior Week: 204,000 (-6.9% WoW)
  • Leading Economic Indicator Index (Month-over-Month) – Consensus Estimate: 0.0%, Prior Month: 0.5%
  • Existing Home Sales – Consensus Estimate: 5,375K (-0.8% MoM), Prior Month: 5,420K (2.5% MoM)

Friday, 9/20/2019

  • No Data

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