The economy is still too hot to handle

It was a challenging trading day as another good news is bad news day appeared. The latest ISM economic data was stellar. This led to a rise in bond yields, and stock prices fell in response to the run-up in yield. Big technology stocks and growth companies took a hit.

Service PMI showed renewed strength.

Indeed, as August services PMI jumped 1.8 points compared to a month ago to hit 54.5, the highest reading achieved since Feb this year, it is a remarkable 2 points higher than expected. The report proved that the economy is too strong for any sign of inflation to wane.

The latest reading proves that despite a weaker factory sector, the other spectrum of the economy is still roaring.

Bond Yields rose with good economic data.

We have seen the 2-year Treasury note rising for the third consecutive session to reach above 5% market. It is very close to the 52-week high of 5.06% in March. Given the higher bond yield, this hurt the growth stocks as their future income stream is now reduced in current value.

September is living up to its name.

Indeed, as the final week of August had a pretty good recovery, we now see September living up to its reputation as a period of weakness. We might get some cooling off on the sell-off if the Fed stays put to any rate hike.

What’s on the menu today?

1. 8.30 pm : Initial Jobless Claims, Unit Labor Costs
2. 10 pm : FOMC Member Harker Speaks
3. 3.30 am : FOMC Member William Speaks

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