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.