- Jerome Powell and the Federal Reserve reiterated their commitment to 0% interest rates until 2023.
- US Equity markets continued to selloff despite a positive start to the week.
- Retails sales rebounded to pre-crisis levels while capacity utilization remains depressed.
For the third consecutive week, the $S&P500 and $Nasdaq finished in the red. The Technology stock sell-off began in September and the month-to-date return now sits at -8.3% ($Nasdaq). Only the Russell 2000 ended the week with a meaningful gain (+2.6%).
All major US indices show losses in September. Assuming this continues, it first down month for all indices since March.
The YTD return on the $S&P500 (+2.7%) and $Nasdaq (+20.3%) remain in the green. Alternatively, the $Dow Jones (-3.1%) and $Russell 2000 (-7.9%) are down materially on the year.
Market volatility eased with the $VIX closing at 25.83 (-3.9% on the week). For context, the VIX traded as high as 38.28 in early September as the sell-off commenced. The VIX still remains materially above the 10-year average, but is down significantly from the beginning of the COVID crisis (see below).
Four of the eleven sectors finished the week in the green with Energy ($XLE) leading the way. Thermal Coal and Oil & Gas Drilling led the week for the Energy sector (see below). However, the $XLE is down 44% on the year and 5.7% in September.
Industrial ($XLI) and Materials ($XLB) are the only sectors that remain green in September.
The US 10-Year advanced 3% this week with the yield just shy of 70 basis points. Yields on corporate bonds continue to slide with BBB and BB Corporate bonds yielding 2.34% and 3.74% respectively. The 30-Year mortgage now sits 39 basis points below the Prime Rate which represents the lowest home borrowing cost on record. Low borrowing cost is driving housing demand and lumber prices (see below in Economic Data and Commodity Prices).
Currency & Commodity Markets
Pressure on the dollar continues as the Dollar Index (DXY) slides 0.43% this week. The dollar is now down 3.59% on the year despite being up 0.86% in September. The USDEUR rate dropped again this week and is now down 5.45% on the year.
Crude oil caught a bid this week as front month futures contracts now sit just shy of $41 a barrel. Most notably, Lumber appears to be losing steam. January 2021 Lumber contracts fell 44.83% this week as the price drops to $523 per 1,000 board feet. Gold continues to have a strong year (+28.8%) despite a choppy September.
On Wednesday, Jerome Powell reiterated the Federal Reserve's commitment to zero interest rates during the FOMC press conference.
The newest monetary policy target, average inflation targeting, was also addressed.
The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. With inflation running persistently below this longerrun goal, the Committee will aim to achieve inflation moderately above 2 percent for some time so that inflation averages 2 percent over time and longer-term inflation expectations remain well anchored at 2 percent. - FOMC September Press Release
The Federal Reserve will target higher than 2% inflation in the short-to-medium term in order to achieve its long-run average target of 2%.
Retail Sales & Capacity Utilization
Real US Retail Sales appear to be following a "V-shaped" recovery (above in purple) and now trending upward from its historical maximum. However, Capacity Utilization remains materially below its late-2018 high and the recovery appears to be stalling.
Building Permits & Housing Starts
Seasonally adjusted Building Permits show a month-over-month downtrend for the first time since the deepest levels of the crisis. Home Builders ($XHB) have benefitted as a result of the crisis.
Another 860,000 Americans filed for unemployment insurance last week. This is down sharply for the yearly high, but the employment recovery appears to have leveled out. Conversely, continuing claims continue to fall. Now 12.6 million Americans are collecting unemployment insurance which is down from 24.9 million in May.
|Wednesday||PMI - Manufacturing & Services||September||53.1 / 55|
|Thursday||New Home Sales||August||901,000|
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