By Claire Rubin, Private Bank Investment Strategist, Fifth Third Bank
Hello, this is Claire Rubin, Private Bank Investment Strategist at Fifth Third Bank with this week’s Economic Beat.
Major U.S. equity indices ended the holiday-shortened week higher. The benchmark S&P 500 Index rose 1.8% in total return for the week, while the tech-heavy Nasdaq gained 2.2% and the blue-chip Dow Jones Industrial Average added 1.6%. International equities were also higher with the MSCI All Country World Index rising 2.2% for the week. Equities turned around this week, as investors were encouraged by stronger than expected retail sales and solid corporate earnings, despite the continued spike in commodities prices and concerns about inflation. Large U.S. banks were among the first S&P 500 companies to report earnings and results were mostly stronger than expected.
Treasury yields were mixed. The 2-year U.S. Treasury yield was up 7 basis points for the week, as inflation data led market participants to move up their expectations for the Federal Reserve to start hiking rates. Fed Funds futures had previously suggested the first rate hike may occur in the fourth quarter of next year, but now suggest the third quarter. The 10-year U.S. Treasury yield was lower for the week, down roughly 4 basis points to end at 1.57%.
The Federal Open Market Committee released minutes from their September policy meeting last week. Among items of note, the minutes stated that various policy makers believe economic conditions are likely to justify keeping the Federal Funds rate at or near its lower bound over the next couple of years. These policy makers suggested that there will likely be sustained downward pressure on inflation in the years ahead and that the economy remains well below full employment.
Crude prices continued to march higher for an eighth straight week, with West Texas Intermediate (WTI) crude now above $80 per barrel.
In economic news, small business optimism dropped more than expected in September to the lowest level since March. A record percentage of owners said they had open positions they could not fill. On the flip side, U.S. job openings eased for the first time this year in August, though they remain near a record high. The consumer price index rose by more than expected in September, up 0.4% from a month earlier and up 5.4% from a year earlier. Excluding volatile food and energy components, core inflation rose 0.2%, in line with forecasts. A highlight of the week was the report on retail sales, which unexpectedly increased in September. The increase was broad, with 11 of the 13 retail categories posting gains last month.
We are entering one of the busiest weeks of third quarter earnings season, with large names in finance, industrials and technology scheduled to release results. The U.S. economic calendar includes industrial production, housing data and leading economic indicators.
As always, we’ll be watching and reporting back to you. Thank you.