Weekly Market Commentary October 1, 2018

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U.S. stocks wrapped up September and the third quarter with a slight decline. The S&P 500 dropped 0.5% last week and finished 0.4% higher for September. The S&P rose 7.2% in the third quarter, its best quarterly performance since the end of 2013.

The MSCI ACWI dropped 0.6% last week and matched the S&P 500’s 0.4% increase in September. The ACWI rose 3.8% in the third quarter. Bonds increased slightly last week, as the Bloomberg BarCap Aggregate Bond Index edged up 0.2%, but declined 0.6% in September and finished the quarter basically unchanged.


Key Points for the Week

  • As expected, the Federal Reserve raised rates 0.25% and removed the word “accommodative” from its policy description.
  • The Fed signaled rate increases would continue at a steady pace.
  • The S&P 500 posted its strongest quarter since 2013.

Economy

The Federal Reserve raised rates another 0.25% last week and is now targeting a rate between 2% and 2.25%. The move was widely expected based on solid economic performance and communication from the Fed. The accompanying graphic shows the Fed has increased rates steadily and inflation is very close to the Fed’s 2% target. On Friday, the data showed August was the fourth month in a row that inflation rounded to 2%.


The Fed also dropped the term “accommodative” in its descriptions of monetary policy. Higher interest rates make borrowing more expensive and generally slow the economy. This change indicates the benchmark rate is nearing neutral and the strengthening economy no longer needs extra stimulus from the central bank. Although avoiding the term, Fed Chair Jerome Powell indicated monetary policy is accommodative for now.

While inflation has increased, the Fed does not see any inflationary pressures that would provoke an unexpected interest rate hike. The current path of gradual hikes is still appropriate to keep the economy balanced between over-heating and faltering. This language suggests a December rate hike is very likely.


Fun Story

Injured Turtle Gets Custom Lego Wheelchair

An injured turtle was recently discovered in Druid Hill Park, Maryland, and taken to the Maryland Zoo’s animal hospital for help. The turtle had multiple fractures on its shell, but since there aren’t mobility devices small enough for turtles, the zoo doctor decided to make the turtle a wheelchair out of Legos. The turtle has adapted well to life with a wheelchair and should be healed up by next summer.


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