The Market Today
Patriot Day – The 17th Anniversary of 9/11
by Craig Dismuke, Dudley Carter
Patriot Day: Today marks the 17th anniversary of 9/11 with moments of silence being held around the country at 7:46 a.m. CT. During the four attacks on America, 2,977 people were killed and 6,000 injured. For more information on Patriot Day, please visit the 9/11 Memorial Site.
Small Business Optimism Jumps to New Record-High: Small business confidence rose from 107.9 to 108.8, now surpassing the previous all-time high from 1983 (when the economy was growing over 8.0%). Looking at the details, the outlook for sales pulled back 3 points and compensation plans dropped 1 point, but both remain very strong. On the positive side, plans to hire rose another 3 points portending more traction in earnings growth going forward. When asked what the biggest challenges are for small businesses, finding quality labor to fill job openings jumped even higher, now to its highest level on record. Taxes, as an obstacle, remain near their lowest level on record.
Job Openings Expected to Remain Very High: At 9:00 a.m. CT, the July Job Openings and Labor Turnover report is expected to show a small increase in job openings. Openings remain near record-high levels and increasingly reflect a lack of slack in the labor market. Also at 9:00 a.m., the July Wholesale Inventories revision will be released.
Florence Strengthens and Accelerates Toward Carolina Coast: According to a report from the Raleigh News and Observer, “Hurricane Florence is now a Category 4 storm and is ‘rapidly strengthening’ as it heads toward the Carolinas coast, bringing ‘exceptionally heavy rain,’ the National Hurricane Center (NHC) said on Monday. In a 11 p.m. update from the NHC, the storm’s winds rose to 140 mph, and it picked up speed in its westward track, doubling its speed from Sunday to 13 mph.” According to updates this morning from the National Weather Service, the storm is expected to hit North Carolina early Thursday, bringing up to 12 inches of rain to some areas.
Yesterday – Stocks Closed Mixed Monday, Treasury Yields Kept Tight Range: U.S. stocks were mixed on Monday as strength in the tech companies pushing the Nasdaq up 0.27% to lead all gains. The Dow slipped 0.23% while the S&P 500 finished in the middle after a 0.19% gain. Health care and financial companies were the biggest drag on the bottom two indexes. The two biggest losers within the health care space were hit by analyst downgrades and, while banks were down on the day, it was insurance companies that were the largest drag on the financials sector. Some traders pointed to Hurricane Florence’s projected path and the circulating of related damage estimates as partial drivers of the daily pain for insurance companies. Florence, and possible rebuilding that could unfortunately be required, was also cited as a factor in Home Depot finishing in the Dow’s second spot. In the Treasury market, yields moved within a tight range to start the week. The 10-year settled 0.7 bps lower after trading within a 2-bps range for the day. The 2-year yield closed up 0.8 bps but was contained within an even quieter 1.5-bp range.
Overnight – Stocks Slide as China Wants WTO to Give it the Green Light to Retaliate: The safest sovereign yields moved up overnight despite global equities giving up early gains to trade near their lows of the day ahead of the U.S. session. European indexes followed S&P 500 futures over a cliff just before 4 a.m. CT on a headline that China was seeking WTO authorization to retaliate against the U.S. for trade violations. The claim is tied to a dispute ruling from last year that criticized the methodology used by the U.S. to determine the value of certain types of goods it considered China to be “dumping” into the U.S. economy at unfair prices. The S&P 500 futures contract moved from up 0.2% to down 0.3% on the headline, the latest signal that China won’t easily be broken by the U.S. tariff proposals. China’s CSI 300 slipped 0.2% to its lowest level in almost two years and deepened its current bear market to -26.6%. The reminder of the wide gap that remains between U.S. and China trade paradigms followed and overshadowed more optimistic remarks about progress with the EU. Officials from the U.S. Trade Representative’s office had a “constructive meeting” with EU trade officials on Monday. They released a statement that said the USTR “will begin consultations with Congress pursuant to Trade Promotion Authority to facilitate negotiations on longer-term outcomes,” and “ministers will then meet in November to finalize outcomes in a number of areas.” Before U.S. trading began, the 2-year yield had added 1.7 bps while the 10-year yield tacked on 2.6 bps.
Bostic’s Not Buying Restrictive Fed Policy: Atlanta Fed President Bostic (current voter) said the Fed should take a break from its gradual projected path once the overnight rate reaches a neutral setting. While he didn’t elaborate on what he believes the neutral rate to be, Bostic previously said in a late-August interview he expected one more rate increase for 2018. In addition to his comments on monetary policy, he briefly discussed the uncertainty that ongoing trade disputes was creating. Bostic noted that the tariffs could create inflationary pressures, slow or prevent businesses from investing in capital projects, and offset some of the expected tailwind from tax reform.
Consumer Credit Rises Even as Buyers Keep Their Credit Cards Tucked Away: Consumer credit rose a larger-than-expected $16.6B in July, or at an annualized rate of 5.1%, marking the second best pace of the year. However, there was a divergence in the details with revolving credit still sluggish relative to recent years while non-revolving types picked up to an eight-month-high pace. A pessimist would say the weaker pace of growth in the revolving category, which consists primarily of credit card balances, shows consumers have a lack of appetite for spending. An optimist would point to strong consumer confidence, the benefits of tax reform lessening the need for borrowing, a strong labor market, better wage growth, and a solid savings rate to support the story that the consumer is doing just fine. Either way, the better personal consumption data from 2Q and solid retail sales data to start 3Q seems to have had little support from credit-funded purchases.
ICYMI – Vining Sparks on CNBC: Vining Sparks’ Chief Economist, Craig Dismuke, appeared on CNBC’s Nightly Business Report Friday afternoon to discuss the risks of an ever-tighter labor market. Chief among concerns is the risk that wage growth accelerates above 3.0%, raising the risk of faster inflation and a more proactive Fed. Click here to watch the segment.