The third quarter ended with strong performances by the major U.S. stock indexes and a couple of minor indexes, proving their strength in the face of rising global interest rates.
The quarterly results were strong across the board. The Dow Jones Industrial Average rose 4.9 percent last quarter, its eighth straight quarter of gains for the first time since 1997.
The S&P 500 Index posted quarterly gains of 4 percent, also its eighth straight quarter of gains. The NASDAQ Composite was the biggest winner this quarter with a 5.8 percent surge, its fifth straight positive quarter since 2015.
The highlights this week were Fed Chair Janet Yellen’s hawkish message to the markets about a rate increase in December and the release of the long-awaited Republican and Trump Administration tax reform plan. The price action in the equity markets strongly suggests that investors feel the uptrend will continue with fiscal policy overtaking monetary policy as the key rally driver.
U.S. Equity Markets
U.S. equity markets closed higher on Friday with the S&P 500 Index settling at a record. An end of the quarter surge in technology stocks helped boost the benchmark index and the tech-based NASDAQ Composite. It posted its 50th record close for this year. Other indexes also posted strong gains with Dow transports and the small-cap Russell 2000 Index hitting record highs.
In the cash market, the S&P 500 Index settled at 2519.36, up 9.30 or +0.37%. The blue chip Dow Jones Industrial Average finished at 22405.09, up 23.89 or +0.11% and the NASDAQ Composite ended the session at 6495.43, up 41.98 or +0.65%.
U.S. Economic Data
The Core PCE Price Index and Consumer Spending came in lower than expected in August. However, this did little to dampen expectations of an interest rate hike in December. A portion of the weak data was offset by a robust Chicago PMI report and flat consumer inflation data.
The U.S. Dollar hit its low after the release of the spending data but U.S. Treasury yields rose when Chicago PMI beat the forecast. The data was not enough to derail expectations for a rate hike later this year however. According to the CME FedWatch tool, the probability of an interest rate hike in December is now roughly 71 percent probability.
Gold posted a volatile outside move on the charts on Friday as investors responded to the two-sided economic reports. Since the reports had little impact on the chances of a rate hike later this year, the market finished lower for the session and in a position to weaken further.
The primary influence on gold prices at this time is rising interest rates and increased demand for higher-yielding assets. The North Korean threat has been downplayed lately but is still out there. However, unless there is an escalation of the situation, any counter-trend reaction is likely to be a knee-jerk reaction to the news and short-lived.
U.S. West Texas Intermediate and international-benchmark Brent crude oil closed mixed on Friday, continuing the divergence between the two futures contracts that began earlier in the week. Geopolitical instability in Iraqi Kurdistan underpinned prices but profit-taking limited gains.
Both markets closed higher for the week, month and quarter. They were primarily supported by expectations of increased demand according to reports from OPEC and the International Energy Administration. Threats to the region’s oil supplies are now providing additional support.
In other news, U.S. energy companies added oil rigs for the first week in seven. Drillers added six oil rigs in the week to September 29, bringing the total count up to 750, according to General Electric Co.’s Baker Hughes energy service firm.