Stocks Mixed on Strong Economic Data; Bonds Continue Their Slide

The Dow (-0.3%), NASDAQ (+1.6%) and S&P 500 (+0.6%) indices were mixed for the week, as technology stocks led to the upside.  Meanwhile, taxable bonds and tax-free municipal bonds continued their slide, as they fell sharply, down about 1.2% and 0.6%, respectively.  The 10-year Treasury vaulted 0.21% to end the week at 4.78%, which is 1.5% higher than six months ago, and the highest since 2007.

A slew of strong economic data was reported last week, which also triggered the so-called “good news is bad news” response.  The Institute of Supply Management (ISM) reported stronger than expected manufacturing numbers in September, and the ISM Services index also remained strong.  Job openings for September were much higher than expected, as were the number of new jobs last month.  These data continue to suggest that the US economy remains on strong footing, mainly because of continued consumer spending and a correspondingly strong labor market.  This week, two key inflation numbers will be reported, which will help serve as a basis for whether or not the Fed raises interest rates again at its meeting next month.  The strong economic data gives the Fed fuel to raise rates further, but slowing inflation data gives the Fed reason to hold rates where they are.  The markets don’t respond well when the Fed raises interest rates. 

On a sadder note and from a geopolitical perspective, Hamas launched an unprovoked attack on Israel over the weekend, killing over 700 people and taking hostages.  The attack was unprovoked, and was reportedly done in a very barbaric manner.  Some believe that US citizens are included in the death and hostage tolls, and that the attack was supported by other Middle East countries, like Iran.  As such, the US is sending warships to the region, and there is concern that we may be drawn into another military conflict in a different area of the world.  As a result, stock markets are pointing to a selloff this morning, and we will be watching as things develop in the region.  Meanwhile, our hearts and prayers go out to the Israelis and anyone else who was impacted by these attacks.

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