Industrials led the Dow Jones Industrial Average to a new closing high on Friday ahead of Monday’s major sector reshuffle, capping a week that largely shrugged off trade worries.

Trading volume rose to its highest level since February 9, in anticipation of the S&P 500 sector change, when telecoms will be folded into a new sector called communications services, along with heavy-hitting stocks such as Facebook and Disney.

While the Dow closed higher, the S&P 500 and the Nasdaq ended the session in negative territory. The S&P and the Dow posted weekly gains, with the Dow showing its largest weekly percentage advance in over two months. The Nasdaq lost ground on the week.

Friday was also a time of “Quadruple witching,” when stock options and futures expire, which happens four times a year and produces increased volatility. The rebalancing of the S&P 500 and the Russell 2000 indexes also contributed to heavier traffic.

Boeing, our country’s largest exporter to China, sent trade-sensitive industrials higher. The sector led the Dow’s advance.

Yields on long-term Treasuries edged down on Brexit anxieties even with Federal Reserve expected to hike key interest rates next week. The financial index headed lower, ending its recent rally.

Telecoms rose 1 percent on its last trading day as a discrete major S&P sector and was the index’s largest percentage gainer.

All of the FAANG momentum stocks ended the session lower, with Facebook, Apple, Amazon, Netflix and Alphabet down between 1.1 percent and 1.9 percent.

Shares of ADT rose for a second day in a row, closing up 5 percent as Amazon introduced its new Alexa Guard service which could notify ADT of disturbances in the home.

McDonald’s ended the trading day with a gain of 2.8 percent after announcing it would hike its quarterly dividend by 15 percent.

Under Armour gained 2.9 percent following an upgrade by JPMorgan Chase.

A 2.9 percent drop in shares of Micron helped pull the chip industry lower after the company said tariffs on Chinese goods would weigh on its financial results for as much as a year.

Shares of Pier 1 Imports fell 19.9 percent after the home furnishings retailer cut its second-quarter forecasts.

Approximately 10.77 billion shares changed hands on the major domestic equity exchanges, a number that was about 64 percent higher than the 6.57 billion share average over the past 20 days.

Fed Is Walking a Thin Line

Unemployment is near a 20-year low. In other times it might be logical for the Fed to raise interest rates to off-set the risk a too-hot economy. At the same time, the yield curve is being interpreted by many as indicating that a recession may not be far off. 

The decision of which to heed will loom large when the Fed’s September meeting. Which path is followed will begin to define whether Fed Chairman Jerome Powell engineers a sustained, recession-free era of full employment, or spoils the party with interest rate increases that prove intolerable for the economy.

Fed staff research and Powell’s own remarks seem to put more weight on the risks of super-tight labor markets, which could mean a shift up in the Fed’s rate outlook and a tougher tone in its rhetoric.

Goldman Sachs economists, for instance, contend the Fed’s “optimal” rate path is “well above market pricing under a broad range of assumptions.” They see four increases likely next year, while many on the Street expect only one or two, a significant gap.

Fed officials have telegraphed a likely quarter-point rate increase when they meet on Tuesday and Wednesday next week, and investors expect that, plus another in December.

New York Fed President John Williams deemed the current situation of continued growth, steady jobs gains and modest, close-to-target inflation “as good as it gets” for the gradual rate increases begun by former Chair Janet Yellen to continue.

But it will be Powell’s Fed that decides how much farther and faster to go. The language of next week’s Fed statement, fresh forecasts that extend into 2021 and Powell’s post-meeting press conference will map his path to a critical juncture at which two historical facts have begun to clash.

On one hand, more hikes risk pushing short-term interest rates above long-term ones, reversing the usual nature of bond markets. Moreover, that typically signals a recession is coming because investors have doubts about long-term economic prospects

Some policymakers have argued the Fed should pause rather than risk causing an “inversion” by pushing up short-term rates while long-term rates are moving more slowly.

Meanwhile, the unemployment rate, currently 3.9 percent, is pushing its own historic boundaries it has been below 4.5 percent for 17 months,. “Full employment” is generally considered to be around 4.5 percent

The unemployment rate and Powell is facing risks around rising global tariffs, strengthening wages and growing concern about the stability of financial markets.

Fed staff research has focused on the dangers of not responding to tight labor markets, points echoed in Powell’s keynote remarks at the annual Fed conference in Jackson Hole last month.

While economists have broadly noted a breakdown in the longstanding relationship between inflation and low unemployment, the approach outlined by Powell would caution against making policy on that basis.

Keeping policy loose in the hope that inflation remains tame even with such low levels of joblessness, the research argued, risks greater potential costs to the economy than insuring against quicker price growth with tighter policy now.

In recent weeks, Gov. Lael Brainard and Chicago Federal Reserve President Charles Evans, both reluctant to raise rates too quickly or high in the past, have said the Fed may need to become “restrictive” in coming months.

Others more inclined toward rate increases, like Boston Fed President Eric Rosengren, have redoubled their case, noting the Fed has never successfully nudged unemployment up from a super-low level to a more sustainable state.

The three recessions since the mid-1980s, in fact, have all occurred after the unemployment rate and the fed’s policy rate had their own “inversion,” with the short-term interest rate higher than the jobless rate – a point the Fed will be close to reaching next year under current policymaker projections.

In contrast to years under Yellen in which the Fed aimed to keep unemployment falling as quickly as possible, the emphasis may be shifting in an effort to see if this time can be different.