U.S. stocks and bonds ended their two-week losing streak with modest gains last week.
NASDAQ had the best gain, rising 0.8%, followed by the S&P 500, which rose 0.4%. The Dow was fractionally higher. In the Treasury market, yields at the long end were 6-7 basis points lower on the week after rising more than 20 bps over the previous two weeks. The yield on the benchmark 10-year government note closed Friday at 1.73%, still up about 40 bps from its 2016 low set back in early July.
European stocks registered their biggest gains in a month as Mario Draghi said the European Central Bank “remains committed to preserving a very substantial degree of monetary accommodation.” Although the bank took no action at its meeting last week, the ECB president said that it won’t stop its quantitative-easing program without tapering it first, indicating that its massive asset purchase program will likely run past next March, the originally scheduled end date. “An abrupt ending to bond purchases, I think, is unlikely,” Draghi said. The Stoxx Europe 600 and Germany’s DAX index gained more than 1% for the week, although Spanish and Italian stocks rose closer to 4%. Japanese stocks jumped nearly 2% as the Bank of Japan also promised continued monetary accommodation to raise inflation toward its 2% target. Chinese stocks gained nearly 1% after rising 2% the prior week as the yuan fell to its lowest level against the dollar in six years.
Several important economic reports were released last week. The Federal Reserve’s Beige Book covering late August through early October continued to find “modest or moderate” economic growth throughout the country. “Outlooks are positive, although contacts in several sectors cite the upcoming presidential election as a source of near-term uncertainty, delaying some business decisions.” Reports from two Fed regional banks in the Northeast for October were mixed: the Philadelphia Fed’s business conditions index fell slightly but remained in positive territory at 9.7, a bit better than expected, but the New York Fed’s Empire State manufacturing index was worse than forecast, remaining in negative territory for the third month in a row at -6.8. Nationally, the Conference Board’s leading economic indicators rose 0.2%, reversing the previous month’s 0.2% decline. Industrial production rose 0.1% in September after falling 0.5% the previous month.
Housing sector indicators were mixed. Existing home sales rose 3.2% in September to a better-than-expected annual rate of 5.47 million, but the median sales price of a home fell 2.4% to $234,200. Housing starts fell 9.0% to an annual rate of 1.047 million, mainly due to a 38% decline in multifamily starts. But single-family starts, which cover most of the industry, rose 8.1%. Likewise, building permits rose 6.3%. The National Association of Home Builders’ housing market index fell two points in October to 63, although that is still its second highest reading this year. On the inflation front, the consumer price index rose 0.3% in September and 1.5% on a year-on-year basis.
Reports/dates/facts/links worth paying attention to over the next week:
1. October 24: Chicago Fed national activity index for September.
2. October 25: Conference Board consumer confidence index for October; S&P Corelogic Case-Shiller home price indexes for August.
3. October 26: New home sales for September.
4. October 27: Weekly unemployment claims; durable goods orders for September; pending home sales for September.
5. October 28: Third quarter GDP, flash estimate; University of Michigan consumer sentiment index for October, second reading.