One step back. U.S. stocks are sliding on renewed reports that the Trump administration is planning to restrict U.S. investors’ capital flows into China, just a few days before the two sides are scheduled to kick off another round of face-to-face discussions. The S&P 500 Index is about 3% from a record-high close, but these last several weeks have proven that it could take a lot of good news to push stocks meaningfully higher. We still think the S&P 500 is fairly valued at 3,000, and we expect to see more volatility at these levels as investors work through heightened global uncertainty.
Yields slide for a third week. The 10-year U.S. Treasury yield fell for the third straight week, dropping within 20 basis points (0.20%) of a record-low close reached in July 2016. Weak manufacturing and services data spooked investors, sparking an appetite for safe-haven* assets and weighing on yields. While the domestic economy is slowing, we still think the 10-year yield is too low given fundamentals. However, we believe the 10-year yield could stay at 2% or below as investors favor Treasuries amid global uncertainty and ultra-low sovereign rates elsewhere.
Producer price growth slips. The core Producer Price Index (PPI), which excludes food and energy prices, rose 2.0% year over year in September, its slowest growth in two years. Core PPI growth has steadily declined for most of this year, thanks to a strong U.S. dollar and weakening global demand. However, we have yet to see slowing producer price growth show up in consumer inflation. Year-over-year growth in consumer inflation has ticked up through August, but we’ll continue to monitor if that trend continued through September in data to be released later this week.
The economy and elections. Investors are becoming more skittish around the U.S. economic outlook just before we flip the calendar to 2020, a presidential election year. On the LPL Research blog today, we’ll explore the U.S. economy’s impressive track record of predicting a president’s re-election.
NEW Market Signals Podcast. Based on recent jobs reports, manufacturing data, and incremental progress on trade, it appears that uncertainty in the markets is here to stay. LPL Research strategists discuss economic trends and market impact in the new Market Signals podcast, Is Uncertainty Here to Stay? Subscribe to the free Market Signals podcast series on iTunes, Google Play, Spotify, or wherever you get your podcasts.
* US Treasuries may be considered “safe haven” investments but do carry some degree of risk including interest rate, credit and market risk. They are guaranteed by the US government as to the timley payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value.
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