Equities and the bond market spent Friday disagreeing, and equities won the week.
The Dow Jones Industrial Average closed up 478.64 points, or 0.93%, at 51,828.62, snapping a three-week losing streak. The S&P 500 added 39.28 points, or 0.51%, to 7,743.41, and the Nasdaq Composite gained 129.34 points, or 0.48%, to 27,068.72. All three indexes booked weekly gains.
They did it while the long end of the Treasury curve kept breaking records in the wrong direction. The 10-year yield climbed to 5.18% on Friday, its highest level since the global financial crisis, according to Yahoo Finance. That followed a Thursday session in which the 10-year touched 5.12% — a 2007 high — the 30-year reached 5.4%, its highest since 2004, and the five-year also hit a 2007 peak.
What rescued stocks was crude. West Texas Intermediate fell $2.34, or 2.47%, to $92.27 a barrel, and Brent slipped below $98. Gold rose 0.64% to $4,325.60. The pattern has held for two weeks now: when oil retreats, equity investors are willing to tolerate a bond market they otherwise find alarming.
"Not a Crisis But an Eye-Opener"
Rick Rieder, BlackRock's chief investment officer of global fixed income, offered the most quoted assessment of the selloff, telling Yahoo Finance's Sozzi Unleashed that it is "not a crisis but an eye-opener, and it's something I think you've got to think about."
The framing carries weight because of who is saying it. Rieder was among the finalists for the Federal Reserve chair job that ultimately went to Kevin Warsh — meaning the person describing 5%-plus yields as an eye-opener rather than an emergency was nearly the one setting policy against them.
Durable Goods Orders Stalled in August
The morning's hard data gave neither camp much ammunition. New orders for manufactured durable goods were essentially flat in August at $338.6 billion, down $0.1 billion after a 0.9% July increase, the U.S. Census Bureau reported. It was the first decline following two consecutive monthly gains.
The composition was better than the headline. Excluding transportation, orders rose 0.3%. Excluding defense, they rose 0.1%. Transportation equipment — down in three of the last four months — drove the entire decrease, falling $0.7 billion, or 0.6%, to $114.1 billion.
Shipments told a more notable story: they fell 0.2% to $333.8 billion, the first decline after eight straight monthly increases. Transportation equipment again led, down 1.8% to $109.5 billion.
Households Still Aren't Buying It
The University of Michigan's final September consumer sentiment reading came in at 48.1, above the 47.8 preliminary estimate and the 47.6 consensus compiled by Reuters, but still the lowest in four months and 12.7% below the 55.1 posted a year ago.
Survey director Joanne Hsu noted that sentiment "ticked down less than four index points in September, reaching the lowest reading in four months," adding that "interviews reveal broad agreement across the political spectrum that the outlook for the economy has weakened since the beginning of the year."
The inflation expectations series remains the Fed's problem. Year-ahead expectations held at 4.6%, up from 4.0% in August, while long-run expectations sat at 3.4% after three months anchored at 3.3%. The Expectations Index fell to 46.3 from 51.5, while Current Economic Conditions slipped to 50.9.
That combination — expectations drifting higher, growth data flattening — is why markets still expect the Fed to move again. CME Group's FedWatch tool put the odds of a quarter-point hike at the October 27-28 meeting near 73% as of Thursday, CNBC reported, following the September 16 increase. The committee's own median projection points to a year-end funds rate of 4%-4.25%, implying exactly one more hike.
Sources: Yahoo Finance, U.S. Census Bureau (Monthly Advance Report on Durable Goods, CB 26-149), University of Michigan Surveys of Consumers, CNBC, CME Group FedWatch, Reuters