9/13/19 – Stocks Close Near Record Highs

Stocks rallied steadily throughout the week and the Dow has now posted eight straight positive sessions. Both indices are approaching record highs. Increased optimism on China trade followed news that the Trump administration is delaying implementation of additional tariffs. This is the third consecutive week of gains for the market. On the week the Dow increased 1.6% while the S&P 500 rose 1.0%. 

Interest rates increased sharply this week. The 10yr Treasury rose 34 basis points to 1.9%. This is a very large move in the interest rate world. I think this is the market bouncing back after an overly sharp downturn in yields last month. August saw unnecessarily high views on recession risks and this is partially the market reversing that view. Economic growth is slower than in 2018, but I don’t see a recession on the horizon. Investors started believing we are in the early stages of a Fed loosening cycle and I don’t see that. It’s possible the Fed cuts rates again this year, but my expectation is that rates will stay here through the election. At most, I could see one additional cut this year. If there isn’t another rate cut in 2019, I highly doubt we’ll see one next year as the Fed won’t want to be perceived favoring one party over the other in the Presidential election. 

Oil decreased 3.2% this week to close at $54.93/barrel. The yield on the 10-yr Treasury moved sharply higher, closing at 1.90%, from 1.57% last week. The average rate on a 30-yr fixed rate mortgage moved higher to 3.56% from 3.49% last week.     

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