3 Things… 

1. Equity Trends: Despite the S&P500 trading above its 50-Day MA, its trend is still DOWN and 5.25% below its 200-day MA; NASDAQ is now about 8.58% below its 200-day MA and meeting resistance at its 50-Day MA, downtrend firmly in place; Dow at its 50-Day, 5% below its 200-day MA; 59% of the S&P 500 and 44% of the NASDAQ, respectively, are above their 50-Days; Bulls19:Bears53; VIX 23.14; [1]
2. Bonds: The yield on the 2-year Treasury was up about 13 basis points at 3.502%. The yield on the 10-year Treasury fell .017 to 3.275%, while the yield on the 30-year added 3 basis points to 3.404%

   The weekly 2-year Treasury note/10-year Treasury note Spread narrowed to 1.05. Yields move inversely to prices and 1 basis point is equal to 0.01%. [2]

3. Sectors: Best 3-month sectors: Consumer Discretionary (+8.63%); Utilities (+8.11%); Staples (+2.16%); Crypto/Bitcoin +8.42%; [3]

This Week’s Quotable

“We still think that Fed officials hope to bring inflation down without a recession and are open to doing this over an extended period if necessary. But they appear to want to see more consistent evidence that every aspect of this process is on track and proceeding fairly quickly, and they appear less anxious for now about accidentally overtightening in light of the strength of the labor market.” Goldman economists David Mericle and Jan Hatzius wrote Friday September 9, 2022. [5]

Recent Highlights

• Consumer Credit increased 23.8 billion (09/08)
• Crude Inventories increased 8.8 million (09/08)
• Initial Claims decreased to 222,000 (09/08)
• Trade Deficit decreased to $70.6 billion (09/07)

In the Markets

Wall Street closed higher on Thursday, led by a rally in finance and healthcare stocks. Economic data confirmed that the labor market continues to be robust even as interest rates keep going up. The yield on the benchmark 10-year U.S. Treasury Note climbed as various Fed officials kept indicating that interest rates would keep rising. All three major stock indexes ended in the green.

How Did The Benchmarks Perform?

The Dow Jones Industrial Average (DJI) gained 0.6% or 193.24 points, to close at 31,774.52. Twenty-three components of the 30-stock index ended in the positive territory, six ended in the negative, while one remained unchanged.

The tech-heavy Nasdaq Composite increased by 70.23 points or 0.6% to 11,862.13.

The S&P 500 rose 0.7%, or 26.31 points, to end at 4,006.18. Eight of the 11 broad sectors of the benchmark index closed in the green. The Financials Select Sector SPDR (XLF), the Health Care Select Sector SPDR (XLV) and the Materials Select Sector SPDR (XLB) rose 1.8%, 1.7% and 1%, respectively, while the Consumer Staples Select Sector SPDR (XLP) fell 0.3%.

The fear-gauge CBOE Volatility Index (VIX) decreased 4.2% to 23.61. A total of 10.2 billion shares were traded on Thursday, lower than the last 20-session average of 10.4 billion. Advancers outnumbered decliners on the NYSE by a 1.34-to-1 ratio. On the Nasdaq, a 1.48-to-1 ratio favored the advancing issues.

Bond Yields Rise as Fed Remains Hawkish

Various Fed officials, in statements given in interviews and media events, have remained hawkish about the state of the economy. They’ve reiterated their commitment to bringing inflation down by raising interest rates. Chicago Fed President Charles Evans, said in an economic forum on Thursday that reining in inflation was “job one”, and a 75 basis points hike could be expected in the September Fed meeting.

Fed Chair Jerome Powell too, in a webcast interview, said that the Fed remained strongly committed to fight inflation. “We need to act now, forthrightly, strongly as we have been doing, and we need to keep at it until the job is done,” Powell said.

This hawkish stance by the Fed means that Wall Street remained apprehensive about continued rate hikes, and bond yields rose on Thursday after falling the day before. The European Central Bank’s interest rate hike by 75 basis points also did not help. The U.S. 10-year treasury yield closed the session at 3.3%. Bond yields have gone up from a four-month low of 2.516% on Aug 2, but remain below the 11-year high of 3.498% reached on Jun 14. The yield on the 2-year treasury note increased four basis points to 3.491%.

Lower yields from risk-free treasury bonds indicate that future flows are profitable in the current valuation, especially for large-cap growth stocks like tech stocks, and move in the opposite direction with prices. Further talks of rate hikes would push bond yields higher, but in the interim, finance and healthcare stocks flourished on Thursday in an attempted solid rebound.

Consequently, shares of Moderna, Inc. (MRNA) and Invesco Ltd. (IVZ) advanced 4.7% and 4.8%, respectively.

Economic Data

The Labor Department said on Thursday that initial jobless claims fell to 222,000, decreasing 6,000 for the week ending Sep 3. The previous week’s level was revised down by 4,000 from 232,000 to 228,000. The four-week moving average increased to 233,000, a fall of 7,500 from the previous week’s revised average of 240,500.

Continuing claims came in at 1,473,000 for the week ending Aug 27, increasing 36,000 from the previous week’s revised level. The previous week’s numbers were revised down by 1,000 from 1,438,000 to 1,437,000. The 4-week moving average came in at 1,439,000, marking an increase of 10,750 from the previous week’s revised average. The previous week’s average was revised down by 250 from 1,428,500 to 1,428,250.

As reported in the Weekly Petroleum Data, for the week ending Sep 2, U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 8.8 million barrels from the previous week.

According to a Fed report, consumer credit increased by $23.8 billion in July, down from the revised $39.1 billion in June. [6]

Sources: [1][3][4] Stockcharts.com; [2] CNBC.com; stockcharts.com; [5] Tough Fed rate talk pushes Wall Street economists to expect a big hike (cnbc.com); [6] Zacks Professional Services, “Today’s Key Market and Economic News” for Friday September 9, 2022;