The Markets This Week

Tech stocks took a break last week—surrendering their star role as the third-quarter earnings season kicked into gear. They were up 1.3%, only the third-best sector performance, trailing real estate, up 1.8%, and consumer staples, up 1.5%.

The Dow Jones Industrial Average closed at 22,871, up 0.43% on the week, and the Standard & Poor’s 500 index gained 0.15%, closing at 2,553. The Nasdaq Composite, which rose 0.24% to finish the session at 6,605, set another all-time high.

Binky Chadha, chief U.S. and global equity strategist at Deutsche Bank, described the weekly action as “a modest grind higher.”

The Russell 2000 Index, a bellwether for small-cap stocks that had made big gains from mid-August through the end of September, bucked the trend and closed the week at 1,502, down half a percentage point.

The 10-year U.S. Treasury ended the week yielding 2.28%, the third trading session out of the previous four that investors bid up prices. (Bond prices move in the opposite direction of yields.) Inflation expectations for the next 12 months fell to 2.3% from 2.7% a month earlier, according to the University of Michigan Consumer Sentiment Survey. Lower inflation is less of a threat to fixed-income yields and makes it harder for the Federal Reserve to raise rates again in 2017.

Still, says Chadha, “Our call is that inflation will move up and bond yields will go higher,” adding that the firm forecasts the 10-year Treasury will yield 2.75% at the end of this year, about half a percentage point above where it was late last week.

Even though the large-stock indexes ended the week in positive territory, they didn’t make the big moves they have in recent weeks, as evidenced by gains of half a percentage point or less.

The week served as a breather for many stocks, says Frank Cappelleri, a technical analyst at Instinet, a subsidiary of Nomura. “I don’t think it’s a surprise to anyone to see some of these moves being digested,” he says.

(Source: Barrons Online)

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