Market Commentary, 10/15/18

Last week the major indexes registered their worst weekly loses since March as interest rates jumped to multiyear highs. The Dow closed the week down 4.2%, the S&P 500 was off 4.1%, and the Nasdaq was down 3.7%. This marks the third consecutive weekly loss for the S&P 500, its longest streak since June 2016.

The sell-off was likely spurred by the sudden rise in interest rates early last week. Specifically the 10-year Treasury note was above 3.25% last week. These higher yields increase borrowing costs for corporations and consumer debt. Higher interest rates also drive bond yields, resulting in investors leaving the stock market in search of bond interest rates. This sudden increase created market weakness that started the pullback, which was likely exacerbated by investors selling to lock in gains from strong Q3 returns. (www.time.com/money)

Keep in mind that the reason the interest rates are increasing is that things are good in the U.S. After nearly a decade of artificially low interest rates and slow economic growth, the economy is picking up speed, largely due to the current administration’s reduction in corporate taxes and regulations. The concern now is that the economy will get too hot and cause price and wage inflation to spike, which hurts buying power. (www.wsj.com)

Third-quarter earnings announcements, which started last Friday, will be the major driver in the coming weeks. The first full week of earnings gets underway today with more than 50 members of the S&P 500 announcing this week, including Bank of America, Netflix, Johnson & Johnson, and Procter & Gamble.

Last week’s decline didn’t pull the market down 10%, into “correction” territory, but instead appears to be an overdue sell-off.

Regards,
Jeremiah Patterson, CFP®
Copelin Financial Advisors
514 Brooks Street
Sugar Land, TX 77478
Phone: 281 240-2902
Fax: 281 240-2856
jeremiah@copelinfinancial.com

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