U.S. markets continued its recent pattern of pushing fresh all-time highs while showing slight intraday weakness. The Dow and S&P 500 traded higher for the fourth-straight session while setting record highs for the sixth time in the past seven sessions.
The Nasdaq rebounded to set another record high, as well, while the Russell 2000 was able to recover the 1,500 level during Wednesday’s action. The Financial and Technology sectors showed strength after rising 0.5% and 0.3%, respectively. Energy was the sector laggard after falling 0.7%.
Global Economy – European markets traded higher after European Central Bank President Draghi shed no light on ECB plans, leading to speculation the ECB will remain accommodative for a longer period of time. France’s CAC 40, UK’s FTSE 100 and Germany’s DAX 30 added 0.4%. The Stoxx Europe 600 advanced 0.3% while the Belgium20 gained 0.2%.
Asian markets closed mostly higher as the first day of China’s 19th Communist Party Congress drew to a close. China’s Shanghai index was up 0.3% while Hong Kong’s Hang Seng Index and Japan’s Nikkei climbed 0.1%. Australia’s S&P/ASX 200 was up less than a point, or 0.01% and South Korea’s Kospi slipped 0.1%.
The MBA mortgage market index rose 3.6%, accompanied by a 4.2% gain in the purchase index and a 3.0% increase in the refinancing index for the week ending October 13th.
U.S. housing starts plunged 4.7% to 1.127 million in September after falling 0.2% to 1.183 million in August.
The Fed’s Beige Book said growth was moderate to modest in all 12 Districts, as expected. There were major disruptions across the South due to the hurricanes, impacting the Dallas, Atlanta, and Richmond Fed Districts. Labor markets were widely described as tight and labor shortages in certain sectors were also restraining business.
Market Sentiment – San Francisco Fed John President Williams said the U.S. economy is stronger than in looks and that inflation softness in overstated. He said the Fed should aim to raise interest rates at the December FOMC meeting and three more times next year.
Philadelphia Fed President Patrick Harker said he sees one more rate increase in 2017. He said that high prices for equities and other assets could be an argument for a continued, steady pace for rate increases. He added he would like to prudently move up to the neutral real rate as quickly as possible.
New York Fed President William Dudley said the U.S. economy is not particularly vulnerable, even though the expansion is in its 9th year. He has yet to plug in tax reform into his assumptions and believes broadening the base and simplifying the code will yield benefits. He admitted there is a lot of controversy at the Fed, however, over the Phillips Curve and the degree to which it’s operative.
Robert Kaplan noted the Dallas Fed has been upgrading its outlook and thinks growth will be sufficient to take more slack out of the labor market.
The iShares 20+ Year Treasury Bond ETF (TLT) traded in negative territory throughout the session while tapping a low of $124.68. Lower support at $125-$124.50 held with risk to $124-$123.50 on a move below the latter. Lowered resistance is at $125.25-$125.50.
Market Analysis- The Spider S&P 500 ETF (SPY) has traded to higher all-time highs over the past five sessions and six of the past seven sessions following today’s run to $255.98. We mentioned earlier this month fresh resistance is at $255-$255.50 with continued closes above the latter getting $256.50-$257.50 in play.
Rising support is at $254.50-$254 with a move below $252 signaling a short-term top. RSI is above the 75 level and appears headed towards recent resistance at 80 from earlier this month and February highs.
The Energy Select Sector Spider (XLE) has remained in a tight range between $67.75-$69 throughout the month following the late September breakout above a descending 200-day moving average.
Current resistance is at $68.50-$68.75 with today’s high reaching $68.56. A move above $69 and the top of the trading range would be a bullish signal for a push past $70.
A drop below $67.75-$67.50 and the bottom of the trading range could lead to additional weakness. RSI is has been flat over the past few weeks but took a dive today following failed resistance at 70.
All the best,