The DJIA moved in a range of 26,349 to 26,709 and closing the week at 26,458–fairly boring. The 10 year treasury which started the week at 3.08% rose as high as 3.11% on Tuesday and then for the balance of the week acted like it wanted to drift lower as it has done all the other times it has risen above 3%. Will it stick this time? We do note that the 10 year treasury is trading near 3.08% today as the new trade agreement with Mexico and Canada is announced.
Of course the biggest news items last week was the increase in the Fed Funds rate by 1/4%–certainly the increase was totally built in the marketplace thus little reaction. Also last week, on Tuesday, consumer confidence numbers were released and they were way above consensus at a reading of 138.4—the forecast had been for 133.2. These are scary numbers to us–the higher confidence by the consumers the more they borrow–somewhat of a catch 22 as we need demand for economic growth, but higher borrowing probably means more pain in the next recession (whenever that might be).
For this week we have a bunch of data being released such as ISM Manufacturing Index on Monday, Motor Vehicle Sales on Tuesday. Purchasing Managers Index on Wednesday along with the ADP Employment report–all of which the marketplace is likely to ignored. Friday we have the only potentially market moving number in the September Employment Report. Expectations for employment are modest so we can’t really imagine this being meaningful to the marketplace. We personally believe the hourly wage component of the report could shed light on wage inflation and that is important.
The Fed balance sheet fell by a sizable $16 billion last week after being down just $2 billion the week before. Certainly this is contributing a tiny bit to the higher interest rate scenario–but how much is any ones guess.
Last week we had no new income issues come to market—strangely quiet after being very busy the previous couple of weeks.
The average $25 preferred stock is now trading at $24.72 meaning a fall of almost 20 cents last week. We now have right at 200 issue trading at $25 or below. Of course averages mean little and many shares are likely holding up nicely while high quality, low coupon issues take the poundings.