Tuesday 03, October 2017 by William Mullally

Quarter opens positive for stocks, negative for bonds

Mihir Kapadia, CEO and Founder, Sun Global Investments

The new month and quarter began yesterday as the old one finished – positive for stocks the US dollar and negative for bonds. In fact, 2017 has provided to be a very good year for stocks with almost all market indices globally higher and most major markets up at least 10 per cent. Stand out performers are the Hang Seng (YTD 27 per cent) and the Nasdaq 21 per cent.

Yesterday all four major US stock indices reached a new all-time high as the stealth rally continued higher. The Dow closed up about 150 points, or 0.7 per cent, the S&P 500 index rose 0.4 per cent while Nasdaq advanced 0.3 per cent. For foreign investors, there is an additional benefit as the US dollar seems to have broken its 2017 decline and has recovered in the last two weeks. The US currency has been boosted by stronger growth (running at about 3.1 per cent), prospects for interest rate increases in December 2017 and through to 2018 and large Tax cuts from the Trump administration. Federal Reserve Bank of Dallas President Robert Kaplan said that the door remains open to raising short-term interest rates this year boosting expectations of an interest rate increase by December. Markets are now pricing in a significantly high 71 per cent increase in interest rate increase.

US government bonds fell as investors weighed the impact of turmoil in Spain and a mass shooting in Las Vegas against strong economic data and prospects for a tax overhaul.  The yield on the benchmark 10-year Treasury note rose 1 bp to 2.337 per cent.

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