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Photo AP / Susan Walsh, File
While Wall Street continues to ruminate the last few minutes of the Federal Reserve, it seems that concern remains about rising interest rates, likely to cut the wings of a stock market booming.
Higher rates and higher Treasury yields were favored by the financial sector. Rising interest rates may help banks, as it allows them to charge more interest on their loans. But the sector also seems to benefit from some help thanks to the strong results of the banks. American Express is expected to release its results after the close of today.
Outlook for interest rate hikes
The minutes showed that policymakers thought that incremental incremental increases in the federal funds rate would likely be needed if current economic expansion, strong labor market and inflation close to 2% continued.
"This step-by-step approach would help balance the risk of monetary policy tightening too quickly, which could lead to a sharp downturn in the economy and lower inflation than the committee's objective, at the risk of slowing down too slowly, this could lead to persistently higher inflation than the target. could contribute to the accumulation of financial imbalances, "says the minutes.
This continued focus on the gradual tightening of monetary policy through a rise in the federal funds rate comes at a time when the rise in Treasury yields, particularly on the 10-year benchmark, has contributed the pressure on stocks in recent days. The 10-year return is now back above 3.2%.
It seems that some investors are worried that rising borrowing costs will dampen investment in the stock market as well as in the economy as a whole. And rising interest rates can help make bonds more attractive.
Market buoyancy
Nevertheless, despite the apparent pressures of the Fed, the market seems to have something dynamic. Although the top three US indexes closed in the red yesterday, they all rebounded from their lowest level of the session.
From a macroeconomic point of view, there is reason to be optimistic, with gross domestic product figures and other solid economic data, even though inflation seems to remain relatively under control.
And then there is the company's results season, which started well. Until Wednesday, more than 88% of S & P companies reporting results exceeded analysts' expectations, according to CNBC, citing data from FactSet. According to S & P Capital IQ's consensus estimates, the operating results of the S & P 500 are expected to post an increase of 21.3% over the previous year, according to the CFRA investment research firm.
And of course, the rebound in US stocks since last week. The main indexes remain lower than at the beginning of the month, but some participants may think that the market has over-sold and is buying the decline. It can also be argued that the market could set a new range to revalue stocks a little lower than at the beginning of the year. This could be healthy, especially as corporate earnings growth could begin to slow in 2019 as the effects of tax reform dissipate.
Figure 1: Finances finally have a boost: The year has been tough for the financial sector, but the last few days have provided some support, as shown in this one-month chart. Some of this support could come from rising bond yields (purple line), while positive results have probably helped as well. Data source: S & P Dow Jones Indices, CME Group. Cartographic source: TD Ameritrade thinkorswim® platform. For illustration purposes only. Past performance does not guarantee future results.Data source: S & P Dow Jones Indices, CME Group. Cartographic source: TD Ameritrade thinkorswim® platform.
Disappointment of housing data: After mid-week government data on the US housing market has been disappointed, the question is whether housing data that is expected to be released tomorrow may also be weaker than expected. Data released Wednesday by the Commerce Department showed a housing starts rate of 1.201 million units in September, while building permits issued in the same month reached 1.241 million units. These seasonally adjusted annual figures were both lower than the previous month and lower than a consensus of economists provided by Briefing.com. "The supply of new homes does not accumulate fast enough to meet the demand for new homes at more affordable prices," Briefing.com said. "As a result, constraints related to affordability will continue to dampen the overall sales of homes." Economists said they expect September's existing home sales data to announce a seasonally adjusted monthly drop in the annual rate to 5.3 million units. .
Fly high: It seems that the rise in fuel costs does not cut the wings of the airlines. United Continental Holdings, the parent company of United Airlines, announced this week its intention to offset about 90% of the increase in fuel costs this year, while its competitor, Delta Air Lines, which announced profits last week, reported recovering about 85% of the 3Q fuel price increase. Rising oil prices can lead to higher fuel costs, a major expense for airlines and other transportation companies. But it seems that the combination of higher fares and strong flight demand is helping airlines cope with rising fuel prices. American Airlines is expected to release its results next week, giving investors a full picture of how the three largest US airlines are facing higher fuel costs. It might be interesting to see if American Airlines also avoids higher fuel costs with higher ticket prices and rising demand.
Boo, says Volatile October: Besides Halloween and all the horror movies at the movies, October can be a scary month for investors because of the increased volatility, and this month is living up to its historically scary nature. Since the beginning of this month, the S & P 500 index has seen an increase in intra-day average volatility of 40% in the first nine months of this year, notes CFRA. The Cboe volatility index, which is considered the main indicator of market fear, has reached levels not seen for several months, with investors worried about rising interest rates and persisting market problems. international trade. "October's reputation as an unstable month is justified, as it is the largest percentage of days the S & P 500 has increased or decreased by 1% or more since 1950, to 10.3%," he said. declared CFRA. However, so far this month, the 12-month rolling number of these daily price movements is just under half its average since 2000 and is 22% below the average since announced the research firm in its note Wednesday.
Comment TD Ameritrade® for educational purposes only. ISPC Member.
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Photo AP / Susan Walsh, File
While Wall Street continues to ruminate the last few minutes of the Federal Reserve, it seems that concern remains about rising interest rates, likely to cut the wings of a stock market booming.
Higher rates and higher Treasury yields were favored by the financial sector. Rising interest rates may help banks, as it allows them to charge more interest on their loans. But the sector also seems to benefit from some help thanks to the strong results of the banks. American Express is expected to release its results after the close of today.
Outlook for interest rate hikes
The minutes showed that policymakers thought that incremental incremental increases in the federal funds rate would likely be needed if current economic expansion, strong labor market and inflation close to 2% continued.
"This step-by-step approach would help balance the risk of monetary policy tightening too quickly, which could lead to a sharp downturn in the economy and lower inflation than the committee's objective, at the risk of slowing down too slowly, this could lead to persistently higher inflation than the target. could contribute to the accumulation of financial imbalances, "says the minutes.
This continued focus on the gradual tightening of monetary policy through a rise in the federal funds rate comes at a time when the rise in Treasury yields, particularly on the 10-year benchmark, has contributed the pressure on stocks in recent days. The 10-year return is now back above 3.2%.
It seems that some investors are worried that rising borrowing costs will dampen investment in the stock market as well as in the economy as a whole. And rising interest rates can help make bonds more attractive.
Market buoyancy
Nevertheless, despite the apparent pressures of the Fed, the market seems to have something dynamic. Although the top three US indexes closed in the red yesterday, they all rebounded from their lowest level of the session.
From a macroeconomic point of view, there is reason to be optimistic, with gross domestic product figures and other solid economic data, even though inflation seems to remain relatively under control.
And then there is the company's results season, which started well. Until Wednesday, more than 88% of S & P companies reporting results exceeded analysts' expectations, according to CNBC, citing data from FactSet. According to consensus estimates of S & P Capital IQ, the operating results of the S & P 500 index are expected to show an increase of 21.3% over the previous year, according to the company CFRA Investment Research Institute.
And of course, the rebound in US stocks since last week. The main indexes remain lower than at the beginning of the month, but some participants may think that the market has over-sold and is buying the decline. It can also be argued that the market could set a new range to revalue stocks a little lower than at the beginning of the year. This could be healthy, especially as corporate earnings growth could begin to slow in 2019 as the effects of tax reform dissipate.
Figure 1: Finances finally have a boost: The year has been tough for the financial sector, but the last few days have provided some support, as shown in this one-month chart. Some of this support could come from rising bond yields (purple line), while positive results have probably helped as well. Data source: S & P Dow Jones Indices, CME Group. Cartographic source: TD Ameritrade thinkorswim® platform. For illustration purposes only. Past performance does not guarantee future results.Data source: S & P Dow Jones Indices, CME Group. Cartographic source: TD Ameritrade thinkorswim® platform.
Disappointment of housing data: After mid-week government data on the US housing market has been disappointed, the question is whether housing data that is expected to be released tomorrow may also be weaker than expected. Data released Wednesday by the Commerce Department showed a housing starts rate of 1.201 million units in September, while building permits issued in the same month reached 1.241 million units. These seasonally adjusted annual figures were both lower than the previous month and lower than a consensus of economists provided by Briefing.com. "The supply of new homes does not accumulate fast enough to meet the demand for new homes at more affordable prices," Briefing.com said. "As a result, constraints related to affordability will continue to dampen the overall sales of homes." .
Fly high: It seems that the rise in fuel costs does not cut the wings of the airlines. United Continental Holdings, the parent company of United Airlines, announced this week its intention to offset about 90% of the increase in fuel costs this year, while its competitor, Delta Air Lines, which announced profits last week, reported recovering about 85% of the 3Q fuel price increase. Rising oil prices can lead to higher fuel costs, a major expense for airlines and other transportation companies. But it seems that the combination of higher fares and strong flight demand is helping airlines cope with rising fuel prices. American Airlines is expected to release its results next week, giving investors a full picture of how the three largest US airlines are facing higher fuel costs. It might be interesting to see if American Airlines is facing higher fuel costs with higher prices and rising demand.
Boo, says Volatile October: Besides Halloween and all the horror movies at the movies, October can be a scary month for investors because of the increased volatility, and this month is living up to its historically scary nature. Since the beginning of this month, the S & P 500 index has seen an increase in intra-day average volatility of 40% in the first nine months of this year, notes CFRA. The Cboe volatility index, which is considered the main indicator of market fear, has reached unprecedented levels for several months, with investors worried about rising interest rates and the persistence of equity problems. international trade. "October's reputation as an unstable month is justified, as it is the largest percentage of days the S & P 500 has increased or decreased by 1% or more since 1950, to 10.3%," he said. declared CFRA. However, so far this month, the 12-month rolling number of these daily price movements is just under half its average since 2000 and is 22% below the average since announced the research firm in its note Wednesday.
Comment TD Ameritrade® for educational purposes only. ISPC Member.
