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Market Commentary, September 11, 2017 For the week of September 11, 2017

Key Market Data

09/01/2017 09/08/2017 One Week Change YTD One Year
S&P 500 Index 2,473.75 2,461.43 -0.50% +11.51% +15.19%
MSCI EAFE Index 1,938.37 1,953.56 +0.78% +18.98% +16.43%
Barclays Capital U.S. Aggregate Bond Index 2,044.52 2,053.83 +0.46% +3.92% +1.00%
10-year Treasury Note Rate 2.167% 2.052% -11.5 basis points -39.3 basis points +45.2 basis points

It was a new week but, unfortunately, the headline was the same: Americans battered by an outsized hurricane.

Only this time it was Irma in Florida, not Harvey in Texas. And this time, the major stock indexes were down for the week as investors considered the growing toll of the two storms, including the cost of the cleanup and their effect on everything from oil rigs to orange juice, and from insurance companies to health care providers. Irma left a trail of devastation in the Caribbean, and came during a week when Mexico was rocked by the strongest earthquake in over a century, and yet another hurricane, Jose, was gathering steam. Mother Nature, along with the wildcard of North Korea and a weaker dollar, also helped drive the yield on the 10-year Treasury to its 2017 low last week.

The full impact of Irma has yet to be determined as it only hit Florida yesterday and may move well inland before petering out. But the aftermath of Hurricane Harvey has already been felt as far north as the halls of Congress after President Donald Trump brokered a deal with Democrats to pass emergency funding for storm relief in a package that also raised the debt ceiling for three months (through Dec. 8). On the plus side, raising the debt limit without a partisan showdown was a welcome change. But GOP members, who had wanted to extend the debt ceiling by six months or more, were unhappy with the deal and, in some cases, angry that it had been linked to over $15 billion to aid hurricane victims. In fact, though the legislation sailed through the Senate (80-17) and House (316-90), the only congressmen to vote against it in either chamber were Republicans. The question now consuming politicians on both sides of the aisle is whether the deal was a one-time partisan foray, or whether the president will try to work with the Democrats on other issues such as tax and health care reform. And while there’s no consensus, on Friday he tweeted that trying to pass bills along party lines was “a Repub death wish.”

The dollar

The dollar fell to a two-and-a-half-year low against the euro last week over concerns about the cost of the hurricanes and the threat of North Korea, which is rumored to be preparing another nuclear test. A weaker dollar can be a boon as it lowers the cost of American products abroad, but it can lead to concern if the dollar is seen as on a downslide, indicating weakness in the American economy.

The Fed

Last week, Stanley Fischer, the vice chairman of the Federal Reserve, unexpectedly announced that he will step down for “personal reasons” before his term ends in mid-2018. This gives President Trump another chance to put his stamp on the Fed’s Board of Governors as Fischer’s resignation leaves only three members on the seven-member board. The president has already nominated Randal Quarles for one seat, and last week the Senate Banking Committee voted to move that nomination to the full Senate, where Quarles is expected to be approved. Trump has yet to announce whether he will re-nominate Chairwoman Janet Yellen for her job when her term expires in February.

Another breach

In one of the biggest data breaches in history, hackers gained access to the personal information of as many as 143 million Americans last week (that’s 55% of people 18 and older, according to The Wall Street Journal) by hacking into Equifax, the credit-rating company. The severity of the breach has yet to be determined, but the company’s stock tumbled 14% on Friday alone.

The ECB – and Spain

The European Central Bank (ECB) met last week, and though it decided to leave its stimulus plan unchanged for now, the bank’s President Mario Draghi indicated that it was poised to make changes and would likely announce a plan and timetable after the ECB’s next meeting in October. (The ECB’s interest rate is currently zero and it spends €60 billion a month on bonds.) With the Fed having rolled back its quantitative easing, there has been pressure on the ECB to follow suit, especially as the eurozone’s economy has been on the upswing. But there are variables nonetheless, including low inflation (an annual rate of 1.5% in August with the bank last week forecasting that the rate will remain below its 2% target through 2019), and, for the moment, the fact that the weaker dollar makes European goods more expensive. The ECB may soon have another problem to contend with after Catalonia, which has been pushing for independence from Spain, said it would move ahead on Oct. 1 with a binding referendum to secede, even after a Spanish court said such a step was unconstitutional. The vote will come at a time when Spain seems to have finally bounced back from the economic crisis with its gross domestic product expected to hit 3% this year.

In other news, after having risen 3.2% in June from May, factory orders were down 3.3% in July, the biggest drop in almost three years. However, orders excluding transportation were up 0.5%, and orders for non-defense capital goods excluding aircraft increased 1%. Wholesale inventories improved 0.6% in July from the month before. Nonfarm productivity for the second quarter was revised up to an annual rate of 1.5% from the original 0.9%. The Fed’s Beige Book reported “moderate” to “modest” growth in its 12 districts with stronger household spending. Finally, thanks to Harvey, first-time jobless claims jumped 62,000 for the week ending Sept. 2, reaching 298,000, the highest level since April 2015. The four-week moving average rose 13,500 to 250,250.

A look ahead

As Americans and Congress wait to see what Irma will do, investors will also weigh the coming week’s economic updates, including the latest on small business optimism, the Producer Price Index, Consumer Price Index, consumer sentiment, retail sales, industrial production and capacity utilization, and business inventories.

Most importantly, this week, we honor the memory of those who lost their lives and the families who were affected by the Sept. 11 terrorist attacks 16 years ago today.