Market Update: Tuesday, September 4, 2018

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Daily Insights

  • Emerging market debt woes continue. After a difficult August, the headwinds may continue for emerging market debt (EMD) in the short term. South Africa’s currency weakened after data showed their economy fell into a recession for the first time since 2009. Argentina’s ambitious austerity plan, in addition to hiking short-term interest rates to 60% (the highest in the world), is meant to instill investor confidence by cutting spending. Although there continue to be risks to be monitored, the good news is that the EMD weakness has not spilled into global credit markets. High-yield bond markets in the U.S., Europe and Asia, are showing no material signs of stress from the fallout.

  • Revised NAFTA deal and Canada. Efforts to rework NAFTA progressed early last week with the U.S. and Mexico announcing an agreement, but Canada failed to sign on, prompting a tweet from President Trump threatening to exclude the country from any revised NAFTA deal if a “fair deal” is not struck, or potentially terminate the trade pact altogether if Congress interferes. Negotiations are slated to resume tomorrow in an effort to end the stalemate over issues like access to Canada’s dairy sector, American demands to scrap NAFTA’s dispute-resolution mechanism, and current protections for Canada’s cultural sector.

  • Sector switcheroo. The S&P 500 Index GICS sectors will undergo a significant shift later this month with a big expansion of the telecom sector, which will be renamed communications services. Investors employing sector strategies in particular should be aware of the revamp, which will not only transform the communications sector but also meaningfully change the makeup of the consumer discretionary and technology sectors. In this week’s Weekly Market Commentary, due out later today, we discuss the implications of these significant changes.

  • Productivity pickup. Nonfarm productivity rose at the fastest pace since 2015 last quarter. In the Weekly Economic Commentary, due out later today, we highlight the catalysts for this recent pickup in productivity and show why we think the increase could be sustained, providing an extra boost to economic growth.

  • The worst month of the year. It’s hard to believe, but we are officially in the month of September. Although this means football and cooler weather, it also means a historically poor month for stocks. Since 1950, September has been the worst month of the year for the S&P 500. The good news is when the S&P 500 starts September above its 200-day moving average (like 2018), the returns have been much better. For more on this month, be sure to read our latest LPL Research blog post here.

  • The week that was and the week ahead. For a quick recap of last week, check out our Weekly Update post on the LPL Research blog. Looking ahead, Friday’s monthly nonfarm payrolls report highlights the U.S. economic docket amid a holiday-shortened week. Investors will also monitor services and manufacturing data due out in the U.S., Eurozone, and Japan to help gauge the health of the global economy. Track these and other important events on our Weekly Global Economic & Policy Calendar.

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Click Here for our detailed Weekly Economic Calendar

Tuesday

  • Markit US Manufaturing PMI (Aug)
  • Construction Spending (Jul)
  • ISM Manufacturing (Aug)

Wednesday

  • MBA Mortgage Applications (Aug)
  • Trade Balance (Jul)

Thursday

  • ADP Employment Report (Aug)
  • Initial Jobless Claims (Sep 1)
  • ISM Non-Manufacturing Index (Aug)
  • Factory Orders (Jul)
  • Durable Goods Orders (Jul)
  • China Foreign Reserves (Aug)

Friday

  • Nonfarm Payrolls Report (Aug)
  • Unemlpoyment Rate (Aug)
  • Eurozone GDP Report (Q2)
  • China Trade Report (Aug)


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Index data obtained via FactSet

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