What I’m Watching This Week – 22 June 2015

The Markets

The markets responded favorably following the Federal Reserve’s announcement that interest rates would not be raised next month. Both the large-cap Dow and S&P 500 closed ahead of last week. But the biggest weekly gainers were the Nasdaq, which gained 1.3%, and the Russell 2000, which closed the week 1.55% better than last Friday’s close. The national average for gas prices was $2.835–up $0.055 from last week. Gold finished the week up $21 from last week, selling at $1,200.20.

Market/Index 2014 Close Prior Week As of 6/19 Weekly Change YTD Change
DJIA 17823.07 17898.84 18015.95 0.65% 1.08%
Nasdaq 4736.05 5051.10 5117.00 1.30% 8.04%
S&P 500 2058.90 2094.11 2109.99 0.76% 2.48%
Russell 2000 1204.70 1265.02 1284.66 1.55% 6.64%
Global Dow 2501.66 2566.43 2565.76 -0.03% 2.56%
Fed. Funds 0.25% 0.25% 0.25% 0% 0%
10-year Treasuries 2.17% 2.39% 2.26% -13 bps 9 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

  • Economic activity has been “expanding moderately” according to the statement from the latest Federal Open Market Committee meeting. But short-term interest rates will remain as is, at least through the next monthly meeting. The FOMC noted that the “pace of job gains picked up while the unemployment rate remained steady,” there has been growth in household spending, and the “housing sector has shown some improvement; however, business fixed investment and net exports stayed soft.” Inflation continued to run below the committee’s longer-run objective (2%). Ultimately, the committee determined that the current federal funds rate is appropriate pending progress “toward maximum employment and price stability.” Before federal fund rates will be increased, the committee “would like to see more decisive evidence that moderate pace of economic activity can be sustained,” according to Federal Reserve Chairwoman Janet Yellen.
  • Initial claims for unemployment insurance fell to 267,000 for the week ending June 13, which is a decrease of 12,000 from the previous week. The advanced seasonally adjusted insured unemployment rate was 1.7% for the week ending June 6, while the total number of insured unemployment claimants was 2.22 million, a decrease of 50,000 from the previous week. Evidencing signs of consistent job creation, new claims have remained under 300,000 over the past 15 weeks–the longest such stretch since 2000, according to the Wall Street Journal. Nevertheless, “at 5.5%, we have an unemployment rate that still exceeds the (Federal Reserve) committee’s best attempts to estimate what is a normal unemployment rate for this economy,” according to Chairwoman Yellen.
  • The Federal Reserve reported on Monday that industrial production decreased 0.2% in May after falling 0.5% in April. Manufacturing output decreased 0.2% in May and was little changed, on net, from its level in January. Meager industrial production is likely due to weak exports and a relatively strong dollar, which could further strengthen if interest rates are raised later this year.
  • Housing starts dropped off in May, but the number of residential building permits soared according to the latest report from the Census Bureau. Privately owned housing starts (e.g., the actual start of construction of a new building) in May were 11.1% below the revised April estimate, but are 5.1% above the May 2014 rate. On the other hand, building permits for housing units were 11.8% above the revised April rate, and 25.4% higher than May 2014. This increase in anticipated new construction is cause for builder optimism according to the National Association of Home Builders. Their housing market index rose 5 points to a reading of 59 for June.
  • The Consumer Price Index rose 0.4% in May over April, which is its largest monthly increase since February 2013. According to the Bureau of Labor Statistics, the largest cost increase belonged to energy, particularly gasoline, which increased 10.4%. The index for all items less food and energy increased 0.1% in May following a 0.3% increase in April.

Eye on the Week Ahead

How will the markets respond to results of the FOMC meeting and Chairwoman Yellen’s speech? Will Greece and its creditors reach a bailout resolution? Throughout the second quarter of 2015, the housing market has been consistently trending upward. Will this week’s reports on new and existing home sales show continued growth?

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What I’m Watching This Week – 15 June 2015

The Markets

Reports from this past week revealed that the number of job openings is increasing, and the federal deficit and crude oil inventories are shrinking, while consumers are spending more of their hard-earned money. Unfortunately, news out of Europe is that negotiations between Greece and its creditors are regressing with default seemingly inevitable. The Dow, which had crept above 18000 during the week, closed at 17898.84, while the S&P 500 moved very little from last week’s close. The Nasdaq lost 0.34%, but remains ahead of the major indexes year-to-date. The Global Dow closed the week ahead of last week, while the euro remained relatively stable against the dollar, finishing the week at $1.1268. Crude oil closed ahead of last week at $59.94 as did gold, which reached $1180.50 as of the end of trading on Friday.

Market/Index 2014 Close Prior Week As of 6/12 Weekly Change YTD Change
DJIA 17823.07 17849.46 17898.84 0.28% 0.43%
Nasdaq 4736.05 5068.46 5051.10 -0.34% 6.65%
S&P 500 2058.90 2092.83 2094.11 0.06% 1.71%
Russell 2000 1204.70 1261.01 1265.02 0.32% 5.01%
Global Dow 2501.66 2556.18 2566.43 0.40% 2.59%
Fed. Funds 0.25% 0.25% 0.25% 0% 0%
10-year Treasuries 2.17% 2.41% 2.39% -2 bps 22 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 number of job openings rose to 5.376 million on the last business day of April, the highest since December 2000, the U.S. Bureau of Labor Statistics reported. The job openings rate for April 2015 was 3.7%, up from 3.5% in March. Open jobs could mean a spike in wages as employers look to fill those positions.
  • According to the U.S. Energy and Information Administration for the June 5 week, crude oil inventories dropped 6.8 million barrels, while crude oil imports were down by 750,000 barrels per day. However, refineries increased production, averaging 10 million barrels per day. At the pumps, the national average retail regular gasoline price remained about the same at $2.78 per gallon, $0.894 lower than this time last year.
  • Through May the federal deficit for fiscal 2015 was $365.2 billion, which is about 16.3% lower compared to the same period last year ($436.4 billion) according to the monthly Treasury statement. Government receipts are running 9% ahead of last year, although government spending is up about 6% as well.
  • Consumers are spending more according to the U.S. Census Bureau, which announced that advance estimates of sales of U.S. retail and food services for May increased 1.2% from April, and 2.7% above May 2014. Big movers were motor vehicle and parts dealers and food services and drinking places, each of which experienced increased sales over May 2014.
  • In the week ending June 6, the advance figure for seasonally adjusted initial claims for unemployment benefits was 279,000, an increase of 2,000 from the previous week’s revised level of 277,000, according to the Department of Labor. Yet, this is a far cry from March 2009, when initial claims peaked at 665,000.
  • Reflective of higher oil prices, the costs for imported goods increased 1.3% in May following declines in each of the previous 10 months. The Bureau of Labor Statistics also reported that the price of U.S. exports rose 0.6% in May, the largest increase since March 2014. Still, import prices dropped 9.6% on the year. Overall, the strong dollar is making imports cheaper while softness in foreign economies is keeping down export prices.
  • In May, the prices producers received for their goods and services increased a seasonally adjusted 0.5% from April according to Friday’s Labor Department report. Still, compared to a year earlier, producer prices are down 1.1%. Next week’s consumer price report may shed more light on inflationary trends.

Eye on the Week Ahead

Housing starts, business production, and jobs reports will be available next week. But most of the attention will be focused on Wednesday’s Federal Open Market Committee announcements and forecasts, along with the Federal Reserve Chair’s press conference. We may have a better idea of when interest rates will increase by the end of the week.