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Weekly Market Review | Sept. 29

01 October 2019

Clint McGarvin, CFA® | Portfolio Manager

Week Ending September 29, 2019

The U.S.

The focus of the U.S. equity markets last week was on Washington D.C. and the start of an impeachment inquiry into President Trump. However, it is possible the economy and corporate earnings will drive equity markets for the rest of this year and into 2020. In the recent past, the strength of the consumer remained while the manufacturing sector had fallen into a recession likely caused by the trade war. This same dynamic has played out around the world although manufacturing sectors globally have been far weaker than in the U.S. This dynamic, however, now appears to be reversing in the U.S. The most recent IHS Markit Purchasing Managers’ Index (PMI) reports show that the manufacturing sector in the U.S. is experiencing improving conditions as manufacturing PMI for September improved from 50.3 in August to 51.0. This improvement represents a 5-month high in the sector.[i]

On the other hand, the consumer is now beginning to show weakness according to spending statistics. Consumer spending in August increased by 0.1% from July, which is the lowest rate of growth since February when it declined by 0.2%.[ii] [iii]The decreased level of consumer spending in August may continue over the next few months as both the Consumer Confidence and Consumer Sentiment Indexes indicate that consumers are losing faith in the health of the U.S. economy. Consumer Sentiment[iv] posted the largest monthly decline since December 2012, falling 8.6 points in September. The driver of the decline was the steep drop in the expectations component of the index, which was down 10.6 points to 79.6. Consumer Confidence also declined in September, down from 134.2 in August to 125.1. As with the Sentiment Index, the driver of Consumer Confidence was the steep drop in the expectations component which fell 11.6 points to 95.8. The expectations component of these two indexes tend to lead consumer spending by approximately 6 months, they have been declining for a couple of months, which suggests consumers are likely to pull back on spending around Christmas time if expectations do not pick up and with August consumer spending rising a mere 0.1%, that could certainly be a troubling sign.

Back to the personal consumption expenditures (PCE) release, inflation remains subdued as it was unchanged in August and is now up 1.8% year-over-year. Digging into the PCE price index, goods prices declined 0.5% in August while services prices jumped 2.3%. The goods component of the overall price index has now declined every month this year, while services prices have increased by between 2.2% and 2.5% each month on a year-over-year basis. The result is prices have increased by 1.4% over the past year, which is down from the rate of price growth a year ago of 2.3%. The latest consumer spending, expectations, and inflation data support the Fed’s two 0.25% prescient interest rate cut decisions.

Other economic reports out last week

Durable goods orders rise 0.2% month-over-month; however, core capital goods, which is a good proxy for business spending, declined by 0.2%.

New home sales and pending home sales increased in August, giving hope that the recession in the housing market is ending.

Fixed Income

The political spectacle in Washington drove Treasury yields last week as investors flashed at least temporary concern that the impeachment inquiry could weaken the U.S. economy. The concern manifested itself through lower yields as the benchmark 10-year Treasury declined five basis points on the week to 1.69% on Friday and the 2-year Treasury was down six basis points to 1.63%. The yield curve between the 2-year and 10-year moved closer to inversion once again but still remains with a slightly positive spread.[v]


The attack on the Saudi oilfield a couple of weeks ago has moved well into the background, but following the initial price spike in the day following the attack, oil prices have declined to the level just before the attack. Saudi Arabia has been able to restore some of the lost production and rather than attack Iran, the U.S. and Saudi Arabia placed new sanctions on the country giving confidence that a war with Iran can be avoided. Gold prices have also come down from the initial spike and are back to levels before the attack.


The U.S. consumer has been a bright spot in the economy this year, but that appears to be changing as consumer confidence, sentiment, and spending growth have weakened since June. Inflation remains muted, so the Fed’s recent cuts in short-term rates now appear to be well-timed. The chart below shows the correlation between the global manufacturing sector and the stimulus that central banks inject into the economy. When central banks cut rates, manufacturing accelerates; the U.S. Fed is not the only central bank currently cutting rates as more central banks around the world are currently engaged in stimulus programs, which is likely to improve conditions in manufacturing. The effect that the recent round of central bank cuts will have on consumers is as yet unknown and whether it has a positive effect on the recent weakness in consumer spending and confidence will play out over the next several months.

Upcoming economic reports

  1. ISM Manufacturing Index is out Tuesday
  2. ISM nonmanufacturing index is out Thursday
  3. Perhaps the most important economic release of the week is out Friday when September nonfarm payrolls are released.

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[i] PMI by HIS Markit (2019), IHS Markit Flash U.S. Composite PMI™. Retrieved from
[ii] Bureau of Economic Analysis (2019), Personal Income and Outlays: August 2019. Retrieved from
[iii] Bureau of Economic Analysis (2019), Monthly Personal Income, DPI, PCE And Personal Saving: Levels and Percent Changes. Retrieved from
[iv] University of Michigan (2019), U-M Surveys of Consumers: Tariffs Weaken. Retrieved from
[v] U.S. Department of the Treasury (2019), Daily Treasury Yield Curve Rates. Retrieved from

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