The Week In Review
The stock market ended a bumpy week on a higher note with all three major averages climbing near 0.8%. The S&P 500 (+0.8%) rallied into the late afternoon, but selling during the final minutes of the session drove the index just below its 50-day moving average (2168.4), which acted as resistance throughout the month. The S&P 500 gained 0.2% for the week, but shed 0.1% for the month. The benchmark index advanced 3.3% during the third quarter, underperforming the Nasdaq (+0.8%), which climbed 9.7% in Q3 and gained 1.9% in September.
Deutsche Bank (DB 13.09, +1.61) dominated headlines for the second day in a row, but today's focus was on a rebound in the stock amid reassurances from the bank's Chief Executive Officer John Cryan. Mr. Cryan sent a letter to employees, in which he described the bank's capital position as solid, noting that liquid reserves are well above pre-crisis levels from 2007. The stock doubled its late-morning gain, ending higher by 14.0%, after AFP reported the bank's MBS settlement with the Department of Justice will be reduced to $5.4 billion from $14.0 billion. The report was not confirmed by Deutsche Bank and it is worth noting that markets in Germany will be closed on Monday in observance of Unification Day.
The rebound in Deutsche Bank boosted sentiment in the financial sector (+1.4%), which narrowed its September loss to 2.9%, but still ended the month well behind the other ten sectors. Friday's sector-wide rally did not stop Wells Fargo (WFC 44.55, +0.18) from ending in the red as the stock set a fresh low for the year (44.10). The stock spent the entire month in a sharp decline, falling 12.5%, amid fallout from the discovery of more than two million illegally-opened credit card and deposit accounts.
The financial sector was followed by energy (+1.3%), which locked in a market-leading 3.0% gain for the month. The growth-sensitive sector outpaced crude oil, which climbed 0.8% to $48.11/bbl. The energy component gained 7.6% in September, but slipped 0.5% for the quarter.
Consumer staples (+1.0%) and health care (+1.0%) also spent the day among the leaders while other defensively-oriented sectors like utilities (-0.7%), telecom services (-0.3%), and real estate (-0.5%) lagged.
Elsewhere, the top-weighted technology sector (+0.6%) finished in the middle of the pack, masking relative strength among chipmakers as interest surrounding Qualcomm's (QCOM 68.50, +1.05) rumored acquisition of NXP Semiconductor (NXPI 102.02, +5.89) grew. NXP Semiconductor surged nearly 25.0% after Thursday's Wall Street Journal report brought the potential acquisition to light. The PHLX Semiconductor index advanced 1.6% on Friday.
Today's rally in stocks lured some money out of the Treasury market, sending the 10-yr yield higher by four basis points to 1.60%.
Quarter-end flows resulted in increased participation as more than 1.2 billion shares changed hands at the NYSE floor.
Economic data included Personal Income, Personal Spending, Core PCE Prices, Chicago PMI, and Michigan Sentiment:
Personal income increased 0.2% month-over-month in August, as expected, while personal spending was unchanged (Briefing.com consensus +0.2%). Real personal spending ("real PCE"), though, was down 0.1%
The decline in real PCE will weigh on Q3 GDP growth forecasts and leave the market in a confused state on the timing of the next rate hike since real PCE was weak in August while the inflation measures trended up
The MNI Chicago Business Barometer jumped to 54.2 in September (Briefing.com consensus 52.0) from 51.5 in August. In the same period a year ago, the barometer stood at 47.8
The final reading for the September Index of Consumer Sentiment checked in at 91.2. That was above the Briefing.com consensus estimate of 90.0 and up from the final reading of 89.8 for August
Monday's economic data will include the 10:00 ET release of August Construction Spending (Briefing.com consensus 0.2%) and September ISM Index (Briefing.com consensus 50.4) while auto and truck sales for September will be reported throughout the day.
Russell 2000 +10.2% YTD
Nasdaq Composite +6.1% YTD
S&P 500 +6.1% YTD
Dow Jones Industrial Average +5.1% YTD
Week in Review: Bank Shares Wobble, But Market Holds
The stock market saw some volatility during the past week, which could be easy to overlook, considering the S&P 500 added 0.2% for the week. The trading week began with a decline that was driven by renewed concerns about Deutsche Bank's capital standing. German Chancellor Angela Merkel said that the bank would not be eligible for state aid if it were to experience a capital shortfall. This drove up concerns that something may indeed be wrong at Deutsche Bank. The stock remained in focus throughout the week, leading another market-wide swoon on Thursday amid reports that some funds who clear trades with Deutsche Bank have reduced their positions and withdrawn some excess cash. The stock ended Thursday with a 6.7% decline, weighing on sentiment in the broader market.
A turnaround in Deutsche Bank and the market developed on Friday when bank CEO John Cryan sent a letter to employees, assuring them of the bank's health. The stock rallied out of the gate on Friday, receiving another boost after AFP reported that the bank is nearing a $5.40 billion settlement with the Justice Department, down from the $14 billion that was originally sought by the DoJ.
As for rate hike expectations, they ended the week higher, but dipped briefly after Friday's economic data introduced another confounding element into the discussion. Specifically, August Core PCE Prices declined 0.1% (Briefing.com consensus +0.2%) even though other inflation measures trended up in August. The implied probability of a rate hike at the December meeting fell to 53.1% intraday, but climbed to 61.7% by the end of the day, up from last week's 54.2%, according to the fed funds futures