Stocks and Bonds Fall on Mixed Data and as China Restricts Apple Devices

The Dow (-0.7%), NASDAQ (-1.9%), and S&P 500 (-1.3%) each fell modestly for the week.  Similarly, taxable bonds and tax-free municipal bonds also dropped about 0.3% - 0.5% for the week.  These correspond with a rise in the 10-year Treasury yield from 4.19% to 4.26%, as the recent yields have been reaching 15-year highs in the last few weeks.

The market indices were directly impacted by its largest contributor – Apple.  China ordered a ban on governmental officials to use Apple devices or bring those devices to work, and that ban may be expanding.  It’s not just that the largest US corporation faces headwinds in the 2nd largest economy in the world, but it’s a sign of increased tensions between the US and China.  Geopolitical tensions are also rising, as there appears to be cooperation between China, Russia, and North Korea – three countries with nuclear weapons who aren’t big fans of the US. 

There was a mixed bag of economic news last week, as the Institute of Supply Management (ISM) Services reported an increase in the US services sector in August, as did the New Orders Index.  These reports suggest that the US economy continues to grow modestly.  Strong economic data gives the Fed reason to keep interest rates higher for longer and/or the ability to raise interest rates even more to combat inflation. Further, the price of oil rose sharply last week, raising additional inflationary concerns. These data were met unfavorably by the stock and bond markets.  Conversely, the Fed Beige Book reported that consumer spending is slowing, as we have noted in previous weekly recaps.  In addition to consumer spending slowing, the chart below shows that credit card delinquencies have reached a 10-year high.  These data suggest that the consumer-driven economy in the US could be at risk.  If combined with a slowing labor market, this could initiate the beginning of a recession.

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