What I’m Watching This Week – 26 October 2015

The Markets (as of market close October 23, 2015)

Equities finished last week on a high note following a strong finish in the technology sector, while China cut interest rates once again in an attempt to spur its waning economy. The European Central Bank hinted that it could scale up its bond-buying stimulus program, further boosting stock markets around the globe. Each of the indexes listed here improved by last week’s end with the large cap-Dow rising over 430 points for an increase of 2.50%, while the S&P 500 improved over 40 points, gaining a little over 2%. Bond prices fell as the 10-year Treasury yield rose about 5 basis points.

The price of gold (COMEX) decreased, selling at $1,164.00 by late Friday afternoon compared to $1,177.30 a week earlier. Crude oil (WTI) prices fell back further, selling at $44.73 per barrel by week’s end. The national average retail regular gasoline price decreased to $2.277 per gallon on October 19, 2015, $0.060 under the previous week’s price of $2.337 per gallon, and $0.852 below a year ago.

Market/Index 2014 Close Prior Week As of 10/23 Weekly Change YTD Change
DJIA 17823.07 17215.97 17646.70 2.50% -0.99%
Nasdaq 4736.05 4886.69 5031.86 2.97% 6.25%
S&P 500 2058.90 2033.11 2075.15 2.07% 0.79%
Russell 2000 1204.70 1162.31 1166.06 0.32% -3.21%
Global Dow 2501.66 2421.58 2458.13 1.51% -1.74%
Fed. Funds 0.25% 0.25% 0.25% 0% 0%
10-year Treasuries 2.17% 2.03% 2.08% 5 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

  • The National Association of Home Builders Housing Market Index attempts to gauge home builders’ perception of the general economy and housing market conditions based on a survey of its members. According to its most recent report, builders gained confidence in the market for newly constructed single-family homes in October as the index rose 3 points to 64. The index for current sales also gained 3 points to 70 in anticipation of favorable new home sales. Expected sales over the next six months increased 7 points to an index reading of 75–all indications of continuing strength in the housing sector.
  • New residential construction picked up in September, according to the U.S. Census Bureau’s latest figures. Privately owned housing starts (beginning of the construction phase) were at an annual rate of 1,206,000, or 6.5% above the revised August estimate, and 17.5% over the September 2014 rate. Looking forward, residential building permits fell off by 5% in September compared to August, indicative of a possible slowdown in residential construction in the months ahead.
  • Following last month’s decline in existing home sales, the National Association of Realtors® reports that existing home sales increased 4.7% for September to a seasonally adjusted annual rate of 5.55 million. Total existing home sales are 8.8% above a year ago (5.10 million). However, the median existing home price for all housing types fell in September to $221,900, which is down from August’s median price of $228,500. Nevertheless, the housing market, in general, continues to be a positive economic sector.
  • Manufacturing, which has been a relatively weak sector this year, may be showing signs of an uptick. October’s Purchasing Managers’ Manufacturing Index increased to 54, up from 53.1 in September. The companies surveyed for the index indicated that improving demand from domestic markets and competitive pricing strategies have led to accelerated production levels. While this is a preliminary report, any favorable news on the manufacturing front is welcome.
  • Initial claims for unemployment insurance increased by 3,000 for the week ended October 17, to close at 259,000, up from the previous week’s revised level of 256,000. The advance seasonally adjusted insured unemployment rate was unchanged at 1.6% for the week ended October 10, while the advance number for continuing unemployment insurance claims increased 6,000 to 2,170,000.

Eye on the Week Ahead

Much of next week’s focus will be on the Federal Reserve’s meeting, which again will raise the question of whether, or when, interest rates will be raised. The first preliminary report on the gross domestic product for the third quarter is also scheduled for next week.

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What I’m Watching This Week – 19 October 2015

The Markets (as of market close October 16, 2015)

Record corporate mergers and acquisitions headlined the economic news last week, while the market posted its third consecutive week of gains (except for the Russell 2000). Of the indexes listed here, both the large-cap Dow and S&P 500 closed the week with moderate gains, while the Nasdaq proved to be last week’s biggest winner. Money continued to find its way into the bond market, driving prices higher while pushing yields down.

The price of gold (COMEX) increased, selling at $1,177.30 by late Friday afternoon compared to $1,155.60 a week earlier. Crude oil (WTI) prices fell back a bit, selling at $47.26 per barrel by week’s end. For the first time in eight weeks, the national average retail regular gasoline price increased to $2.337 per gallon on October 12, 2015, $0.019 higher than the previous week’s price of $2.318 per gallon, but still $0.870 below a year ago.

Market/Index 2014 Close Prior Week As of 10/16 Weekly Change YTD Change
DJIA 17823.07 17084.49 17215.97 0.77% -3.41%
Nasdaq 4736.05 4830.47 4886.69 1.16% 3.18%
S&P 500 2058.90 2014.89 2033.11 0.90% -1.25%
Russell 2000 1204.70 1165.36 1162.31 -0.26% -3.52%
Global Dow 2501.66 2414.33 2421.58 0.30% -3.20%
Fed. Funds 0.25% 0.25% 0.25% 0% 0%
10-year Treasuries 2.17% 2.08% 2.03% -5 bps -14 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

  • Closing out the government’s fiscal year, the U.S. Treasury Department’s budget report for September showed the budget deficit narrowed by 9.2% to $438.9 billion. The deficit at the close of fiscal 2014 was $483.4 billion. Compared to fiscal 2014, total receipts for fiscal 2015 increased to $3.249 trillion ($3.020 trillion in 2014), while government outlays for 2015 were ahead of 2014–$3.688 trillion to $3.504 trillion. Tax increases, both individual and corporate, contributed to the higher income total for 2015, while higher expenditures for Social Security and Medicare added to 2015’s increased outlays.
  • The Federal Reserve produces a monthly index of industrial production that attempts to show how much factories, mines, and utilities are producing. Industrial production decreased 0.2% in September from August. In September, manufacturing output moved down 0.1% for a second consecutive monthly decrease; the index for mining fell 2.0%, while the index for utilities rose 1.3%. Capacity utilization (an estimate of how much factory capacity is in use) for the industrial sector fell 0.3% in September to 77.5% compared to August, a rate that is 2.6% below its long-run (1972-2014) average.
  • The Producer Price Index, which measures prices companies receive for goods and services, fell 0.5% in September, according to the U.S. Labor Department. For the 12-month period ended September 2015, producer prices fell 1.1%. Prices for goods dropped 1.2% (the largest decrease since January), while prices for services decreased 0.4% (the largest decline since February). In September, over 80% of the decline in the prices of goods can be traced to prices for energy, which fell 5.9%. These figures are yet another sign of stagnant inflationary trends.
  • Further adding credence to the fact that the rate of inflation is not increasing, the Bureau of Labor Statistics reported that the Consumer Price Index for September decreased 0.2%. Over the last 12 months, the index has essentially remained unchanged. The drop in gasoline prices helped fuel the fall in the index. In addition, the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) decreased 0.6% over the last 12 months, meaning Social Security recipients will not see a cost-of-living adjustment next year–the first time that’s happened since 2011. Also, with Medicare Part B premiums scheduled to increase, about 30% of the roughly 52 million enrolled in Medicare Part B could see their premiums increase by as much as 52%, according to the Wall Street Journal.
  • Despite uncertainty in foreign economies, weakening job growth, and volatility in the stock markets, consumers continued to spend in September as retail and food services sales increased 0.1% from the previous month, and 2.4% above September 2014, according to the latest Census Bureau report. However, excluding motor vehicles, retail and food sales were actually down 0.3% in September. Lower gas prices may be giving consumers a few more discretionary dollars to spend as overall retail sales haven’t fallen since this past January.
  • An indication of manufacturers’ production is reflected in the ratio between the dollar value of inventories and sales. Theoretically, rising inventories may mean manufacturers are anticipating growing demand in the coming months. But if sales don’t grow commensurate with increased inventories (i.e., actual sales don’t meet expectations), then production will likely slow. With this in mind, the latest report from the Census Bureau reveals that business inventories were unchanged in August, while sales fell 0.6%, driving the inventory-to-sales ratio up to 1.37 in August from 1.36 in July. Thus, manufacturers are whittling down inventories against a decline in sales.
  • According to the latest report on job openings and labor turnover from the Bureau of Labor Statistics, the number of job openings decreased to 5.4 million on the last business day of August, while the number of hires and separations was little changed at 5.1 million and 4.8 million, respectively. Within separations, the quits rate and layoffs and discharges rate remained unchanged.
  • A preliminary survey of consumer sentiment for October shows that consumers did not prolong their concerns following September’s tumultuous stock market performance as the Index of Consumer Sentiment increased 5.6% to 92.1 from 87.2 in September. The University of Michigan’s Surveys of Consumers Current Economic Conditions index and its Index of Consumer Expectations also increased in the early part of October compared to September.
  • Initial claims for unemployment insurance decreased by 7,000 for the week ended October 10, to close at 255,000–its lowest level since 1973, matching the level recorded during the July 18 week. The advance seasonally adjusted insured unemployment rate was unchanged at 1.6% for the week ended October 3, while the advance number for continuing unemployment insurance claims decreased 50,000 to 2,158,000.

Eye on the Week Ahead

The housing market is in the news next week, with reports on both housing starts and existing home sales likely to reveal whether this sector continues its relatively strong showing this year.

What I’m watching This Week – 12 October 2015

The Markets (as of market close October 9, 2015)

Investors, possibly feeling comfortable that interest rates will not be raised in the near future, kicked back into the equities markets as each of the indexes listed here posted gains over the prior week. The minutes from the last Fed meeting confirmed that interest rates would remain at their current levels for the near term due to concern over persistently low inflation figures. Equity gains this past week also pushed the indexes listed here (excluding Nasdaq, which is ahead of last year) closer to their 2014 year-end levels. The yield on U.S. 10-year Treasury bonds increased over the prior week as investors undoubtedly shifted their investment dollars to equities causing bond prices to fall.

The price of gold (COMEX) increased, selling at $1,155.60 by late Friday afternoon compared to $1,137.60 a week earlier. Crude oil (WTI) prices made a noticeable jump, selling at $49.49 per barrel by week’s end. For the seventh week in a row, the national average retail regular gasoline price decreased, dropping to $2.318 per gallon on October 5, 2015, $0.004 under the previous week’s price of $2.322 per gallon and $0.981 below a year ago.

Market/Index 2014 Close Prior Week As of 10/9 Weekly Change YTD Change
DJIA 17823.07 16472.37 17084.49 3.72% -4.14%
Nasdaq 4736.05 4707.78 4830.47 2.61% 1.99%
S&P 500 2058.90 1951.36 2014.89 3.26% -2.14%
Russell 2000 1204.70 1114.12 1165.36 4.60% -3.27%
Global Dow 2501.66 2279.08 2414.33 5.93% -3.49%
Fed. Funds 0.25% 0.25% 0.25% 0% 0%
10-year Treasuries 2.17% 1.99% 2.08% 9 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

  • This past Monday, the U.S., Japan, and 10 other countries reached a trade accord known as the Trans-Pacific Partnership. In theory, the agreement seeks to remove trade barriers to some goods and services, which are otherwise advantageous to domestic industries, by allowing for more trade among the participating nations. Included in the agreement are provisions aimed at enhancing worker conditions, protecting property rights to benefit drug and technology companies, and defining automotive-assembly rules. However, before becoming official, the deal must be ratified by the governing bodies of the participating nations.
  • In addition to a monthly manufacturing index, the Institute for Supply Management (ISM) also publishes a monthly non-manufacturing index based on data compiled from purchasing and supply executives from industries including services, construction, mining, agriculture, forestry, fishing and hunting, wholesale and retail trade, transportation, finance and insurance, and real estate. According to the latest report, the non-manufacturing index registered 56.9% for September, 2.1% lower than August. While a reading of 50% or higher is considered expansion in the non-manufacturing sector, the lower reading indicates a “cooling off” in the rate of growth during the month of September.
  • As expected, the U.S. trade deficit for goods and services expanded by $6.5 billion to $48.3 billion in August. Compared to July, exports decreased by $3.7 billion, while imports grew by only $2.8 billion. Year-to-date, the goods and services deficit increased $17.6 billion, or 5.2%, from the same period in 2014. During this period, exports have decreased $58.9 billion or 3.8%, while imports decreased $41.3 billion, or 2.2%. Decreasing exports reflects weakness in foreign demand for U.S. goods and services, coupled with a strong dollar.
  • Prices for U.S. imports edged down 0.1% in September, after a 1.6% decrease in August, according to the latest report from the U.S. Bureau of Labor Statistics. The continued downward trend in nonfuel import prices more than offset an advance in fuel prices. The price index for U.S. exports declined 0.7% in September, following a 1.4% drop the previous month. Year-on-year export prices are down 7.4%, while import prices have contracted 10.7%.
  • Jobless claims decreased by 13,000 for the week ended October 3, to close at 263,000. The advance seasonally adjusted insured unemployment rate was unchanged at 1.6% for the week ended September 26, while the advance number for continuing unemployment insurance claims increased 9,000 to 2,204,000.

Eye on the Week Ahead

Several reports on tap for next week serve as useful economic indicators. The Producer Price Index and Consumer Price Index track prices at the producer and consumer levels, while the retail sales report is a major indicator of consumer spending.

What I’m Watching This Week – 5 October 2015

The Markets (as of market close October 2, 2015)

Despite poor employment and manufacturing reports, the equities markets rallied to post gains in each of the major indexes listed here except for the Russell 2000, which ultimately lost less than 1% by last week’s end. The late Friday rally was sparked by gains in energy and materials stocks (following a jump in oil prices), coupled with a lessening of concerns over China’s otherwise gloomy economic picture. Nevertheless, investors piled money into U.S. government bonds, sending the yield on 10-year U.S. Treasuries tumbling to below 2% for the first time since April. However, the jobs and manufacturing reports are likely to forestall any talk by the Fed of an interest rate increase at its next meeting in October.

The price of gold (COMEX) fell a bit, selling at $1,137.60 by late Friday afternoon compared to $1,139.10 a week earlier. Crude oil (WTI) prices gained some, selling at $45.66 per barrel by week’s end. For the sixth week in a row, the national average retail regular gasoline price decreased, dropping to $2.322 per gallon on September 28, 2015, $0.005 under the previous week’s price of $2.327 per gallon and $1.032 below a year ago.

Market/Index 2014 Close Prior Week As of 10/2 Weekly Change YTD Change
DJIA 17823.07 16314.67 16472.37 0.97% -7.58%
Nasdaq 4736.05 4686.50 4707.78 0.45% -0.60%
S&P 500 2058.90 1931.34 1951.36 1.04% -5.22%
Russell 2000 1204.70 1122.79 1114.12 -0.77% -7.52%
Global Dow 2501.66 2259.74 2279.08 0.86% -8.90%
Fed. Funds 0.25% 0.25% 0.25% 0% 0%
10-year Treasuries 2.17% 2.16% 1.99% -17 bps -18 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

  • Last week kicked off with a report on personal income and outlays from the Bureau of Economic Analysis. According to the latest figures, personal income increased $52.5 billion, or 0.3%, and disposable personal income (net income after taxes and adjustments for inflation) increased $47.1 billion, or 0.4%, in August compared to July. The price index for personal consumption expenditures–an indication of inflationary trends–was virtually unchanged in August and only 0.3% ahead of August 2014. However, real disposable income (after adjustments for taxes and inflation) has been at a record high for two consecutive months–likely attributable, at least in part, to cheaper gasoline prices.
  • Total nonfarm employment increased by only 142,000 in September, while the unemployment rate remained unchanged at 5.1%, according to the recent Bureau of Labor Statistics report. September’s job increase falls far below the monthly average of 198,000 jobs per month in 2015. While the job market expanded prior to this summer, it has definitely slowed down, as U.S. employers slammed the brakes on further job expansion, indicative of fears of an economic slowdown. Further evidence of employment contraction includes declines in the labor force participation rate and the employment-population ratio, while average hourly earnings sit at $25.09–down a cent from August.
  • The Institute for Supply Management (ISM) publishes a monthly manufacturing index, which seeks to measure the general direction of production, new orders, backlogs, inventories, imports, exports, and prices. A reading over 50% is considered “expanding.” However, September’s PMI index of 50.2% is 0.9% below August’s reading, and is the lowest reading since May 2013. The New Orders Index registered 50.1%, a decrease of 1.6% from August’s reading of 51.7%, while at 51.8%, the Production Index also fell below the August reading of 53.6%. Although this may be an anomaly, it nevertheless points to a potential weakening in manufacturing and production. Markit’s Manufacturing Purchasing Managers’ Index also indicated another month of relatively subdued growth in September–registering the second-lowest level since October 2013.
  • On the heels of the rather gloomy ISM and Markit reports, the Commerce Department reports that new orders for manufactured goods in August decreased $8.2 billion, or 1.7%, to $473.0 billion. Shipments, down four of the last five months, again decreased $3.2 billion, or 0.7%, to $480.1 billion. Unfilled orders and inventories also decreased in August.
  • The latest figures from the National Association of Realtors® show pending home sales were down 1.4% in August, but still 6.1% ahead of August 2014. While this report indicates some slowdown in existing home sales, it is more reflective of the demand for housing outpacing the supply, and rising home prices in general.
  • The S&P/Case-Shiller Home Price Index measures monthly changes in the value of home prices in 20 metropolitan regions across the country. The latest National Home Price Index recorded a slightly higher year-over-year gain with a 4.7% annual increase in July. On a monthly basis, home prices in July were 0.7% higher than prices in June. According to David M. Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices, “Prices of existing homes and housing overall are seeing strong growth and contributing to recent solid growth for the economy.” The National Home Price Index has risen at a 4% or higher annual rate since September 2012.
  • Construction spending is a sector that has been picking up of late. The U.S. Census Bureau reported that construction spending during August 2015 was estimated at a seasonally adjusted annual rate of $1,086.2 billion, 0.7% above the revised July estimate of $1,079.1 billion. The August figure is 13.7% above the August 2014 estimate of $955.0 billion.
  • Despite downturns in the stock market this month, consumer confidence remained somewhat positive according to The Conference Board’s Consumer Confidence Index®, which increased to 103 in September, compared to 101.3 in August. According to the report, consumers’ appraisal of current conditions was more positive in September, reflective of a more confident outlook for business conditions and the job market.
  • Further evidence of an impending global economic slowdown may lie in the latest report from the International Monetary Fund, which warns of rising corporate debt for companies in emerging markets. Low interest rates available in advanced countries such as the United States and Japan have made it easier for emerging market companies to borrow. “These developments make emerging market economies more vulnerable to a rise in interest rates, dollar appreciation, and an increase in global risk aversion,” according to the report.
  • According to the Commerce Department’s Advance Report: U.S. International Trade in Goods, sagging exports continue to hinder economic growth as exports of goods fell a seasonally adjusted 3.2% to $123 billion in August. While imports advanced 2.2% to $190 billion, it was not enough to prevent further expansion of the trade deficit by 13.6% to $67 billion. The continued strength of the dollar, coupled with weakness overseas, has shifted the sale of goods from U.S. manufacturers to cheaper markets abroad.
  • Jobless claims rose by 10,000 for the week ended September 26, to close at 277,000. The advance seasonally adjusted insured unemployment rate was unchanged at 1.6% for the week ended September 19, while the advance number for continuing unemployment insurance claims decreased 53,000 to 2,191,000.

Eye on the Week Ahead

The week ahead focuses on manufacturing, imports and exports, and international trade–sectors that have been underperforming to date. The situation in China continues to bear watching as that country’s weakening economy continues to influence global stock markets, particularly the major indexes in the United States.