- S&P 500 Index finishes best quarter since 2013
- Tesla plunges on Friday after SEC files lawsuit against Elon Musk
- Dollar returns to status as trade-related safe haven currency
While US equities slipped for the week as the US-Sino trade dispute escalated, they still capped their best quarterly advance in five years. As such, we expect investors to sustain the ongoing rally, buoyed by continued economic expansion.
SPX: Best Quarter Since 2013
Though the S&P 500 fell 0.57 percent over the course of the week, ending a two-week advance, it nonetheless enjoyed its best quarter since 2013. Materials (-4.34 percent) led the weekly declines on the mounting trade tariff concerns. Financials (-4.04 percent) followed close behind as traders cashed out after the Fed increased its federal funds rate by 0.25 percent, raising it to 2.00 percent - 2.25 percent. Defensive sector Utilities (+1.5 percent) outperformed on Friday.
Also on Friday, Facebook (NASDAQ:FB) dropped over 2 percent after it announced a security breach affected 50 million users. Tesla (NASDAQ:TSLA) shares plunged 13.9 percent, the most in 5 years, after the Securities Exchange Commission Thursday filed a lawsuit against Elon Musk seeking to have him barred from chairing the board or acting as CEO of Tesla.
The SEC's suit accused Musk of misleading investors via a tweet on August 7 about taking Tesla private. On Saturday, Elon Musk stepped down as Tesla chair, though he will retain his position as CEO. As well, it was agreed that he and the company would together pay $40 million in order to settle the government lawsuit.
On the final day of the trading week the SPX finished flat. The Dow Jones Industrial Average performed better, gaining 0.07 percent, despite its sensitivity to trade. The NASDAQ eked out a 0.05 percent gain.
The small cap Russell 2000 outperformed, gaining 0.39 percent. Its domestic companies have the most to gain when tariffs are increased for multinational firms.
Should the ongoing trade spat become a full fledged trade war, Dow technicals could end up forming a massive double top since the beginning of the year.
Though we've previously discussed the possibility of continued hikes as a headwind for equity prices, as the Fed continues raising rates to highs not seen in a decade, investors appear to have taken it all in stride. It seems they've recognized that rates are still normalizing and that the continued wage expansion and inflation staying near the Fed’s 2 percent target support growth despite the tightening.
After data on Friday showed US consumer spending had cooled in August, the dollar erased earlier gains. Nevertheless, it still rose for a third day, jumping 0.20 percent on the day and 0.97 percent for the week.
The Japanese yen declined 0.99 percent for the week, finishing a third-straight week of setbacks, to lose 2.37 percent. The USDJPY climbed above the downtrend line since May. Considering trade uncertainty did in fact weigh on stocks, the most likely explanation is that the dollar is forcing its way back into position as the go-to safe haven currency.
WTI crude advanced 3.49 percent for the week, a third straight weekly advance totaling 8.12 percent. It was the commodity's longest run of weekly gains in four months on the outlook of a supply crunch. The price is now just a quarter percent below its $75.27, early-July peak.
Week Ahead
All times listed are EDT
Sunday
19:50: Japan – Tankan Big Manufacturing Outlook (Q3): index expected to decline to 19 from 21.
Monday
4:30: UK – Manufacturing PMI (September): survey forecast to fall to 52.5 from 52.8.
10:00: US – ISM Manufacturing PMI (September): forecast to fall to 60.3 from 61.3.
Tuesday
00:30: Australia – RBA rate decision: no change in policy expected.
1:00: Japan – Consumer Confidence (September): forecast to rise to 43.4 from 43.3.
4:30: UK – Construction PMI (September): expected to fall to 52.5 from 52.9.
Wednesday
4:30: UK – Services PMI (September): forecast to fall to 54.0 from 54.3
8:15: US – ADP Employment Report (September): 185K jobs expected to have been created, up from 163K a month earlier.
10:00: US – ISM Non-Manufacturing PMI (September): forecast to fall to 58.1 from 58.5.
10:30: US – EIA Crude Oil Inventories (w/e 28 September): stockpiles to fall to -1.279M barrels, from a 1.852 million barrel increase a week earlier.
21:30: Australia – Balance of Trade (August): surplus to decline to A$1.4 billion from A$1.551 billion Thursday
Thursday
8:30: US – Initial Jobless Claims (w/e 29 September): claims forecast to fall to 208K from 214K.
10:00: Canada – Ivey PMI (September, seasonally adjusted): expected to decline to 61.4 from 61.9.
Friday
8:30: US – Nonfarm Payrolls (September), Trade Balance (August): forecast to see 185K jobs created from a reading of 201K a month earlier. The unemployment rate is expected to fall to 3.8% from 3.9%, while average hourly earnings rise 0.3% MoM from 0.4%. Trade deficit to widen to $53.1 billion from $50.1 billion.
8:30: Canada – Unemployment Rate (September): Expected to remain steady at 6.0 percent.