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Weekly Commentary

NDS Weekly Commentary 9.16.19 – Markets Advance as Rates Move Higher

Equities advanced last week as money rotated out of bonds and high flying tech names into value stocks and sectors that had been previously out of favor. What otherwise was a quiet week for stocks, a huge discrepancy occurred beneath the surface between the Russell 1000 Value (2.47%) and the Russell 1000 Growth (-0.45%). Improving trade relations with China and a jump in interest rates provided fuel for last week’s move. We caution looking too much into one week’s performance, but a wide gap in performance between the two indexes has been present for years.

valuegrowth

On the week, the S&P 500 increased 1.02% while the DJIA finished up 1.65%. Smaller US companies represented by the Russell 2000 jumped 4.90%. International equities were also strong with developed (MSCI EAFE) and emerging (MSCI EM) closing higher by 1.99% and 1.91%, respectively. Bonds really struggled with the benchmark Barclay’s US Aggregate Index shedding 1.66% on the week. Bonds prices move inversely to the direction in yields. Treasury yields jumped higher across the board with the 10yr US Treasury closing at 1.90%, which is up from 1.55% just last week (see image below).

Rates

Economic data last week was relatively positive. On Wednesday, the Producer Price Index (PPI) for final demand ticked up 0.1% which exceeded expectations of unchanged. On Thursday, the Consumer Price Index (CPI) increased 0.1% which was in-line with estimates. Over the last 12 months, CPI is up 1.7%. On Friday, retail and food-services sales rose 0.5% in August, doubling expectations of a 0.2% monthly advance. The U.S. consumer continues to be healthy. There will be reports this week on housing, industrial production and manufacturing.
The FOMC gears up for their two-day meeting this week. The Fed is expected to cut its policy rate by another 25bps … this despite political pressure to reduce rates farther. Views are divided on what the Fed’s monetary path will look like for the rest of the year. Rising core-inflation, solid economic activity, and thawing trade relations with China support a wait and see approach for further shifts after the conclusion of this meeting. There will likely be dissent on both sides among members of the FOMC.

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