What I’m Watching This Week – 21 September 2015

The Markets (as of market close September 18, 2015)

Despite news that interest rates would not be increased in September, the stock market endured a significant sell-off by week’s end, presumably in response to the Federal Reserve’s report that the economy isn’t strong enough to warrant an interest rate hike. Of the indexes listed here, the Nasdaq and Russell 2000 posted slight gains, while the large-cap Dow and S&P 500 regressed. Only the Nasdaq has posted positive returns year-to-date while the other listed indexes have all lost compared to the close of 2014.

The price of gold (COMEX) jumped a bit higher, selling at about $1,139.10 by late Friday afternoon compared to $1,107.90 a week earlier. Crude oil (WTI) prices remained relatively the same, selling at $44.98 per barrel by week’s end. The national average retail regular gasoline price decreased to $2.375 per gallon on September 14, 2015, $0.062 under the previous week’s price of $2.437 per gallon and $1.033 below a year ago.

Market/Index 2014 Close Prior Week As of 9/18 Weekly Change YTD Change
DJIA 17823.07 16433.09 16384.58 -0.30% -8.07%
Nasdaq 4736.05 4822.34 4827.23 0.10% 1.93%
S&P 500 2058.90 1961.05 1958.03 -0.15% -4.90%
Russell 2000 1204.70 1157.79 1163.35 0.48% -3.43%
Global Dow 2501.66 2328.19 2326.45 -0.07% -7.00%
Fed. Funds 0.25% 0.25% 0.25% 0% 0%
10-year Treasuries 2.17% 2.19% 2.13% -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

  • The Federal Open Market Committee (FOMC) determined at its September meeting that economic conditions have not shown sufficient progress to warrant an increase in short-term interest rates. According to the FOMC press release, while there were improvements in the labor market with solid job gains and declining unemployment, inflation has “continued to run below the Committee’s longer-run objective, partly reflecting declines in energy prices and in prices of non-energy imports.” Also, “recent global economic and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near term.” As to when interest rates might be increased, “the Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen some further improvement in the labor market and is reasonably confident that inflation will move back to its 2% objective over the medium term.”
  • Growth continues in retail sales and services. According to the latest Census Bureau report, retail and food services sales increased 0.2% for August from the previous month and 2.2% from August 2014. Continuing its positive trend, total sales for the June 2015 through August 2015 period were up 2.2% from the same period a year ago.
  • Industrial production decreased 0.4% in August after increasing 0.9% in July, according to the latest figures released by the Federal Reserve. The increase in July is now estimated to be greater than originally reported last month, largely as a result of upward revisions for mining and utilities. Manufacturing output fell 0.5% in August primarily because of a large drop in motor vehicles and parts that reversed a substantial portion of its jump in July; production elsewhere in manufacturing was unchanged.
  • Business inventories moved up 0.1% in July over June–the smallest gain since March, according to the Census Bureau report. Inventories were up 2.6% compared to July 2014. The total business inventories/sales ratio at the end of July was 1.36. The July 2014 ratio was 1.29. Softening inventories may be an indication that businesses are less optimistic about near-term growth in sales.
  • Inflationary trends took a slight step back as consumer prices fell 0.1% in August, primarily caused by a sharp decline in gasoline prices, according to the latest report from the Bureau of Labor Statistics. The index for all items less food and energy increased 0.1% in August, the same increase as in July. For the last 12 months ended in August, the all items index rose 0.2% before seasonal adjustment.
  • The National Association of Home Builders Housing Market Index of single-family homes for September (preliminary) increased a point to 62 over August’s revised index of 61. This reading continues this year’s sentiment of respondent home builders that housing market conditions are favorable with moderate to low inventories, which likely will boost demand and prices.
  • The Census Bureau’s latest report on new residential construction for August was a bit of a mixed bag. Building permits for privately owned housing units rose 3.5% above the revised July rate and 12.5% ahead of August 2014. On the other hand, housing starts (beginning of actual construction) dropped 3.0% below July’s estimate, but still 16.6% ahead of August 2014.
  • The Census Bureau’s report on Income, Poverty and Health Insurance Coverage in the United States: 2014 reveals that 2014 produced no statistically significant change from 2013 in either real median household income or the official poverty rate. At the same time, the percentage of people without health insurance coverage declined. Median household income in the United States in 2014 was $53,657, not statistically different in real terms from the 2013 median income. This is the third consecutive year that the annual change was not statistically significant, following two consecutive annual declines.
  • For the week ended September 12, new claims for unemployment insurance dropped 11,000 from the previous week, according to the Department of Labor. The insured unemployment rate remained at 1.7% for the week ended September 5, while the advance number for continuing unemployment claims decreased 26,000 from the prior week.

Eye on the Week Ahead

The housing market, which has performed consistently so far this year, offers the latest information on new and existing home sales. The week ends with reports that focus on the economy, including the durable goods orders and the gross domestic product.