August 28th, 2017 - Market Commentary
In the true spirit of Cliff Clavin, know that stocks have returned an average of 17.2% in the 12 months following a solar eclipse, according to LPL Financial. In the same spirit, Treasury Secretary Steve Mnuchin visited the approximately $200b of gold stored at Fort Knox and noted "The last time anybody went in to see the gold, other than the Fort Knox people, was in 1974 when there was a congressional visit. And the last time it was counted was actually in 1953."
The yield curve flattened further with short rates (2yr) rising and long rates (10yr) falling. Year to date 1 and 2-year U.S. treasury yields have risen 38 and 15 basis points while 10 and 30-year yields have fallen 28 and 31 basis points respectively.
Market technicals are looking a little wobbly. The S&P 500 failed to close above its 50-day moving average for a third straight week, the longest such streak since before the election. Also, less than half of S&P 500 stocks are now trading above their 200-day moving average.
For all the political banter surrounding a government shutdown, Sun Trust Advisory Services noted that there have been 18 shutdowns since 1976, all relatively short lived, with the S&P 500 dropping an average of 0.6%, a minor concern.
The U.S. dollar fell sharply last week, particularly against the Euro and the Swedish kronor. Continued Euro strength is expected to weigh on export centric Eurozone at some point.
In a nod to the market's embrace of deregulation, Bloomberg reported the six largest banks will reap $27b in cost savings and a 20% increase in annual pre-tax income due to deregulation in areas such as softer bail-in requirements, lower compliance costs, broadened definition of liquidity, and more lenient leverage calculations. A study last year by the Competitive Enterprise Institute argued the cost of regulation to businesses exceeds what they pay in taxes.
New home sales, existing home sales, and the FHFA housing price index all missed expectations last week. That said, the housing market is not a big concern at this point with prices up 7% year over year and no signs of weakening demand.
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