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Briefing.com Summary:
*The PCE inflation data for August was better than feared.
*Treasury yields have softened a bit, but have had a hard September.
*The broader market has not had a good month of returns.
Today is Hump Day. It is also the last day of September, which has NOT been a good month for the stock market. It has been a good month for a select number of heavily-weighted stocks, yet the index performance numbers tell the real story.
Entering today, the Nasdaq 100 is up 3.0% for the month, the market cap-weighted S&P 500 is down 0.2%, the S&P MidCap 400 is down 3.8%, the equal-weighted S&P 500 is down 4.5%, and the Russell 2000 is down 5.0%.
How one feels about this month will depend in large part on what stocks one owns. Objectively speaking, this September has been a challenging month for the stock market, largely because it has been an even more challenging month for the Treasury market.
Entering today, the 2-yr note yield was up 55 basis points for the month to 4.89%, and the 10-yr note yield was up 52 basis points to 5.26%. Yields have improved slightly today, supported by some better-than-feared inflation data.
The latter resonated in the August Personal Income and Spending report, which showed income up 0.2% month-over-month (Briefing.com consensus: 0.4%), spending up 0.9% (Briefing.com consensus: 0.7%), the PCE Price Index up 0.3% (Briefing.com consensus: 0.4%), and the core PCE Price Index up 0.2% (Briefing.com consensus: 0.3%).
On a year-over-year basis, the PCE Price Index was up 3.4%, unchanged from July, which was revised down from 3.7%; and the core PCE Price Index was up 3.0%, also unchanged from July, which was revised down from 3.3%.
The key takeaway, though, is that PCE inflation, no matter how you slice it, is still far above the Fed's 2.0% inflation target, so the idea that the Fed may raise rates again before the end of the year is bound to remain a lively one.
Other data released this morning included:
- The September ADP Employment Change report showed private-sector employment increasing by 90,000 (Briefing.com consensus: 58,000).
- The third estimate for Q2 real GDP showed an upward revision to 2.2% (Briefing.com consensus: 1.5%) from 1.5%, reflecting upward revisions to investment, consumer spending, and government spending, and a downward revision to the GDP Price Deflator, which fell to 6.1% (Briefing.com consensus: 6.3%) from 6.4%.
- The Advance International Trade in Goods deficit widened to $132.6 billion in August from a downwardly revised deficit of $118.9 billion (from -$118.8 billion) in July.
In reviewing the data, the equity futures market seemed to like what it saw at first blush, largely because the Treasury market did, too. However, the Treasury market isn't fully buying into this morning's data. The 10-yr note yield dropped to 5.20% immediately after the release of the PCE Price Index data at 8:30 a.m. ET, but it is now back at 5.24%.
The lack of follow through by the Treasury market has stifled some of the enthusiasm in the equity futures market, but a positive start is expected. Currently, the S&P 500 futures are up 27 points and are trading 0.4% above fair vlaue, the Nasdaq 100 futures are up 122 points and are trading 0.4% above fair value, and the Dow Jones Industrial Average futures are up 176 points and are trading 0.3% above fair value.
Like yesterday, though, it isn't how Treasuries start as much as it is how they finish. Rising yields will not be good for stocks.
