Stocks were up for the third straight week as recession fears faded slightly and the chances for a trade deal supposedly improved. How many times have we heard that before? Trump delayed tariffs on some items and China did the same on pork and soybeans. The S&P 500 increased by 1%.
A strong consumer spending report for August showed that the threat of a looming recession might be overstated. Retail sales were up by 0.4% which was better than expected. Yields exploded higher, the 10-year increased to 1.901% on Thursday, up by 34 basis points, the biggest rise since June of 2013. The gap between the 3-month treasury bill and the 10-year bond significantly narrowed and is now inverted by only by .061 percentage point compared to 0.41% one week ago.
There was a shift in factor sentiment, as investors jumped into value and out of momentum. MTUM, the IShares Momentum Factor ETF fell by 2.35% while VLUE, the IShares Value Factor ETF increased by 4.02%.
If you are wondering how the economy can maintain its pace of slow growth in the face of an ever-increasing trade war, one reason would be the fiscal stimulus provided by a budget deficit that now exceeds $1 trillion dollars for the first 11-months of the year (4.4% of GDP). That is the first time the deficit has exceeded $1 trillion since 2012. It is possible that a surplus in September pulls the number lower, but the point is the deficit is exploding at a time when it should be declining.
Closing out his tenure as the ECB president, Mario Draghi announced a rate cut and the restart of quantitative easing.
No scoreboard this week due to a software issue. It will be posted next week as normal. Sorry!
Bruce Konners, CPA, CFA, PFS
Past performance does not guarantee future results.
The purpose of this commentary is to provide readers with a summary of recent market and economic news. It is not intended to provide trading advice. Investors should have a long-term plan and should consider working with a professional investment advisor. The statements and opinions expressed in this article are those of the presenter(s). Any discussion of investments and investment strategies represents the presenter’s views as of the date created and are subject to change without notice. The opinions expressed are for general information only and are not intended to provide specific advice or recommendations for any individual. Any forecasts may not prove to be true. Economic predictions are based on estimates and are subject to change.