Wall Street finished Friday little changed, securing big gains for the third quarter. The S&P 500 kept near its flat line throughout the session, closing just a tick below its unchanged mark. The Nasdaq and the Dow added 0.1% apiece. For the quarter, the S&P 500 added 7.2%, the Dow added 9.0%, and the Nasdaq added 7.1%.
Friday began with news from across the pond, where Italy's anti-establishment government widened the country's budget-deficit target for next year to 2.4% of GDP. That could raise problems with the EU, which has pushed Italy to lower its public debt. European stocks fell in reaction, with Italy's MIB (-3.7%) leading the retreat.
The headlines weighed on the U.S. futures market as well, but Wall Street quickly pared losses after the opening bell.
Financial shares fell once again on Friday (-1.1%), extending the heavily-weighted financial sector's weekly loss to 4.1%. On the flip side, the lightly-weighted real estate (+1.3%) and utilities (+1.5%) sectors rallied, closing atop the sector standings. Most other groups finished within 0.4% of their unchanged marks.
Tesla (TSLA 264.77, -42.75) tumbled 13.9% after its CEO, Elon Musk, was sued by the SEC over his tweet about taking the electric automaker private. Mr. Musk and the SEC were reportedly close to reaching a no-guilt settlement that would have barred him from being chairman for two years, but Mr. Musk backed out at the last minute.
In other corporate news, Facebook (FB 164.46, -4.38) dropped 2.6% after announcing that it's discovered a "very serious" security issue that could affect around 50 million accounts; NVIDIA (NVDA 281.02, +13.62) climbed 5.1% after Evercore ISI raised its target price to a new Street high of $400 per share; and Intel (INTC 47.29, +1.41) advanced 3.1% after announcing that it's making progress with 10nm chips, but Intel competitor Advanced Micro (AMD 30.89, -1.70) lost 5.2%.
On Capitol Hill, the Senate Judiciary Committee advanced President Trump's Supreme Court nomination of Brett Kavanaugh on Friday, but a final Senate vote will be delayed after Senator Jeff Flake (R-AZ) unexpectedly called for a one-week FBI investigation into sexual misconduct allegations against the judge.
Reviewing Friday's batch of economic data, which included August Personal Income, Personal Spending, and PCE Prices, the final reading of the University of Michigan Consumer Sentiment Index for September, and the Chicago PMI Index for September:
- Personal income climbed 0.3% in August (Briefing.com consensus +0.4%) following an unrevised increase of 0.3% in July. Meanwhile, personal spending rose 0.3% in August (Briefing.com consensus +0.3%) following an unrevised increase of 0.4% in July. The PCE Price Index rose 0.1% in August (Briefing.com consensus +0.1%), and the core PCE Price Index, which excludes food and energy, was flat (Briefing.com consensus +0.1%). Year-over-year, the core PCE Price Index is up 2.0%, unchanged from July.
- The key takeaway from the report is that the year-over-year increase in the PCE Price Index (+2.2% vs. +2.3% prior) and the core PCE Price Index (+2.0% vs. +2.0% prior) will keep the Federal Reserve on its tightening path.
- The final reading of the University of Michigan Consumer Sentiment Index for September ticked down to 100.1 (Briefing.com consensus 100.5) from 100.8 in the preliminary reading.
- The key takeaway from the report is that even with the pullback, the Sentiment Index remains above 100.0 for the third time since the start of 2004.
- The Chicago PMI Index declined to 60.4 in September from 63.6 in August. The dividing line between expansion and contraction is 50.0.
- The key takeaway from the report is that the September dip represents the second consecutive decline, returning the Index into the lower half of the range from the past 12 months.
Looking ahead, investors will receive the ISM Manufacturing Index for September and the August Construction Spending report on Monday.
- Nasdaq Composite +16.6% YTD
- Russell 2000 +10.5% YTD
- S&P 500 +9.0% YTD
- Dow Jones Industrial Average +7.0% YTD
Week In Review: Raising Rates and Playing Politics
The S&P 500 pulled away from record highs this week, losing 0.5% in total, as investors digested a flurry of political headlines and the latest policy statement from the Federal Reserve, which included another rate hike -- the third one this year. The Dow also fell, losing 1.1%, but the tech-heavy Nasdaq outperformed, rallying 0.7%.
The week began with the U.S. implementing tariffs on $200 billion worth of Chinese goods, which triggered Beijing to impose retaliatory tariffs on $60 billion worth of American products. Chinese officials also canceled mid-level trade talks that had been scheduled for later in the week, dashing hopes for a near-term resolution.
OPEC was also in focus on Monday after it and several non-OPEC nations ended a weekend meeting without an agreement to increase output in order to counter falling supply from Iran due to U.S. sanctions. President Trump criticized OPEC in front of the UN General Assembly on Tuesday, saying the oil cartel is "ripping off the rest of the world" by colluding to limit supply and prop up prices.
In the same address, the U.S. president also criticized Iran, which is currently the target of U.S. economic sanctions, calling its government a "corrupt dictatorship" and saying its leaders "sow chaos, death, and destruction." President Trump also spoke regarding North Korea, ISIS, and Syria, and reiterated his administration's hard stance on fair trade.
The Federal Reserve increased short-term interest rates on Wednesday, as expected, raising the fed funds target range by 25 basis points to 2.00-2.25%. In its policy statement, the Fed removed the word 'accommodative', which led some to believe that officials could be moving towards slowing monetary tightening. However, Fed Chairman Jerome Powell said during his post-decision press conference that the language change didn't signal a change in the Fed's path for rate hikes.
As for rate-hike projections, the Fed still appears to be on track to raise rates another 25 basis points in December, with the CME FedWatch Tool putting the chances at 75.8%. Beyond 2018, the Fed's dot plot showed expectations for three rate hikes in 2019 (unchanged from June) and one in 2020 (also unchanged from June).
On Capitol Hill, political drama unfolded on Thursday as Supreme Court nominee Brett Kavanaugh and his accuser, Christine Ford, who has accused Mr. Kavanaugh of sexually assaulting her back in high school, testified before the Senate Judiciary Committee. The Committee advanced Mr. Kavanaugh's nomination on Friday, but a final Senate vote will be delayed for a one-week FBI investigation.
Overseas, two populist parties governing Italy widened the country's budget-deficit target for next year to 2.4% of GDP on Friday, likely putting the country at odds with the European Union. The major European stock indices sold off in reaction to the news, with Italy's MIB leading the retreat.
In U.S. corporate news, Comcast (CMCSA) paid $40 billion to win a bid for European broadcaster Sky, ending a two-year battle with 21st Century Fox (FOXA); Nike (NKE) reported above-consensus earnings for its fiscal first quarter; and Facebook (FB) fell on Friday after disclosing a "security issue" impacting 50 million users.
However, perhaps the week's biggest corporate story revolved around Tesla's (TSLA) CEO, Elon Musk, who was sued by the SEC on Thursday evening over his tweet about taking the electric automaker private. Mr. Musk and the SEC were reportedly close to reaching a no-guilt settlement that would have barred him from being chairman for two years, but Mr. Musk backed out at the last minute.
As for the sector standings, they were pretty mixed between red and green. The heavily-weighted financials sector was the second-worst performer, losing 4.1% in total, with materials (-4.5%) being the only group with a more substantial loss. Conversely, the newly-added communications services sector was the top performer with a weekly gain of 1.1%.