The major benchmarks were mixed for the week. The large-cap Dow Jones Industrial Average and the S&P 500 Index outperformed and reached all-time highs, while the technology-focused Nasdaq Composite Index and the smaller-cap benchmarks recorded modest losses.
A sharp increase in longer-term bond yields early in the week boosted financials stocks by improving bank lending margins but weighed on real estate investment trusts and utilities shares, whose relatively high dividends became less compelling in comparison.
The strong performance of the financials sector and relatively weak performance of technology stocks helped value stocks outperform their growth counterparts for the first week in over a month, although growth stocks remained well ahead of value stocks for the year to date.
The week brought a further escalation in the trade conflict between the U.S. and China, but it appeared to weigh on sentiment only briefly.
Stocks fell sharply on Monday afternoon, traders attributed to reports that the White House would soon make another tariff announcement.
Indeed, after the close of trading, President Trump delivered on a threat that he made in August and declared that $200 billion worth of Chinese goods would immediately be subject to a 10% tariff, rising to 25% by the end of the year.
The next round came on top of $50 billion worth of Chinese goods already subject to new tariffs this year.
In a pattern that surprised many observers, stocks rose solidly when trading began Tuesday and carried the momentum through much of the rest of the week. Investors may have been calmed by the low 10% level of the initial tariff, which some interpreted as a sign of a willingness to negotiate on the part of the administration.
China seemed to offer its own olive branches. In particular, Chinese officials indicated that they would not allow the country’s currency, the yuan, to devalue further.
The yuan has declined over 8% versus the U.S. dollar since April, making China’s goods more competitive on world markets and largely offsetting the impact of a 10% tariff. Chinese officials also announced a series of measures to open China’s markets to foreign goods, such as reducing the time it takes goods to clear customs.
Sentiment may also have received a boost from solid U.S. economic data. Weekly jobless claims, reported Thursday, fell to 201,000, the lowest level in half a century.
Regional manufacturing indexes were also strong. Housing data were more mixed, with housing starts jumping in August but new permits falling, suggesting some weakness ahead.
The yield on the benchmark 10-year Treasury note touched 3.10% on Thursday, its highest level in four months, before falling back a bit on Friday. Federal Reserve is all but certain to raise short-term interest rates when it meets on September 25-26.
Municipal bonds continued to feel soft through the week, as investor apathy and cash flows out of municipal bond mutual funds coincided with the seasonal weakness between the July and December coupon reinvestment periods.
The investment-grade corporate bond market saw healthy new issuance, with volume in line with expectations. Recent new deals traded techwell overall with renewed demand from overseas investors providing nical support. Meanwhile, inflows to high yield funds and moderate new issuance contributed to firmer sentiment in the below investment-grade market.
Source: G&T
