Markets Trade at All-Time High as Yields Stabilize
Fed’s Patience Calms Bond Market
With few major economic releases or corporate earnings reports, Middle East tensions returned to the spotlight. Reports that Middle East oil exports, excluding Iran, had recovered to prewar levels helped ease pressure on crude prices. Meanwhile, September’s Fed FOMC minutes pointed to another rate hike this year, though officials gave no indication of timing. As a result, yields stabilized, with the 10-year U.S. Treasury yield ending the week lower after six consecutive weekly gains.
For the Week
Both the S&P 500 (+1.2%) and the tech-heavy Nasdaq Composite (+0.7%) reached new highs this week. The Dow Jones Industrial Average gained 1.0% but remained 4.6% below its all-time high. The small-cap Russell 2000 fell 0.9%. Internationally, developed markets were down 0.5% while emerging markets ended the week flat.
Economic Indicators Signal Continued Expansion
Five of the six indicators used by the NBER for business cycle dating are higher than a year ago, signaling continued economic expansion. Growth is modest across most of these indicators, with inflation-adjusted consumer spending up 2.6%.
Weekly Sector Insights
Nine of the 11 sectors were up this week signaling a broad-based rally. Both Consumer Staples and Utilities were up 4.0% for the week. Industrials (-0.4%) and Information Technology (-0.3%) were marginally down this week.
Treasury Yields Rise
The yield on the 10-year Treasury notes fell from 5.28% to 5.24%. U.S. WTI crude oil rose 0.3%. Gold was up 1.3%.
The Week Ahead
Markets will closely watch CPI and PPI data, as softer inflation could further reduce the odds of an October rate hike. Retail sales will offer insight into consumer resilience amid elevated energy prices. Earnings season begins this week with major banks announcing results on Tuesday, followed by two key AI supply-chain companies whose results could provide insight into future semiconductor demand.
Market Watch
Source: Cetera Investment Management, FactSet. Total returns used, which includes dividends and interest.
Chart of the Week: Consumers on Firmer Financial Footing
U.S. government debt is now above $40 trillion, but household balance sheets are in far better shape. Consumers have steadily deleveraged since the Great Financial Crisis, with household debt-to-GDP falling from a peak of 98% in 2008 to just 65% today.
Did You Know?
This week in 1973, Arab oil producers announced production cuts and an oil embargo. By the following January, crude had nearly quadrupled, from $2.90 to $11.65 a barrel.
Economic Calendar
Monday, October 12
No Major Release.
Tuesday, October 13
Existing Home Sales, NFIB Small Business Optimism.
Wednesday, October 14
Mortgage Applications, Consumer Price Index (CPI).
Thursday, October 15
Jobless Claims, Producer Price Index (PPI), Retail Sales, Business Inventories.
Friday, October 16
Export-Import Prices, Industrial Production, Capacity Utilization.
This report is created by Cetera Investment Management LLC.
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Glossary
The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ.
The S&P 500 is an index of 500 stocks chosen for market size, liquidity and industry grouping (among other factors) designed to be a leading indicator of U.S. equities and is meant to reflect the risk/return characteristics of the large cap universe.
The NASDAQ Composite Index includes all domestic and international based common type stocks listed on The NASDAQ Stock Market. The NASDAQ Composite Index is a broad based index.
The Russell 2000 Index measures the performance of the small-cap segment of the U.S. equity universe and is a subset of the Russell 3000 Index representing approximately 10% of the total market capitalization of that index. It includes approximately 2000 of the smallest securities based on a combination of their market cap and current index membership.
The Russell 3000 Index measures the performance of the largest 3,000 U.S. companies representing approximately 98% of the investable U.S. equity market.
The Russell Midcap Index measures the performance of the mid-cap segment of the U.S. equity universe and is a subset of the Russell 1000 Index. It includes approximately 800 of the smallest securities based on a combination of their market cap and current index membership.
The Bloomberg US Aggregate Bond Index, which was originally called the Lehman Aggregate Bond Index, is a broad based flagship benchmark that measures the investment grade, US dollar-denominated, fixed-rate taxable bond market. The index includes Treasuries, government–related and corporate debt securities, MBS (agency fixed-rate and hybrid ARM pass-throughs), ABS and CMBS (agency and non-agency) debt securities that are rated at least Baa3 by Moody’s and BBB- by S&P. Taxable municipals, including Build America bonds and a small amount of foreign bonds traded in U.S. markets are also included. Eligible bonds must have at least one year until final maturity, but in practice the index holdings have a fluctuating average life of around 8.25 years.
The Bloomberg US Corporate High Yield Index measures the USD-denominated, non-investment grade, fixed-rate, taxable corporate bond market. Securities are classified as high yield if the middle rating of Moody's, Fitch, and S&P is Ba1/BB+/BB+ or below, excluding emerging market debt. Payment-in-kind and bonds with predetermined step-up coupon provisions are also included. Eligible securities must have at least one year until final maturity, but in practice the index holdings has a fluctuating average life of around 6.3 years.
The Bloomberg US Municipal Bond Index covers the USD-denominated long-term tax exempt bond market. The index has four main sectors: state and local general obligation bonds, revenue bonds, insured bonds, and prerefunded bonds. Eligible securities must be rated investment grade (Baa3/BBB- or higher) by Moody’s and S&P and have at least one year until final maturity.
The MSCI EAFE Index is designed to measure the equity market performance of developed markets (Europe, Australasia, Far East) excluding the U.S. and Canada. The Index is market-capitalization weighted.
The MSCI Emerging Markets Index is designed to measure equity market performance in global emerging markets. It is a float-adjusted market capitalization index.
The Bloomberg Commodity Index is a broadly diversified index that measures 22 exchange-traded futures on physical commodities in five groups (energy, agriculture, industrial metals, precious metals, and livestock), which are weighted to account for economic significance and market liquidity. No single commodity can comprise less than 2% or more than 15% of the index; and no group can represent more than 33% of the index.
The S&P GSCI Crude Oil Index is a sub-index of the S&P GSCI, provides investors with a reliable and publicly available benchmark for investment performance in the crude oil market.
The S&P GSCI Gold Index, a sub-index of the S&P GSCI, provides investors with a reliable and publicly available benchmark tracking the COMEX gold futures market.
The U.S. Dollar Index is a weighted geometric mean that provides a value measure of the United States dollar relative to a basket of major foreign currencies. The index, often carrying a USDX or DXY moniker, started in March 1973, beginning with a value of the U.S. Dollar Index at 100.000.