The stock market finished mostly lower on tame economic data and a rise in the federal funds rate. However, the tech heavy Nasdaq index finished higher as tech continues its upward momentum. The 10-year treasury yield was virtually unchanged, dropping only one basis point to 3.06%. Yet, the spread between the 10-year treasury yield and the 2-year treasury yield narrowed by 4 basis points to 0.23% amid an increase in the federal funds rate. The price of Gold dropped 0.66% to $1,195 an ounce as inflationary data came in lower than expected. The price of crude oil jumped 3.70% to $73.47 a barrel as the U.S. announced it has no plans to tap into its petroleum reserve, and China plans to cut back on Iranian oil purchases. The U.S. dollar index rose from 94.19 to 95.16 amid tame inflation data.
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THIS WEEK’S HIGHLIGHTS
- New home sales jumped 3.5% in August to a seasonally adjusted annual rate of 629,000 units. However, downward revisions in both June and July’s reports show that the upward trend is weakening. On the plus side, the median price of new homes fell 2.4% to $320,000 and supply increased 1.6% to 318,000 new homes on the market.
- The Fed raised the Federal Funds rate by another 0.25%, as expected, with its target range now at 2.00% – 2.25%. Based on the Fed’s forecast, analysts expect at least one more rate hike this year as the economy still shows signs of strong growth. The Fed also signaled that they plan to continue rate hikes into 2019.
- New orders of U.S. durable goods jumped 4.5% in August as orders of new civilian aircrafts surged 108% after falling 41% in July. However, excluding the volatile aircrafts component and other forms of transportation, durable goods orders only rose a very moderate 0.1%.
- U.S. real GDP rose at a very strong annualized rate of 4.2% in the second quarter of 2018. The strong growth was led by a 3.8% rise in consumer spending and an 8.7% rise in nonresidential fixed investment. Government spending, residential investment, and inventories all had small downward revisions.
- The U.S. trade deficit in goods widened to a near record of $75.8 billion in August as the unfolding of tariffs begins to take effect. That said, U.S. exports of goods dropped 1.6% while imports rose 0.7%.
- Initial unemployment claims increased by 12,000 to 214,000 for the week ending September 22nd. Continuing unemployment claims also rose but by a more mild 16,000 to a total of 1.66 million. Despite initial and continuing unemployment claims increasing, both still remain historically very low.
- Personal income and consumer spending both rose a modest 0.3% in August, in line with expectations. The Personal Consumption Expenditure (PCE) price index, a measure of inflation, rose 0.1% in August for a year-over-year change of 2.2%. Excluding the volatile food and energy components (Core PCE), prices were unchanged resulting in a year-over-year change of 2.0%.
For the third quarter of 2018, the S&P 500 posted its best quarterly gain of 7.2% since the fourth quarter of 2013, driven largely by strong corporate earnings.
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