Market Update: Wednesday, September 20, 2017

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Yesterday’s Market Activity

  • U.S. stocks inch higher. Major indexes little changed as traders await outcome of Fed meeting. Dow (+0.2) win streak hit eight; S&P 500 Index (+0.1%); Nasdaq (+0.1%).
  • Telecom led sectors, helped by a merger announcement; REITs trailed, healthcare also lagged as Obamacare replacement discussions reemerged in the Senate.
  • NYSE trading volume below average (96.8%) for second day, breadth was positive (1.1:1).
  • U.S. dollar weakness resumed; 10-year Treasury yield +1 basis point (0.01%) to 2.24%.
  • CommoditiesCOMEX gold +0.3% to $1310/oz.; WTI crude oil -0.6% to $49.60/bbl.; industrial metals rose, copper up marginally.
  • Trump addresses UN. Speech was much anticipated, but had little market impact. Addressed North Korea (among other troubled nations), trade relations.

Overnight & This Morning

  • Global markets in holding patter ahead of Fed. Stocks in Asia were little changed. Nikkei +0.1%; Hang Seng, Shanghai Composite +0.3%.
  • European markets slightly lower. STOXX Europe 600 -0.1%, though Spain’s IBEX (-0.9%) underperforms as tensions rise between Spanish government, officials in Catalonia ahead of planned independence referendum.
  • Crude oil (+1.1%) continues to rise, now at four-month high at $50.47/bbl.
  • U.S. stocks open flat. Treasury yields steady; 10-year note -1 basis point (0.01%) to 2.23%.
  • Today’s economic calendar includes August existing home sales, though investors’ focus expected to remain on FOMC and Fed Chair Yellen’s subsequent press conference.

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Key Insights

  • What to watch for at the Fed meeting. Futures markets are pricing in a ~0% chance of a rate hike after the Federal Reserve (Fed) policy meeting concludes, but there will still be a lot to watch. We will get new economic projections, the projected path of the Fed’s policy rate (the so-called “dot plots“), and a post-meeting press conference starting at 2:30 p.m. ET from Janet Yellen. We’re also expecting the Fed to announce the start of balance sheet normalization. Additional key points we’re watching for include: any decrease in inflation expectations and comments on the economic impact due to Hurricanes Harvey and Irma, which have already increased uncertainty.

Macro Notes

  • White House eying tax reform changes to shore up support. The Trump administration may be refocusing its efforts in order to shore up Democratic support ahead of next week’s expected release of its proposed tax reform plan. The initial release is expected to provide the broad strokes of the Administration’s plan, rather than fine details, but potential pivots in the still-fluid situation reportedly include leaving the top income tax rate unchanged at 39.6% and abandoning efforts to repeal the estate tax; though Republicans remain committed to initiatives around lowering the corporate tax rate and providing middle-class tax relief.
  • Inflation has generally missed expectations, but a pick-up in last week’s reading and data yesterday that showed import prices pushing higher with the weaker dollar has balanced things out some. The inflation data pushed the chances of a rate hike by the end of the year from about 20% to near 50%, according to futures markets.
  • More of the same. Equities gained yesterday, but the overall gains were rather small – similar to the action we’ve been seeing all year. In fact, the Dow was higher for the 8th consecutive day and closed at a new all-time high for the 6th consecutive day, though the increases were less than 0.3% each day. You have to go back to 2005 and then 1965 to find similar winning streaks.
  • One more look at seasonality. Earlier this week on the LPL Research blog we noted how September historically has been a rough month for equities, but most of the damage tends to take place the second half of the month. Today we will take another look at seasonality, but from a different angle. Be sure to read our blog later today to check it out.

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Click Here for our detailed Weekly Economic Calendar

Wednesday

 Thursday

Friday

  • Markit US Manufacturing & Services PMI (Sept)
  • Williams (Dove)
  • George (Dove)
  • Kaplan (Hawk)
  • France: GDP (Q2)
  • France: Markit France
  • France: Manufacturing & Services PMI (Sept)
  • Germany: Markit Germany
  • Germany: Manufacturing & Services PMI (Sept)
  • Eurozone: Markit Eurozone
  • Canada: CPI (Aug)

 

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