The major U.S. indices all moved lower this week as geopolitical tensions with North Korea, declining confidence in the feasibility of tax reform, and Hurricane Irma – which is expected to hit Florida this weekend – weighed on investor sentiment. The Nasdaq led the retreat, dropping 1.2%, while the Dow and the S&P 500 finished with respective losses of 0.9% and 0.6%.
Even though the equity market settled lower for the week, it remains within striking distance of its all-time high; the S&P 500 finished Friday’s session just 0.8% below its record-high close of 2,480.91. Treasuries rallied this week, sending yields to new lows for the year. The benchmark 10-yr yield dropped 11 basis points to 2.06%, hitting its lowest level since early November.
Similarly, other safe-haven assets, like gold and the Japanese yen, moved higher, jumping 1.6% and 2.3%, respectively. The yellow metal settled at a 13-month high ($1,351.10/oz) while the dollar/yen pair finished at a ten-month low (107.78). In addition, the CBOE Volatility Index (VIX) spiked 20.2% to 12.18. The financial sector (-2.8%) was pressured by the decline in Treasury yields, but most of the remaining groups finished with losses of no more than 1.1%.
Relative strength in heavyweight names like Home Depot (HD), Exxon Mobil (XOM), and Pfizer (PFE) prevented the stock market from a significant decline, but there were some soft spots in small-cap and high-beta pockets of the market. The small-cap Russell 2000 – which is seen as a leading indicator given that small-cap companies largely rely on domestic consumers – underperformed, dropping 1.0%. After pacing the stock market’s post-election rally, the small-cap index now holds a year-to-date gain of just 3.1%, far below the S&P 500’s year-to-date advance of 9.9%.
Following this week’s events, the fed funds futures market places the chances of a December rate hike at 31.9%, down from last week’s 43.7%.
Source: Briefing Investor