Relief over hurricane Irma and renewed confidence in the economy pushed some stock indexes to new highs during the week. The S&P 500 soared 1.6% and the MSCI ACWI increased 1.2%. Both indexes hit new highs.The Bloomberg BarCap U.S. Aggregate Bond Index declined 0.5% on increasing risk that the central bank will raise rates one more time this year.
Hurricane Irma being less destructive than expected provided a big boost to markets. Inflation came in above expectations. Increased inflation and a reassessment of expected Fed policy pressured bonds and helped the performance of the more economically sensitive areas of the U.S. market.
Key bullet points for the week
- A number of indices hit new highs in a week where asset classes that have lagged this year recovered some ground on asset classes that have outperformed
- Inflation came in above expectations and other economic data points were reasonably strong – pushing bonds lower
- Expectations for a December interest rate hike shot higher on the news and are back above 50%
- U.S. Investor Optimism is at a 20-year High
What are we reading?
Below are some areas of the market we paid particularly close attention to this week. For further information, we encourage our readers to follow the links:
Fed officials have begun to acknowledge that their ability to control inflation expectations has waned since the financial crisis. The Fed’s ability to control inflation expectations in the broader economy helps the economy to avoid temporary bouts of deflation becoming permanent.
The cryptocurrency Bitcoin saw its price fall sharply after China announced it was shutting down a Bitcoin exchange. China is a big market for Bitcoin, as some Chinese use it to move cash out of China. In addition to restricting the accessibility of Bitcoin, China announced that it was liberalizing some of its rules for taking money out of the country. That action reduced expected demand for Bitcoin and pushed the price lower as well.
Signs of investor complacency continue to grow. The Wells Fargo/Gallup survey of investor optimism hit its highest levels since September 2000. The sharp increase over the last 18 months is the largest in the index’s history, outside of when investor attitudes rally after the end of a sharp market decline. Sixty-eight percent of investors believe now is a good time to invest. As we have noted in the past, any correction may spook investors into selling during the downturn, providing additional pressure to the downside.
Fun Story of the Week (You write the last sentence version)
Who is liable if a donkey bites an orange car because he thought it was a carrot? In Germany, a man parked his orange McLaren sports car too close to the donkey who was grazing nearby. The donkey decided it would be a good idea to take a bite out of the rear bumper, causing €30K damage. Now courts must decide who will pay for the damages not covered by the garage where the car was parked. The owner of the donkey blames the driver for parking too close to the donkey, while the car owner wants the donkey’s owner to pay up. [A number of puns could be included at this point, but none we came up with were fit for publishing. We invite our readers to come up with their own.]
This newsletter was written and produced by CWM, LLC. Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The views stated in this letter are not necessarily the opinion of CWM, LLC and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results.
S&P 500 INDEX
The Standard & Poor’s 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
MSCI ACWI INDEX
The MSCI ACWI captures large and mid-cap representation across 23 Developed Markets (DM) and 23 Emerging Markets (EM) countries*. With 2,480 constituents, the index covers approximately 85% of the global investable equity opportunity set.
Bloomberg U.S. Aggregate Bond Index
The Bloomberg U.S. Aggregate Bond Index is an index of the U.S. investment-grade fixed-rate bond market, including both government and corporate bonds.