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?