Weekly Update September 30, 2016 Today s Close Weekly Change YTD Change YTD % Change DOW JONES 18,308 +47 Pts. +883 Pts. +5.07% NASDAQ 5,312 +6 Pts. +305 Pts. +6.09% S & P 500 2,168 +3 Pts. +124 Pts. +6.07% RUSSELL 2000 1,255 Unch. +119 Pts. +10.48% 10-YEAR NOTE 1.59% -9 Bps. -68 Bps. +6.55% OIL $49.05 +$2.95 +$12.01 +32.42% GOLD $1,319 -$23.00 +$258.00 +24.32% CHAIR YELLEN CALMS MARKETS AGAIN -- DEUTSCHE BANK CREATES NERVOUSNESS STOCK MARKETS SEEMS TO BE STUCK AS WE APPROACH ANOTHER EARNINGS SEASON OIL PRICES RISE AS OPEC DECIDES TO CAP PRODUCTION S & P 500 INDEX PREVIOUS TWELVE MONTHS The stock market will always have reasons to worry if you are an investor. That is what investors do, climb the wall of worry in order to earn some return. The reasons to worry currently have to do with (1) Deutsche Bank and its capital versus the large fine it is expected to pay, (2) when the Fed will begin to increase interest rates and (3) who will be the next president of the United States. In the background, we continue to see economic growth that remains sluggish and earnings that are expected to show the sixth quarter in a row of negative results. October is a very volatile month historically. Earnings will be a focus, but most of the concern will be revolving around the three points mentioned above. At least for today, Germany is coming out defending Deutsche Bank and that has calmed recent concerns.
ECONOMIC DATA -- The economy is moderately growing, as the data continues to show. New Home Sales declined 8%. Consumer Confidence rose to 104.1 vs. 101.8. Durable Goods Order were flat, extransportation -0.4%. Q2 GDP Revised to 1.4% vs. 1.1%. Jobless Claims were up 3,000 to 254,000. Pending Home Sales down -2.4%. Personal Income rose +0.2%. Personal Spending was up flat. The Chicago Purchasing Managers Index increased to 54.2 vs. 51.5. The U of M Consumer Sentiment Index rose to 91.2 vs. 89.8. Modest growth -- stagnate economy.
STOCK MARKET Stocks are stuck in a range. A catalyst is needed and that may not come until after the presidential election. *********For the week, the Dow Jones was higher by 47 pts. (+0.26%), Nasdaq was up by 6 pts. (+0.11%), and the S & P 500 was down better by 3 pts. (+0.14%) ************ Detusche Bank is in trouble with a very large fine and capital being withdrawn. Germany announced it would most likely back the bank if needed. The California Treasurer suspended Wells Fargo from underwriting for a year due to the scandal over opening two million fraudulent customer accounts. Nike reported strong earnings, but guided lower on weak sales expectations. Paychex had a good quarter. PepsiCo and Costco both has better quarters than expected. *********For the year-todate, the Dow Jones is up 883 pts. (+5.07%), the Nasdaq is higher by 305 pts. (+6.09%), and the S & P 500 Index is up 124 pts. (+6.07%). ********** The Fed may be losing credibility as it is difficult to choose a scenario where they would ever increase rates. The economy is not as robust as it should be and inflation is lower than their target. What needs to happen for rates to move higher? No one seems to know for sure.
BOND MARKET Bonds sell off one week, and rally the next. This week bond prices rallied and yields moved lower. For the week, the 10-year note closed down 9 bps. to 1.59%. The 2-year note closed at 0.76%. The Dollar remains firm, with the Euro closing at 1.12, the Pound at 1.30, and the Yen at 101.37. Oil prices are rising with an OPEC deal in the works. Brent Crude closed the week at $49.05 barrel. Gold prices were down, closing the week at $1,319 ounce. The window for the Fed is about 14 weeks before they have to make another decision. In the meantime, bond prices should remain where they are and yields within their tight range. 10-YEAR NOTE YIELD PREVIOUS TWELVE MONTHS ASSET CLASSES Total returns for the major fund categories, year-to-date, as of last night, are as follows: Large Cap Growth 1.61% Large Cap Value 7.78% Mid Cap Growth 4.68% Mid Cap Value 10.31% Small Cap Growth 6.09% Small Cap Value 11.21% Short Term Bonds 2.35% Intermediate Bonds 9.09% Municipal Bonds 3.06% International Funds 3.44% Real Estate Funds 11.69% Balanced Funds 6.05% SUMMARY There continues to be plenty of news and headlines, but the stock market seems comfortable remaining in a narrow trading range. Chair Yellen and other Fed members have spoken. We have seen the first presidential debate. OPEC has supposedly made a decision to cap oil production. Interest rates remain low. Through all of the noise (this week Deutsche Bank) the stock market is where it has been for the last 12 weeks since the Brexit vote in late June. Earnings season begins in
two weeks. The expectation is for earnings to be negative again for the sixth quarter in a row. What? Why is the stock market at all-time highs? Cash is not comfortable sitting on the sidelines, even though that is a good place to be if one is fearful of a market downturn. However, investors want to put their money somewhere and today they feel the stock market is the best place. Valuations seem high and earnings are expected to be soft, but with interest rates close to all-time lows, stocks seem to be the place investors are willing to go. October always has some surprises. Stay tuned!!! Have a great weekend. Denny Blodgett Intersect Capital LLC