U.S. equities struggled to hold intraday gains on Monday before ultimately finishing mixed. Investors remain nervous ahead of policy decisions by the Federal Reserve and the Bank of Japan later this week.
Moreover, there were lingering national security fears after bombings in New York and New Jersey and a knife attack in Minnesota over the weekend.
In the end, the Dow Jones Industrial Average lost a fraction, the S&P 500 was unchanged, the Nasdaq Composite lost 0.2% and the Russell 2000 gained 0.6%. Treasury bonds were little changed, the dollar was weaker, gold gained 0.6% and the crude oil price gained 0.6%.
Defensive utility stocks led the way with a 1% gain while telecoms were the laggards, down 0.7%. Apple Inc. (NASDAQ:AAPL) dropped 1.2% on unconfirmed rumors of iPhone 7 battery problems. PayPal Holdings Inc (NASDAQ:PYPL) fell 1.7% on an analyst downgrade from Canaccord. General Motors Company (NYSE:GM) gained 2.9% thanks to an upgrade by Morgan Stanley on the lengthy ramp up in autonomous driving technology giving the company plenty of time to generate cash and adapt.
On the economic front, September homebuilder confidence jumped more than expected.
Turning to the central bank policy decisions on Wednesday, Bank of America Merrill Lynch analysts are looking for a “cautiously hawkish” tone from the Fed, but no hike. This should set up a move in December, assuming the economic data recovers from a recent bout of weakness.
The Bank of Japan’s is arguably more important given recent pressure on long-term government bonds resulting from chatter that officials could look to “steepen the yield curve” in an effort to take pressure off of savers, pensions and bank earnings as a result of their negative interest rate policy. This was seen as potentially destabilizing since, with rates so low, any small increase in long-term rates would result in painful bond price losses.
BofA ML analysts believe the BoJ will punt, appealing to the need to maintain policy flexibility, which could be negatively interpreted as a sign of policy constraint. Adding to the concerns is evidence of fresh interbank lending stress in China and signs that market breadth is narrowing here at home (with a rollover in new 52-week highs flashing a warning signal for the first time since last August’s China-related selloff).
Anthony Mirhaydari is founder of the Edge and Edge Pro investment advisory newsletters. A two-week and four-week free trial offer has been extended to InvestorPlace readers.
