Stocks Pullback Despite Strong Economic Data

Stocks Slide, Yields Rise

US stocks experienced their worst day in over a month, while Treasury yields continued to rise as investors received a combination of sub-par company earnings reports (notably Chipotle and Advanced Micro Devices), strong economic data and further drama amongst Republicans as they try to hammer down tax reform.  All three major US stock indices fell roughly 0.5% for the trading session as yields/swap rates finished 1-2 bps higher across the curve, albeit settling back from a sharp selloff in the morning which saw the yield on the 10-year note jump as high as 2.47% (2.43% currently).  Additionally, the US dollar edged 0.2% lower against major currencies.  No official announcement on the next Fed chair has been made yet, although it was reported today that Gary Cohn is no longer in the running, as President Trump would like him to remain on staff as National Economic Council Director.

 

 

Delightful Data

A second straight month of robust expansion in business investment was observed in September’s Durable Goods Orders report.  The headline number exceeded consensus estimates (+2.2% vs +1.0%e), boosted largely by 64% growth in civilian aircraft orders.  When stripping out transportation, orders posted a respectable 0.7% rise (+0.5%e), alongside core capital goods orders which rose 1.3% MoM (+0.3%e), representing the ninth consecutive monthly gain.  Core capital goods shipments climbed for an eighth straight month, up 0.7% in September.  Overall, the report was viewed as strong indicator for the manufacturing sector and could set the stage for stronger-than-expected Q3 GDP, which is currently forecasted to rise 2.5%.

 

New home sales surged during the month of September, as housing markets in the South continued to rebound from the impacts of hurricanes Harvey and Irma.  As reported by the Commerce Department, there was a 18.9% rise in the number of new homes sold last month, yielding a seasonally adjusted rate of 667,000 units — a ten-year high.  The September figure blew past expectations of 554,000, and was 106,000 above the prior month’s upwardly revised pace.  Increases in purchases were widespread across all four US regions, led by a 25.8% rise in the South.  New homes available on the market fell slightly in September to 279,000 units, and the outstanding inventory declined to a 5-month supply (6.1-month prior).  Also detailed in the data, the median new home sales price increased to $319,700, a 1.6% YoY gain.

 

 

Tighter Regulations on Banks…Not Sue Fast

In regulatory news, the Senate voted to overturn the Arbitration Rule established by the Consumer Protection Financial Bureau that would have prohibited mandatory pre-dispute arbitration clauses waiving class action lawsuits. Under the rule, any financial institutions using arbitration clauses would have been forced to disclose that arbitration could not be used to prevent participation in class action lawsuits.  The House approved to overturn the rule in July and the Senate approval took place last night after Vice President Mike Pence cast the tiebreaker vote. Today, the Acting Comptroller of the Currency released a statement expressing support for the Senate vote citing that it would drive up prices for consumer credit and cause harm to community banks.  This is viewed as a win for industry groups, community banks and consumers.