U.S. markets closed higher across the board for the first time this week with the small-caps leading momentum.
The blue-chips continued their record setting run while the other major indexes remain in striking distance of fresh lifetime peaks.
Economic news was mostly positive along with Fedspeak that dominated headlines throughout the day.
Volatility closed at its lowest level since early August and is continuing to signal short-term market strength.
The Russell 2000 snapped a 2-session slide after soaring 0.9% while tapping a high of 1,677.
Fresh and lower resistance at 1,675-1,680 held with a close the latter being a continued bullish development.
The Nasdaq was up 0.3% after reaching a peak of 8,053 while clearing and holding the 8,000 level throughout the day.
Resistance at 8,100-8,150 held with the late August all-time high at 8,133.
The Dow advanced 0.2% to extend its winning streak to 5-straight sessions after testing a fresh all-time high of 26,951.
The move above lower resistance at 26,800-27,000 was bullish with continued closes above the latter getting 27,250-27,500 in play.
The S&P 500 rose 0.1% following the run to 2,939.
The index missed a new record peak by just over a point with a close above 2,940 being a continued bullish development.
Financials and Energy led sector strength after rising 0.9% and 0.8%, respectively.
Utilities and Real Estate paced sector laggards after giving back 1.2% while Consumer Staples sank 1%.
Global Economy – European markets showed strength on hopes Italy’s budget deficit could be lowered. The Italian government said it will seek to contain the budget deficit at 2% of GDP in 2021, down from 2.4%.
The target will be trimmed to 2.2% for 2020, while the target for 2019 will remain at 2.4%.
The Belgium20 surged 1.2% while UK’s FTSE 100 and the Stoxx 600 Europe rose 0.5%. France’s CAC 40 added 0.4%.
Germany’s DAX 30 was closed for a holiday.
Eurozone August retail sales declined 0.2%, missing forecasts for a rise of 0.2%.
The Eurozone September Markit composite PMI was revised downward by 0.1 to 54.1 from the originally reported 54.2.
The UK September Markit/CIPS services PMI dropped 0.4 to 53.9, missing expectations of 54.
Asian markets settled mixed in limited action with China’s Shanghai and South Korea’s Kospi closed for holidays.
Japan’s Nikkei fell 0.7% and Hong Kong’s Hang Seng slipped 0.1%. Australia’s S&P/ASX 200 gained 0.3%.
MBA Mortgage Applications was unchanged, along with a 0.1% rise in the purchase index and a 0.1% dip in the refinancing index.
The average 30-year fixed rate sank 1 basis point to 4.96% for the week ending September 28th.
ADP Employment Report surged 230,000 in September, which was better than the 179,000 job additions expected.
PMI Services Index fell 1.3 points from the prior month to 53.5 in the final September print, slightly better than the 52.9 preliminary figure.
The ISM services index jumped 3.1 points to 61.6 in September, marking a new record high, and topping forecasts for a print of 58.
Market Sentiment – Chicago Fed Charles Evans stated he is more comfortable with the inflation outlook today than he has been for the past several years.
He supported the gradual path of rate hikes, which gives the Fed flexibility to make the appropriate risk-management adjustments to policy should they be called for.
He went on to say the Fed should concentrate more explicitly and publicaly on outcome-based policy settings, including threshold-based forward guidance.
Evans said the path for future rate hikes seems about as clear as you could write up, with the strategy to gradually raise the funds rate until policy becomes mildly restrictive, then hold until the economy adjusts.
He sees trade deals struck with Mexico and Canada as positive, removing some uncertainty for business, while also noting that a successful Brexit negotiations would be beneficial for the U.S.
He thinks the situation with China is a lot more complicated.
Richmond Fed Tom Barkin said economic growth is solid in the U.S., while unemployment is low and inflation on target.
In terms of risks for potential shocks to the economy, he said that a hard Brexit or political crisis are among them.
Barkin plans to be focused on business investment, worker compensation, durable goods prices, productivity and the yield curve for policy sign posts, but didn’t discuss the policy outlook in a prepared speech.
Philadelphia Fed Patrick Harker said he could support a December rate hike, though he favored only three.
He said the employment numbers keep surprising the Fed and he could see the unemployment rate falling to 3.5% before it starts to increase.
He mentioned there are some risks in the yield curve and that his biggest worries are on emerging markets, a quicker pace of inflation, and just the broad level of uncertainty. He closed by saying a recession is not in the Fed’s forecast.
Fed Governor Lael Brainard discussed payment systems and didn’t mention anything about the current economy or policy.
She said the Fed is seeking public comment on the steps it could take to support a real-time gross settlement of faster payments.
Cleveland Fed Loretta Mester discussed Community Reinvestment Act changes, which she said were appropriate given changes in technology and banking practices. She did not discuss the economy or policy.
The iShares 20+ Year Treasury Bond ETF (TLT) was weak throughout the session after plummeting to a fresh 52-week low of $114.24.
New support is at $114.50-$114 held with a close below the latter being a continued bearish development. Lowered resistance is at $115-$115.50.
Market Analysis – The Spider Small-Cap 600 ETF (SLY) rebounded from 2 days of weakness after trading to a high of $74.51.
Fresh resistance at $74.50-$75 held. A close back above $76 and the 50-day moving average would be a more bullish development.
Support is at $73.50-$73 with a close below $72.50 likely signaling additional short-term weakness.
RSI is back in a slight uptrend with resistance at 40. A close back above this level would signal additional strength. Support is at 30.
The Utilities Select Spider (XLU) was trying for its 4th higher close in 5 sessions following the push to $53.37.
Near-term resistance at $53.25-$53.50 was split and held.
The backtest to $52.09 afterwards and close back below the 50-day moving average was a slightly bearish signal. Support is at $52.25-$52 with a close below the latter likely confirming a possible short-term top.
RSI is fading with support at 45. A close below this level would signal additional weakness. Resistance is at 50-55.
&The Utilities Select Spider (XLU) was trying for its 4th higher close in 5 sessions following the push to $53.37. Near-term resistance at $53.25-$53.50 was split and held.
The backtest to $52.09 afterwards and close back below the 50-day moving average was a slightly bearish signal. Support is at $52.25-$52 with a close below the latter likely confirming a possible short-term top.
RSI is fading with support at 45. A close below this level would signal additional weakness. Resistance is at 50-55.
All the best,
Roger Scott