What I’m Watching This Week – 26 May 2015

The Markets

Equities were very much a mixed bag last week, as trading was generally quiet ahead of the Memorial Day weekend. The S&P 500, which closed at an all-time high, continued its positive trend, gaining 0.16%. But the Dow and Global Dow fell back into negative territory. The Nasdaq and Russell 2000 posted moderate gains. A relatively strong housing starts report and an uptick in the Consumer Price Index may have helped drive U.S. Treasury yields higher. The lack of heavy trading may be the result of relatively mundane economic news during the week, the wrap up of corporate earnings season, and assurances from the Federal Reserve Chair that interest rates aren’t moving up in the near future.

Market/Index 2014 Close Prior Week As of 5/22 Weekly Change YTD Change
DJIA 17823.07 18272.56 18232.02 -0.22% 2.29%
Nasdaq 4736.05 5048.29 5089.36 0.81% 7.46%
S&P 500 2058.90 2122.73 2126.06 0.16% 3.26%
Russell 2000 1204.70 1243.95 1252.22 0.66% 3.94%
Global Dow 2501.66 2639.52 2627.85 -0.44% 5.04%
Fed. Funds 0.25% 0.25% 0.25% 0% 0%
10-year Treasuries 2.17% 2.15% 2.21% 6 bps 4 bps

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

Last Week’s Headlines

  • New home construction may be outpacing sales of existing homes as housing starts soared in April, while existing home sales dipped. New applications for building permits were 10.1% higher than March and 6.4% ahead of April 2014. Construction starts of privately owned homes increased by 20.2% above March and 9.2% over April 2014.
  • On the other hand, sales of existing homes in April were down 3.3% compared to March, but they’re still more than 6% better than this time last year. The number of existing homes on the market increased by about 10%, as did the median price, which rose to $219,400 (8.9% above April 2014).
  • For the third consecutive week, inventories of oil fell for the week ending May 15. The U.S. average retail price of regular gasoline increased five cents from last week to $2.74 per gallon as of May 18, 2015, which is 92 cents per gallon less than the same time last year.
  • Layoffs continue to be scant as the May 16 week jobless claims report showed only a slight increase of 10,000 claims over last week. Continuing claims dropped 12,000 for the May 9 week, while the insured unemployment rate (1.6%) decreased by 0.1% from the previous week.
  • The general conditions index of the Manufacturing Business Outlook Survey from the Federal Reserve Bank of Philadelphia, a closely watched manufacturing index, came in slightly down in May (6.7) from April (7.5), but reported an uptick in new orders and employment.
  • Consumer prices increased 0.1% in April following a 0.2% gain in March. The index for all items less food and energy rose 0.3%, which contributed to April’s overall gain, more than offsetting the decline (-1.3%) in energy. The food index rose 2.0% over the last year, and the year-on-year index for all items less food and energy rose 1.8%. With prices increasing, may a rate hike be in the offing?
  • Not in the immediate future, according to Fed Reserve Chair Janet Yellen. In a speech given Friday, Yellen indicated that the economy is soft but slowly gaining momentum that will likely necessitate a rate hike later in the year. However, low inflation coupled with low wages, and slowing in business spending and exports apparently is enough to hold off raising rates. This message is in keeping with the minutes from the April Federal Open Market Committee meeting that indicated most members haven’t seen enough economic growth to warrant increasing short-term interest rates–at least not yet. However, discussion of raising rates will remain on the agenda for the next several meetings.

Eye on the Week Ahead

This week brings major updates in manufacturing, housing, and the GDP. Will durable goods orders continue to lag, held back by weak exports and aircraft? Will new home sales continue their positive trend? Will the first-quarter gross domestic product reflect the trade gap and slow growth in inventories?

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What I’m Watching This Week – 18 May 2015

The Markets

Despite drops in consumer confidence, import and export prices, crude oil inventories, and producer prices, the stock market rallied at the end of the week to post positive gains across the board lead by the S&P 500, which closed at an all-time high. However, the biggest gainers for the week were the Nasdaq (0.89%) and the Russell 2000, which gained 0.73% over last week. The domestic market’s positive close to the week may be in response to the rather sluggish economic news, which has increased sentiment that a Federal Reserve interest rate hike is not in the immediate future.

Market/Index 2014 Close Prior Week As of 5/15 Weekly Change YTD Change
DJIA 17823.07 18191.11 18272.56 0.45% 2.52%
Nasdaq 4736.05 5003.55 5048.29 0.89% 6.59%
S&P 500 2058.90 2116.10 2122.73 0.31% 3.10%
Russell 2000 1204.70 1234.93 1243.95 0.73% 3.26%
Global Dow 2501.66 2621.90 2639.52 0.67% 5.51%
Fed. Funds .25% .25% .25% 0% 0%
10-year Treasuries 2.17% 2.13% 2.15% 2 bps -2 bps

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

Last Week’s Headlines

  • The Treasury Department reported that government receipts in April reached an all-time high. Total receipts came in at $471.8 billion, which created a surplus of $156.7 billion, the largest surplus in the last seven years. Of course, April is generally the biggest tax month of the year, with the bulk of the government’s receipts coming from individual income taxes ($288 billion). Through the first seven months of the budget, the deficit ($282.8 billion) is about 7.7% lower compared to this time last year.
  • Compared to February, the March nonfarm jobs market saw fewer job openings (4.99 million vs. 5.14 million) according to the Department of Labor’s Job Openings and Labor Turnover Survey (JOLTS). Yet the number of unemployment claims continued to decrease, down 1,000 for the week ending May 9, while the four-week moving average (271,750) is the lowest level since April 22, 2000. It appears that while employers aren’t hiring at a brisk pace, they’re also not letting employees go either.
  • Continuing a trend, U.S. import prices fell 0.3%, while prices for U.S. exports fell 0.7% in April. Compared to last April, import prices are down 10.7% with export prices dropping 6.3%.
  • April also saw producer prices fall 0.4%, while industrial production decreased 0.3% for its fifth consecutive monthly loss.
  • The Census Bureau’s latest report for April showed virtually no change in advance estimates of retail and food sales compared to March. Sales of autos, furniture, electronics/appliances, and food/beverages all declined, as did department store sales.
  • For a second week in a row, crude oil inventories fell, a decrease of 2.2 million barrels from the previous week. Nevertheless, at 484.8 million barrels, U.S. crude oil inventories are at the highest level for this time of year in at least the last 80 years.
  • Last quarter’s sluggish economy coupled with increasing gas prices at the pumps may have caused a distinct drop in consumer confidence, according to the University of Michigan’s preliminary index of consumer sentiment for May. The 7.3% decrease from April (95.9 to 88.6) is the largest decrease since December 2012.

Eye on the Week Ahead

The week begins with housing data. Will this lagging sector begin to gain momentum during the spring season? And will jobless claims reports continue to show a positive trend?

What I’m Watching This Week – 11 May 2015

The Markets

Buoyed by generally encouraging labor data, leading equity benchmarks enjoyed a major rally on Friday, overcoming an otherwise sluggish week. While the Dow’s gains exceeded those of the S&P 500, both indexes outperformed the Nasdaq. After dipping below 18000 during the week, the Dow closed at 18191, up .93% from the previous week, while the S&P 500 closed Friday’s trading up .37%. Equally encouraging is the fact that, despite the deep freeze that resulted in a lackluster first quarter, the year-to-date returns of the major indexes remain positive.

Market/Index 2014 Close Prior Week As of 5/8 Weekly Change YTD Change
DJIA 17823.07 18024.06 18191.11 0.93% 2.02%
Nasdaq 4736.05 5005.39 5003.55 -0.04% 5.35%
S&P 500 2058.90 2108.29 2116.10 0.37% 2.70%
Russell 2000 1204.70 1228.11 1234.93 0.55% 2.45%
Global Dow 2501.66 2610.75 2621.90 0.43% 4.59%
Fed. Funds .25% .25% 25% 0% 0%
10-year Treasuries 2.17% 2.12% 2.15% 3bps -2 bps

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

Last Week’s Headlines

  • While not overwhelming, the employment report allowed for cautious economic optimism moving forward. The unemployment rate for April was essentially unchanged at 5.4% (about 8.5 million persons), the U.S. Bureau of Labor Statistics reported on Friday. The report also notes that 223,000 new jobs were created in April–an increase of 138,000 new jobs compared to a weak March (based on revised numbers). Job gains occurred in professional and business services, health care, and construction. The job gains and consistent unemployment rate may be more indicative of a rebound from the brutal winter that dominated most of the first quarter. However, it’s uncertain whether this report shows enough economic stability to entice further discussion by the Fed of an imminent interest rate hike.
  • New claims for unemployment insurance for the May 2 week came in at 265,000 a modest increase over last week’s reading of 262,000 claims. The four-week moving average of 279,500 represents the lowest average since the May 6, 2000, reading of 279,250. Ongoing jobless claims (people already collecting unemployment checks) declined by 28,000 to 2.228 million–the lowest level since November 2000. The favorable unemployment claims report could be a precursor to a promising employment report.
  • Business productivity in the first quarter continued its downward trend, slumping at an annualized rate of 1.9%. This follows a fourth quarter decline of 2.1%. Output declined 0.2% while hours worked increased 1.7%. However, compared annually, productivity for the first quarter of 2015 is slightly ahead of 2014 by 0.6%.
  • U.S. International Trade in Goods and Services deficit for March was $51.4 billion, up from the $35.9 billion deficit in February, marking the largest deficit since October 2008. Compared to February, March’s exports increased by $1.6 billion while imports grew by $17.1 billion. According to the report, the March increase in the goods and services deficit reflected an increase in the goods deficit of $14.9 billion to $70.6 billion and a decrease in the services surplus of $0.6 billion to $19.2 billion.
  • The Census Bureau’s report on factory orders for March showed a 2.1% increase over February, ending a string of seven consecutive monthly declines. March’s gains were strongly influenced by factory orders for aircraft and motor vehicle industries. While the first quarter concluded on a positive note, enthusiasm may be tempered based on the overall weakness seen in April’s manufacturing reports.
  • Contrary to predictions, Britain’s Conservative Party led by Prime Minister David Cameron won reelection. The Financial Times Stock Exchange 100 Index (FTSE) and the European stock indexes surged Friday overcoming early week volatility, likely due to the uncertainty of the pending elections.

Eye on the Week Ahead

Labor news dominates the early part of next week with the Fed’s Labor Market Conditions Index report on Monday, followed by Tuesday’s Job Openings and Labor Turnover Survey.Wednesday’s retail sales report may give indications whether consumer confidence is leading to increased sales. The week closes with Friday’s industrial production report.