Market Recap - Stocks Lose Ground Over Continuing Growth Concerns

Wall Street tumbled this week, with consumer discretionary and information technology stocks leading the retreat.

Concerns over peak earnings growth continued to linger, and a further breakdown in oil prices also weighed on investor sentiment. Brexit reentered the mix this week, and, as always, U.S.‐China trade headlines were plentiful. The S&P 500 lost 1.6%, the Dow lost 2.2%, the Nasdaq lost 2.2%, and the Russell 200 lost 1.4%.

Within the tech space (‐2.5%), Apple got off to a rough start after two more suppliers, Lumentum and Qorvo, cut their guidance. Disappointing guidance from chipmakers NVIDIA and Applied Materials also weighed on the sector, with NVIDIA plunging nearly 20% on Friday.

Meanwhile, a host of retailers reported earnings this week, including Walmart, Macy's, Home Depot, and Nordstrom to name a few. The reports generally showed better‐than‐expected profits, but shares sold off in response nonetheless. The SPDR S&P Retail ETF lost 4.5%, while the consumer discretionary sector lost 3.8%.

The oil‐sensitive energy space (‐2.1%) fell in tandem with WTI crude, which dropped 6.1% to $56.52/bbl and extended its losing streak to 12 sessions before bouncing back.

Saudi Arabia announced it would reduce its oil exports in December by 500,000 barrels a day due to a seasonal slowdown in demand, but President Trump rebuked that decision on Twitter. There were also reports that OPEC and non‐OPEC allies could be entertaining a plan to cut production by 1.4 million barrels per day in 2019. However, OPEC cut its 2019 oil demand forecast for the fourth consecutive month.

In Washington, Congresswoman Maxine Waters, who is set to take over the House Financial Services Committee this January, vowed that the days of weakening bank regulations will be coming to an end. Ms. Waters' comments should not have been seen as a surprise as it was understood this would likely be the case following the midterm election results. However, a knee‐jerk sell off in the financial space, which finished the week lower by 1.3%, suggested otherwise.

Conversely, outperforming the broader market were the lightly‐weighted real estate (+0.8%), materials (+0.4%), and the heavily‐weighted health care (‐1.1%) spaces.

Elsewhere, U.S. Treasuries saw heightened demand amid market turbulence and a softer‐sounding perspective from Fed Vice Chair Richard Clarida. Mr. Clarida conceded on Friday that he thinks the Fed is getting closer to a neutral rate, which is a dovish stance compared to Fed Chair Jerome Powell's "long way from neutral" comments from last month. The 2‐yr yield lost 13 basis points to close at 2.80%, and the 10‐yr yield lost 12 basis points to close at 3.07%.

This week saw the market bounce on any U.S.‐China trade development no matter if the news was new or repetitive.

A Financial Times report suggested China and the U.S. are trying to reach a trade truce ahead of the G‐20 meeting at the end of the month, but clarification from the U.S. Trade Representative's office said that the next round of tariffs for China are not on hold. President Donald Trump chimed in that China is open to a trade deal, though a list of concessions reportedly presented from China before did not mention structural reforms that have been demanded by President Donald Trump.

At the very least, National Economic Council Director Larry Kudlow did confirm that the U.S. and China have resumed trade discussions.

Overseas, UK Prime Minister Theresa May received cabinet approval for her draft withdrawal statement for Brexit. However, Brexit secretary Dominic Raab, and several other ministers, resigned after the approval, and reports indicate that the 1922 Committee received 48 letters needed to trigger a vote of no-confidence in Prime Minister Theresa May. The vote could take place next week.

Market Recap - Fed Policy Statement Not Enough to Derail U.S. Midterm Gains

The S&P 500 rose 2.1% this week but had to weather a late week sell-off after the latest policy statement from the Federal Reserve humbled an upbeat reaction to the midterm elections. Neither outcome was a surprise, but they were representative of recent market volatility.

The Dow Jones Industrial Average and the Nasdaq Composite also finished the week higher, adding 2.8% and 0.7%, respectively. The Russell 2000 added 0.1%.

The midterm elections produced a split Congress with the Democrats taking control of the House and the Republicans retaining control of the Senate. The prevailing assumption in the market was that a newly divided Congress would preserve market-friendly policies, namely the tax cut and deregulation efforts. In addition, investors took delight in the fact that the stock market has historically done well in years with a Republican president and split Congress.

The Fed released its policy statement on Thursday, in which it decided to leave the fed funds rate unchanged as expected. The central bank noted that it expects further rate hikes that are consistent with sustained economic growth, strong labor market conditions, and inflation near its symmetric 2% target over the medium term, but omitted October's sell-off and U.S.-China trade developments from its policy statement. Those omissions were a clear, between-the-lines message that the FOMC remains poised to raise rates for a fourth time this year in December.

In the stock market, the health care (+4.0%), real estate (+3.6%), and utility (+3.1%) groups led the way. Of note, health care has surpassed the information technology (+1.4%) and consumer discretionary (+2.0%) sectors for the top spot in the yearly sector standings with a 2018 gain of 12.4%. For comparison, tech is up 10.7%, and consumer discretionary is up 10.9%.

Conversely, the communication services sector was the only group to finish in negative territory with a weekly loss of 0.2%.

In earnings, some notable companies that had upbeat reports included Berkshire Hathaway (BRK.B), CVS (CVS), Eli Lilly (LLY), Humana (HUM), and Walt Disney (DIS). On the other hand, Skyworks Solution (SWKS) led chip stocks lower on Friday after it issued below-consensus Q1 earnings and revenue guidance. Skyworks, which is an Apple (AAPL) supplier, warned of slowing chip demand, continuing a disappointing trend out of the semiconductor industry.

On a related note, Japan's Nikkei Asian Review reported that Apple decided to cancel a production increase in its newest low-end iPhone XR. However, the Nikkei also said that demand for the older generation iPhone 8 and iPhone 8 Plus has been higher than expected. Nevertheless, the report corroborated fears over the company reaching peak iPhone sales.

In politics, Attorney General Jeff Sessions resigned his post effective immediately per President Trump's request. Pot stocks initially surged in response to his resignation, as his adamant anti-marijuana stance has been seen as a roadblock to advancing the national discussion for legalization. However, pot stocks pulled back as replacement names currently being floated are against marijuana legalization; acting Attorney General Matthew Whitaker has a mixed record on the issue.

Looking at other markets, U.S. Treasuries had a volatile week, and closed near last week's levels. This week, the 2-yr yield decreased two basis points to 2.91%, and the 10-yr yield added two basis points to 3.21%.

Also of note, WTI crude lost 4.8% this week, entering bear market territory and extending its decline from last month's four-year high. U.S. President Donald Trump granted temporary wavers on Monday to eight countries who import oil from Iran after the U.S.'s energy sanctions on the OPEC member were officially reimposed.

Market Recap - Stocks Stage Rebound Following October Sell-Off

The S&P 500 staged a rebound effort this week, tallying a 2.4% weekly gain. The continued expectation that the market was due for a bounce-back after last month's sell-off, compounded with mostly upbeat earnings and easing trade tensions underpinned the rally.

As for the other major averages, the blue-chip Dow Jones Industrial Average gained 2.4%, the tech-sensitive Nasdaq Composite gained 2.7%, and the small-cap Russell 2000 gained 4.3%.

Cyclical sectors were largely the best-performing groups this week, with the lightly-weighted materials sector (+6.1%) and the heavily-weighted financials (+4.4%) sectors leading the advance. The consumer discretionary sector (+4.0%) also had a notable gain. On the downside, utilities was the only group to settle in the red, losing 0.6%.

U.S.-China trade tensions eased this week, with U.S. President Trump saying that he had a "long and very good conversation" with China's President Xi, adding that the two leaders will be getting together at the upcoming G-20 summit in Argentina. There were some conflicting reports as to whether Mr. Trump has asked his cabinet to begin drafting a trade deal, but the president did say he thinks a deal will eventually be reached.

On the earnings front, Facebook's (FB) third quarter report was "good enough" to temper negativity surrounding the stock, helping to ease growth-related worries. Apple (AAPL), on the other hand, raised some red flags after forecasting softer-than-expected revenue guidance for the holiday quarter and announcing that it will no longer provide unit-sales data for the iPhone, iPad, and Mac.

Other notable companies to report earnings this week included Pfizer (PFE), Coca-Cola (KO), Chevron (CVX), Exxon Mobil (XOM), General Motors (GM), eBay (EBAY), T-Mobile US (TMUS), DowDuPont (DWDP), and Starbucks (SBUX), all of which beat estimates. Conversely, results from General Electric (GE), Kellogg (K), Spotify (SPOT), and Wayfair (W) came in below consensus.

In M&A news, IBM (IBM) acquired Red Hat (RHT) over the weekend for an all-cash offer of $190 per share; that represents a 63% premium over Red Hat's October 26 closing price.

Highlighting this week's batch of economic data was the Employment Situation report for October. Nonfarm payrolls increased by 250,000, higher than the Briefing.com consensus of 190,000, while average hourly earnings increased 0.2% as expected. The unemployment rate remained at a nearly 50-year low of 3.7%. The key takeaway from the report is that it is consistent with labor market trends that will keep the Federal Reserve on a tightening path. The U.S. Federal Reserve will be meeting next week, but no rate hike is expected until December.

Overseas, European and Asian stocks rose with Wall Street this week. In Germany, Chancellor Angela Merkel announced that she won't be seeking re-election as head of the CDU, following disappointing results for her party in a regional election. Her plan, however, is to remain Chancellor until 2021. Meanwhile, the Bank of England and the Bank of Japan released their latest policy decisions, keeping interest rates unchanged.

Market Recap - Growth Concerns Dominate in Very Bad Week For The Stock Market

The stock market just had another terrible, horrible, no good, very bad week, filling in some more blanks on what has been a terrible, horrible, no good, very bad month.

Just how bad has it been?  The Russell 2000 is down 12.5% in October; the Nasdaq Composite is down 10.9%; the S&P 500 is down 8.8%; and the Dow Jones Industrial Average is down 6.7%.

The thrust of matters is that the market is worried about growth.  That might sound odd considering it was revealed on Friday that third quarter real GDP increased at an annual rate of 3.5%, yet it is the sobering message that has resonated loud and clear in the stock market's price action.

The worry isn't about the growth that was just left behind.  Rather, it is about the growth to come -- or perhaps lack thereof.

There are various explanations regarding the causes of the stock market's correction: the adverse effect of a strong dollar; the slowdown in China and other foreign markets; tariff issues, raw material price increases; political uncertainty; diplomatic uncertainty; price increases for consumers; rising interest rates; and profit margin pressures.

Ultimately, they all feed into the one thing that matters most for the stock market: earnings growth.

The clearest evidence that the stock market is wrapped up in worries that future earnings growth won't live up to expectations is in the third quarter earnings results.  They have been quite impressive.

According to FactSet, the blended third quarter earnings growth rate is 22.5%, up from 19.3% on September 30.  What's more is that the forward 12-month EPS estimate has increased by 0.8% over the same period.

Analysts, then, aren't marking down their estimates, yet investors are marking down stock prices sharply, believing those estimates are destined for a downward revision in due time as the effects of tariffs, higher interest rates, and higher operating costs kick in just as the initial thrust of the tax cuts gets kicked out and earnings comparisons become more difficult.

The quantitative result is that there has been a compression in the forward twelve-month P/E ratio to 15.5, versus 16.8, at the beginning of the fourth quarter, according to FactSet, as prices have dropped sharply while the earnings estimate has drifted higher.

Even so, there hasn't been a concerted effort yet to buy into the weakness, which has been unsettling for investors who have grown accustomed to the stock market, and particularly the mega-cap growth stocks, always bouncing back in confident fashion.

The recognition that any strength has been viewed as an opportunity to sell has shaken investor confidence and has contributed to selling efforts on the part of investors trying to secure profits in crowded trades before they disappear altogether.

That would take some time yet for anyone buying at the start of this bull market.  To wit, the S&P 500 is still up nearly 300% from its low in March 2009; nevertheless, the ugly price action of late in key leadership stocks (i.e. the FAANG stocks), key leadership groups (i.e. information technology, communication services, consumer discretionary, financials, and industrials), and the major indices has upset the balance of confidence in the stock market.

That all came home to roost in the week that just concluded.

There were some good reports to be sure and some encouraging reactions to those reports.  Microsoft (MSFT), Tesla (TSLA), Twitter (TWTR), Intel (INTC), and Boeing (BA) come to mind.

However, the stock market wasn't governed by their good news.  It was governed by the disappointing guidance from the likes of Caterpillar (CAT), 3M (MMM), Texas Instruments (TXN), Amazon.com (AMZN), Alphabet (GOOG), Mohawk Industries (MHK), Colgate-Palmolive (CL), and Western Digital (WDC) to highlight a few examples.

Nothing cured the stock market this week, because none of its bugaboos got cured.

It is sounding like the trade war between the U.S. and China could be a prolonged one; Italy sounds as if it is thumbing its nose at the EU's request to revise its budget; Saudi Arabia's explanation for how Washington Post columnist Jamal Khashoggi died had obvious signs of being a cover up; Brexit negotiations have hit another impasse; the U.S. dollar strengthened; and, perhaps most importantly, Federal Reserve officials continued to make their case for why they think further rate hikes are warranted.

The latter is a central component of why the stock market is wrapped up in growth concerns.  It is bothered by the idea that the Federal Reserve is going to raise rates too much, too soon, and choke off the U.S. economy's growth trajectory at a time when foreign economies, namely China and Europe, are already slowing down.

The translation heard from the lips of many pundits is that there is a fear of the Federal Reserve making a policy mistake.

Again, though, that gets back to earnings growth concerns, which have fueled broad-based de-risking in the stock market.  All 11 sectors in the S&P 500 ended lower in the week just concluded.  The real estate sector fared the best with a 1.0% decline while the energy sector fared the worst with a 7.1% decline.

There was nowhere to hide other than in cash and risk-free Treasuries.  Yields fell across the curve. The 2-yr note came down 11 basis points to 2.81% and the 10-yr yield dropped 12 basis points to 3.08%.

The fact that the stock market found little comfort in the drop in market rates was a telltale sign that it was a terrible, horrible, no good, very bad week for a stock market caught up in a correction driven by earnings growth concerns.

Market Recap - Mixed Outing As Earnings Season Ramps Up

Stocks had a mixed outing this week after suffering heavy losses in the week prior. The benchmark S&P 500 finished flat, leaving its October loss at 5.0%, and the blue‐chip Dow ticked up 0.4%. Conversely, the tech‐heavy Nasdaq fell 0.6%, and the small‐cap Russell 2000 lost 0.3%.

The third quarter earnings season ramped up this week after kicking off last Friday. Financial companies Goldman Sachs (GS), Morgan Stanley (MS), Bank of America (BAC), U.S. Bancorp (USB), Charles Schwab (SCHW), and BlackRock (BLK) reported mostly better‐than‐expected profits, helping to boost the S&P financial sector 0.8% higher.

Meanwhile, the health care sector rallied 0.5% after Dow components Johnson & Johnson (JNJ) and UnitedHealth (UNH) beat earnings estimates and issued above‐consensus guidance.

Software giant Adobe Systems (ADBE) surged nearly 10% on Tuesday after it reaffirmed fourth quarter guidance and said it expects FY19 revenues to be up 20%. The information technology sector trailed the broader market this week overall though, losing 1.2%. Chipmakers were relatively weak, with the Philadelphia Semiconductor Index falling 2.2%.

Netflix (NFLX) was another notable name on this week's earnings calendar. The streaming media giant beat bottom‐line estimates and reported higher‐than expected subscriber growth by adding nearly seven million new subscribers last quarter ‐‐ six million coming from overseas. However, shares fell later in the week on news that The Wall Street Journal is investigating the company's corporate culture.

Away from earnings, home‐improvement retailers Home Depot (HD) and Lowe's (LOW) sold off on Wednesday following some disappointing housing data. Housing starts rose to a seasonally adjusted annualized rate of 1.201 million units in September, below the Briefing.com consensus estimate of 1.221 million, and building permits declined to a seasonally adjusted annualized rate of 1.241 million, also below the Briefing.com consensus estimate of 1.273 million.

Also of note, retailer Sears Holdings (SHLD) filed for Chapter 11 bankruptcy. While the news was not a surprise, it did generate a sentimental story line given the retailer's storied operating history.

The minutes from the September FOMC meeting were released on Wednesday, showing that officials generally agreed on the need for more gradual rate hikes. In addition, the minutes revealed that a number of officials saw the need to hike rates above levels expected to prevail over the long run. The probability of a December rate hike remains high, ticking up to 83.7% from 79.8% last week, according to the CME FedWatch Tool.

As for the 11 S&P 500 sectors, they finished the week pretty evenly mixed between green and red. Defensive groups like consumer staples (+4.3%), utilities (+3.1%), and real estate (+3.2%) were the top performers, while growth‐sensitive groups like consumer discretionary (‐2.0%), energy (‐1.9%) and materials (‐1.4%) finished at the bottom of the sector standings.

In other markets, U.S. Treasuries slipped this week, pushing yields higher; the yield on the benchmark 10‐yr note climbed three basis points to 3.20%. The U.S. Dollar Index advanced 0.6% to 95.46, but WTI crude fell 2.9% to $69.26/bbl.

The disappearance and alleged murder of Washington Post columnist Jamal Khashoggi pressured U.S. Treasury Secretary Steven Mnuchin into pulling out of next week's Future Investment Initiative conference in Saudi Arabia. President Trump expressed confidence in intelligence reports that the murder was ordered by high‐level Saudi officials but stopped short of putting the blame on Saudi Arabia's crown prince Mohammed bin Salman.

Elsewhere overseas, China's Shanghai Composite touched a new four‐year low this week due to investor concerns over slowing economic growth. On Friday, China reported 6.5% year‐over‐year GDP growth, less than the prior quarter's growth of 6.7% and less than the expected growth of 6.6%. Meanwhile, the Euro Stoxx 50 advanced 0.5% this week despite continued angst that the Italian budget situation could get nasty.

Additionally, Canada became the second country in the world to legalize marijuana on Wednesday, causing a sell‐the‐news reaction in weed stocks.

Market Recap - An Ugly Week on Wall Street

Stocks sold off sharply this week, sending the S&P 500 lower by 4.1%. Fears over potentially weakening economic and earnings growth helped fuel the selling, which left stocks at three-month lows going into the third quarter earnings season. The Dow Jones Industrial Average lost 4.2% this week, and the tech-heavy Nasdaq Composite fell 3.7%.

The International Monetary Fund (IMF) cut its 2018 and 2019 global growth outlook to 3.7% from 3.9% on Tuesday, citing trade uncertainties that include tariffs between the U.S. and China, a pending Brexit deal, and the new trilateral agreement between the U.S., Canada, and Mexico that's supposed to replace NAFTA.

On a related note, President Trump and Chinese leader Xi Jinping have reportedly agreed to meet at next month's G-20 summit with hopes of resolving their trade conflict.

A third quarter earnings warning from specialty chemicals company PPG Industries (PPG) weighed on sentiment this week, dampening hopes of another strong quarter. Financial giants JPMorgan Chase (JPM), Citigroup (C), and Wells Fargo (WFC) kicked off the Q3 earnings season on Friday with mixed results; JPM and C beat bottom-line estimates, but WFC missed. The financial sector initially had a positive reaction to the earnings results on Friday, but later rolled over to close the week with a total loss of 5.6%. A curve-flattening trade in the bond market didn't bode well for lenders, which depend on the interest-rate differential between what they pay for deposits and what they make on loans.

The yield on the benchmark 10-yr Treasury note, which spiked to a seven-year high last week, hovered between 3.12% and 3.26% before eventually settling Friday at 3.14% -- nine basis points below last Friday's close. Meanwhile, the yield on the more Fed-sensitive 2-yr Treasury note fell four basis points to 2.84%, leaving the 2-10 spread with a five bps point loss for the week.

President Trump blamed this week's selling on the Federal Reserve, which he says has "gone crazy" with its rate hikes. The Fed has raised rates three times this year with the most recent hike coming in September, and it appears to be on track to raise rates again at its December meeting. The CME FedWatch Tool places the chances of a December rate hike at 79.7%; that's down slightly from 80.0% last Friday.

The S&P 500 got into technical trouble this week, breaching its 50-day moving average on Wednesday and then its 200-day moving average on Thursday. The benchmark index tried to reclaim its 200-day moving average on Friday, but closed right at the key technical mark. The Dow Jones Industrial Average and the Nasdaq Composite breached their 200-day moving averages as well; the Dow eventually reclaimed the key technical level, but the Nasdaq did not.

Also of note, the CBOE Volatility Index (VIX), often referred to as the "investor fear gauge," touched its highest level since late March (28.64) before pulling back a bit on Friday. Still, the VIX finished the week roughly 40% higher.

In other news, Hurricane Michael made landfall in the Florida Panhandle on Thursday as a Category 4 storm. The storm has devastated the region, causing billions of dollars in damages and killing at least 13 people. Many oil producers in the Gulf of Mexico halted operations in anticipation of the storm, but WTI crude fell this week nonetheless, dropping 3.9% to $71.41/bbl, and the S&P 500's energy sector lost 5.4%.

Looking ahead, earnings season will ramp up next week with Bank of America (BAC), Charles Schwab (SCHW), UnitedHealth (UNH), Johnson & Johnson (JNJ), Morgan Stanley (MS), Goldman Sachs (GS), IBM (IBM), Netflix (NFLX), Travelers (TRV), American Express (AXP), PayPal (PYPL), Procter & Gamble (PG), and a host of others scheduled to report their quarterly results.

In addition, investors will receive September Retail Sales, Industrial Production and Capacity Utilization, Housing Starts and Building Permits, Existing Home Sales, and the minutes from the September FOMC meeting.

Market Recap - Stocks Fall as Treasury Yields Surge

The S&P 500 fell 1.0% this week, weighed down by a surge in bond yields, which rose to multi-year highs in front of Friday's release of the Employment Situation report for September. The tech-heavy Nasdaq and the small-cap Russell 2000 underperformed, losing 3.2% and 3.7%, respectively, but the blue-chip Dow finished flat.

Stocks began the week on a positive note, boosted by Canada joining Mexico and the United States in a trade agreement. On Sunday night, Canada agreed to allow greater dairy market access to the U.S., while also capping its automobile exports to the States. The deal, also known as the United States-Mexico-Canada Agreement (USMCA) replaces the 24-year-old NAFTA deal between the countries. However, Congress still has to approve the deal, which likely won't be easy.

Investors awoke to continued Italian drama on Tuesday, when Italy's anti-establishment government defended its plan to increase the country's budget-deficit target despite pushback from the EU. In addition, Claudio Borghi, who leads the economic policy of the ruling Lega party, claimed that most of Italy's problems could be solved if the country had its own currency -- although that idea was dismissed by Italy Deputy Prime Minister Di Maio.

However, on Wednesday, Italy's government decided to cede to some of the EU's budget demands. Italy's budget-deficit target will be reduced from 2.4% of GDP in 2019 to 2.2% in 2020 and then to 2.0% in 2021.

That news helped push bond yields higher overnight. Yields then extended those gains significantly after the September ADP Employment Change report -- a prelude to Friday's nonfarm payrolls reading -- showed an estimated 230K positions were added to private sector payrolls -- well above the Briefing.com consensus estimate of 184K. The ISM Services Index for September also came in better-than-expected on Wednesday, hitting a record high of 61.6% (Briefing.com consensus 58.2%), clearly indicating that business activity in the service-providing sector of the economy is strong.

Yields continued to advance on Thursday and then again on Friday following the release of the Employment Situation report for September. The report showed a smaller-than-expected increase in nonfarm payrolls (134K actual vs 184K Briefing.com consensus), but the August increase underwent a notable upward revision (to 270K from 201K). As for the rest of the report, average hourly earnings increased 0.3% (Briefing.com consensus +0.3%), the average workweek was reported at 34.5 (Briefing.com consensus 34.5), and the unemployment rate dropped to 3.7% from 3.9%.

The key takeaway from the September jobs report is that the labor market is solid and still simmering with the prospect of pent-up wage pressures being unleashed at any point as employers encounter difficulty in finding qualified workers.

Looking at this week's S&P sector standings, most groups finished in negative territory. The consumer discretionary sector led the retreat with a loss of 4.2%, and information technology (-2.0%) and communication services (-2.0%) also showed relative weakness. On a positive note, the influential financial sector advanced 1.7%, benefiting from rising yields and, more specifically, a steepening of the yield curve. The benchmark 10-yr yield jumped 16 basis points in total, closing Friday at 3.23% -- which marks its highest level since 2011 -- while the 2-yr yield jumped five basis points to 2.88%.

In corporate news, General Electric (GE) replaced CEO John Flannery with former Danaher CEO Larry Culp; Tesla's (TSLA) CEO, Elon Musk, agreed to settle charges with the SEC, in which Mr. Musk and Tesla are to pay $20 million each, and Mr. Musk is to step down as chairman for three years; Amazon (AMZN) announced that it will be raising its minimum wage to $15 an hour for all U.S. employees, pressuring other retailers to do the same; and General Motors (GM) announced that it will be partnering with Honda Motor (HMC) to build autonomous vehicles.

Market Recap - Stocks Fall as Treasury Yields Surge

The S&P 500 fell 1.0% this week, weighed down by a surge in bond yields, which rose to multi-year highs in front of Friday's release of the Employment Situation report for September. The tech-heavy Nasdaq and the small-cap Russell 2000 underperformed, losing 3.2% and 3.7%, respectively, but the blue-chip Dow finished flat.

Stocks began the week on a positive note, boosted by Canada joining Mexico and the United States in a trade agreement. On Sunday night, Canada agreed to allow greater dairy market access to the U.S., while also capping its automobile exports to the States. The deal, also known as the United States-Mexico-Canada Agreement (USMCA) replaces the 24-year-old NAFTA deal between the countries. However, Congress still has to approve the deal, which likely won't be easy.

Investors awoke to continued Italian drama on Tuesday, when Italy's anti-establishment government defended its plan to increase the country's budget-deficit target despite pushback from the EU. In addition, Claudio Borghi, who leads the economic policy of the ruling Lega party, claimed that most of Italy's problems could be solved if the country had its own currency -- although that idea was dismissed by Italy Deputy Prime Minister Di Maio.

However, on Wednesday, Italy's government decided to cede to some of the EU's budget demands. Italy's budget-deficit target will be reduced from 2.4% of GDP in 2019 to 2.2% in 2020 and then to 2.0% in 2021.

That news helped push bond yields higher overnight. Yields then extended those gains significantly after the September ADP Employment Change report -- a prelude to Friday's nonfarm payrolls reading -- showed an estimated 230K positions were added to private sector payrolls -- well above the Briefing.com consensus estimate of 184K. The ISM Services Index for September also came in better-than-expected on Wednesday, hitting a record high of 61.6% (Briefing.com consensus 58.2%), clearly indicating that business activity in the service-providing sector of the economy is strong.

Yields continued to advance on Thursday and then again on Friday following the release of the Employment Situation report for September. The report showed a smaller-than-expected increase in nonfarm payrolls (134K actual vs 184K Briefing.com consensus), but the August increase underwent a notable upward revision (to 270K from 201K). As for the rest of the report, average hourly earnings increased 0.3% (Briefing.com consensus +0.3%), the average workweek was reported at 34.5 (Briefing.com consensus 34.5), and the unemployment rate dropped to 3.7% from 3.9%.

The key takeaway from the September jobs report is that the labor market is solid and still simmering with the prospect of pent-up wage pressures being unleashed at any point as employers encounter difficulty in finding qualified workers.

Looking at this week's S&P sector standings, most groups finished in negative territory. The consumer discretionary sector led the retreat with a loss of 4.2%, and information technology (-2.0%) and communication services (-2.0%) also showed relative weakness. On a positive note, the influential financial sector advanced 1.7%, benefiting from rising yields and, more specifically, a steepening of the yield curve. The benchmark 10-yr yield jumped 16 basis points in total, closing Friday at 3.23% -- which marks its highest level since 2011 -- while the 2-yr yield jumped five basis points to 2.88%.

In corporate news, General Electric (GE) replaced CEO John Flannery with former Danaher CEO Larry Culp; Tesla's (TSLA) CEO, Elon Musk, agreed to settle charges with the SEC, in which Mr. Musk and Tesla are to pay $20 million each, and Mr. Musk is to step down as chairman for three years; Amazon (AMZN) announced that it will be raising its minimum wage to $15 an hour for all U.S. employees, pressuring other retailers to do the same; and General Motors (GM) announced that it will be partnering with Honda Motor (HMC) to build autonomous vehicles.

Market Recap - Raising Rates and Playing Politics

The S&P 500 pulled away from record highs this week, losing 0.5% in total, as investors digested a flurry of political headlines and the latest policy statement from the Federal Reserve, which included another rate hike -- the third one this year. The Dow also fell, losing 1.1%, but the tech-heavy Nasdaq outperformed, rallying 0.7%.

The week began with the U.S. implementing tariffs on $200 billion worth of Chinese goods, which triggered Beijing to impose retaliatory tariffs on $60 billion worth of American products. Chinese officials also canceled mid-level trade talks that had been scheduled for later in the week, dashing hopes for a near-term resolution.

OPEC was also in focus on Monday after it and several non-OPEC nations ended a weekend meeting without an agreement to increase output in order to counter falling supply from Iran due to U.S. sanctions. President Trump criticized OPEC in front of the UN General Assembly on Tuesday, saying the oil cartel is "ripping off the rest of the world" by colluding to limit supply and prop up prices.

In the same address, the U.S. president also criticized Iran, which is currently the target of U.S. economic sanctions, calling its government a "corrupt dictatorship" and saying its leaders "sow chaos, death, and destruction." President Trump also spoke regarding North Korea, ISIS, and Syria, and reiterated his administration's hard stance on fair trade.

The Federal Reserve increased short-term interest rates on Wednesday, as expected, raising the fed funds target range by 25 basis points to 2.00-2.25%. In its policy statement, the Fed removed the word 'accommodative', which led some to believe that officials could be moving towards slowing monetary tightening. However, Fed Chairman Jerome Powell said during his post-decision press conference that the language change didn't signal a change in the Fed's path for rate hikes.

As for rate-hike projections, the Fed still appears to be on track to raise rates another 25 basis points in December, with the CME FedWatch Tool putting the chances at 75.8%. Beyond 2018, the Fed's dot plot showed expectations for three rate hikes in 2019 (unchanged from June) and one in 2020 (also unchanged from June).

On Capitol Hill, political drama unfolded on Thursday as Supreme Court nominee Brett Kavanaugh and his accuser, Christine Ford, who has accused Mr. Kavanaugh of sexually assaulting her back in high school, testified before the Senate Judiciary Committee. The Committee advanced Mr. Kavanaugh's nomination on Friday, but a final Senate vote will be delayed for a one-week FBI investigation.

Overseas, two populist parties governing Italy widened the country's budget-deficit target for next year to 2.4% of GDP on Friday, likely putting the country at odds with the European Union. The major European stock indices sold off in reaction to the news, with Italy's MIB leading the retreat.

In U.S. corporate news, Comcast (CMCSA) paid $40 billion to win a bid for European broadcaster Sky, ending a two-year battle with 21st Century Fox (FOXA); Nike (NKE) reported above-consensus earnings for its fiscal first quarter; and Facebook (FB) fell on Friday after disclosing a "security issue" impacting 50 million users.

However, perhaps the week's biggest corporate story revolved around Tesla's (TSLA) CEO, Elon Musk, who was sued by the SEC on Thursday evening over his tweet about taking the electric automaker private. Mr. Musk and the SEC were reportedly close to reaching a no-guilt settlement that would have barred him from being chairman for two years, but Mr. Musk backed out at the last minute.

As for the sector standings, they were pretty mixed between red and green. The heavily-weighted financials sector was the second-worst performer, losing 4.1% in total, with materials (-4.5%) being the only group with a more substantial loss. Conversely, the newly-added communications services sector was the top performer with a weekly gain of 1.1%.

Market Recap - Dow Shrugs Off Tariffs, Returns to Record Territory

Wall Street rallied this week with investors shrugging off another tranche of U.S. tariffs on Chinese goods. The S&P 500 and the Dow touched new records ‐‐ the first time that's happened for the Dow since January 26 ‐‐ and finished the week with respective gains of 0.9% and 2.3%. The Nasdaq lagged though, slipping 0.3%.

President Trump announced on Monday evening that the U.S. will be slapping tariffs on $200 billion worth of Chinese goods starting on September 24. The tariff rate will start at 10%, but will increase to 25% on January 1. The president also said he will impose additional tariffs on $267 billion worth of Chinese goods if Beijing retaliates ‐‐ which it vowed to do with 5‐10% tariffs on $60 billion worth of U.S. goods.

Stocks unexpectedly took off on Tuesday following the tariff announcement, with some analysts pointing to the fact that the initial 10% tariff rate by the U.S. was not as harsh as expected ‐‐ thereby reflecting a willingness to negotiate. Others said the rally reflected the market's belief that the U.S.‐China trade dispute will eventually die down. Short‐covering activity likely helped as well.

The heavily‐weighted financial sector was among the top‐performing groups this week with a gain of 2.3%, benefiting from a steepening of the yield curve. The yield on the benchmark 10‐yr Treasury note climbed seven basis points to end Friday at 3.07%, while the Fed‐sensitive 2‐yr yield jumped two basis points to 2.81%.

Conversely, the top‐weighted information technology sector (‐0.1%) underperformed this week, getting surpassed by consumer discretionary (+0.4%) for the top spot in the 2018 sector standings. The two groups hold year‐to‐date gains of 18.5% and 18.7%, respectively. For comparison, the S&P 500 is up 9.6%.

In total, eight of the eleven S&P sectors finished in the green, with cyclical sectors showing relative strength. A new sector, communication services, will be born after Friday's close, and it will involve reclassifying several widely‐held technology, telecom, and media stocks into the new sector ‐‐ including Facebook (FB), Alphabet (GOOG), Verizon (VZ), Netflix (NFLX), and Walt Disney (DIS).

In individual stocks, cannabis names were in focus this week, with Tilray (TLRY) going on a wild ride after its CEO suggested that his business would be a "smart hedge" for major pharmaceutical companies. TLRY shares traded as high as $299.46/share ‐‐ 175% above last Friday's close ‐‐ before ending the week at$123.00/share (+13%).

On the oil front, WTI crude climbed 2.6% this week to $70.77/bbl even though President Trump criticized OPEC on Thursday morning, saying the "OPEC monopoly must get [oil] prices down now!" Reuters then reported on Friday that OPEC and non‐OPEC countries are discussing the possibility of raisingoutput by 500,000 barrels a day to counter falling supply from Iran due to U.S. sanctions.

Looking ahead, the Federal Reserve will release its latest policy directive on Wednesday. The market is all but certain that the central bank will hike rates ‐‐ with the CME FedWatch Tool placing the chances at 100% ‐‐ so investors will be more focused on the Fed's rate forecast, especially for 2019.