Word on the Street 9/30/18: Fed Hikes Again

Economic releases for the U.S. were solid last week.  Key reports included the Bureau of Economic Analysis’s final look at third quarter gross domestic product (GDP) growth which came in at 4.2% — in line with expectations.  Data on pending home sales were also released last week for the month of August and reflected ongoing headwinds in the housing market during the third quarter.  The Federal Reserve’s (Fed) Federal Open Market Committee (FOMC) meeting on Wednesday captured most market attention yet the meeting passed with few surprises. Policymakers raised rates and removed mention to “accommodative” policy as the Fed looked past concerns surrounding trade and upcoming mid-term elections.

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Looking to the week ahead, financial markets will be paying close attention to the monthly employment situations reports, also known as Jobs Friday.  Other notable economic releases include a monthly report on construction spending, international trade in goods and services and durable and capital goods orders.

Markets Review

Equity markets in the U.S. closed Friday slightly lower, yet up overall for the month of September and the third quarter as well.  Year-to-date the U.S. is one of the strongest performing major equity markets on a year-to-date basis.  International developed stocks trailed the U.S. ending the month and quarter on a positive note yet in the red for the year.  Emerging markets (EM) continued to face a number of risk-off related headwinds  which resulted in negative market performance for the month, quarter and year.

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Market action in U.S. Treasuries were balanced last week as the Fed concluded its latest FOMC meeting and the outcome of the meeting was as expected.  Yields on the 10-year Treasury closed the quarter above three percent.  While not a first for the year, the fact that rates held above 3-percent for 9 straight trading days was worth mention.  The closely watched 10-2 year spread tightened during the third quarter as inflation expectations remained largely subdued and short rates moved higher.  The slope of the yield curve nevertheless remained positive at month-end and not yet indicative of a recession in the U.S.

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