The story of last week was rising bond yields, which ratcheted higher on Thursday and Friday in the wake of Wednesday afternoon’s FOMC statement and the ensuing press conference. While in Albion’s view the Fed’s message was consistent with prior statements regarding the condition of the economy and progress towards its dual mandate, some investors may have hoped that the mild market selloff during the first half of September would have prompted a more dovish turn in the Fed’s policy outlook. Those investors appear to be disappointed that the Fed has largely stayed the course, and they have responded by pushing bond yields to their highest levels since the end of Q2. By week’s end, 2y Treasury yields were up 5bp, 10y yields up 9bp, and 30y yields up 8bp.
In conjunction with rising rates, shorter-duration equity benchmarks like the Dow and small/mid cap indices outperformed the longer-duration Nasdaq. Meanwhile, international indices were once again pulled lower by China, where investors continue to watch the unfolding Evergrande saga with great interest.
Economic news was mixed last week. Housing activity remains strong, with starts and permits both rising sequentially in August from already-robust levels. New home sales rose as well, with existing home sales in line with consensus estimates. Conversely, initial jobless claims rose for the second consecutive week, and manufacturing surveys from the Chicago Fed, Kansas City Fed, and Markit all came in below expectations.