Rates Continue to Rise

October 8, 2018

What a wild week on Wall Street!

As a result of rising interest rates, the US Stock Market fell sharply to close out the week after notching record highs on Tuesday and Wednesday. The S&P 500 closed lower by 0.95% for the week while the DJIA finished flat. In addition, a Bloomberg News article claims China hacked and infiltrated several top US Companies. This resulted in a selloff in tech firms (which also makes up a large portion of the S&P 500) and further complicates trade negotiations with China. The tech-heavy NASDAQ struggled closing the week down 3.18%. The international equity markets continued to suffer from the combination of a stronger US dollar, slowing global trade, high emerging market debt levels and China’s slowing growth rate. The MSCI EAFE declined 2.34% while the emerging market index lost 4.48% for the week.

The yield on the 10yr Treasury closed the week at 3.24% compared with 3.06% the week prior. This marks its highest level since 2011. There are concerns that inflation will continue creeping higher which will force the Fed to continue to respond with rate increases. There will be reports on inflation in the week ahead.

The unemployment rate declined to 3.7% in September, marking the lowest level since December 1969. Hurricane Florence contributed to a slightly less-than-expected addition of jobs … the US economy added 134,000 in September slightly below expectations of 185,000. Wage growth, a possible precursor of inflation, grew 2.8% from last year. Also worth noting: Amazon announced last week it would raise the minimum wage they pay their employees to $15hr. This will likely pressure other employers to take similar actions in an effort to compete for talent in a tight labor market.

There is still good news about dividend growth. So far this year, nearly 400 companies in the S&P 500 raised their dividends $117.2 billion, a 6.9% increase from a year ago.

We expect volatility to continue with the upcoming mid-term election, rising interest rate fears, and 3rd quarter earnings season. Earnings season kicks off this week with (C) Citigroup and (JPM) JP Morgan scheduled to report. We are expecting another strong quarter of earnings growth although it could be a slight decline from the two previous quarters of 24% year-over-year growth. Initial estimates according to FactSet are for earnings growth of 19.2%. Stay Diversified!

“Patriotism is supporting our country all the time, and your government when it deserves it.” – Mark Twain