What I’m Watching This Week – 1 February 2016

The Markets (as of market close January 29, 2016)

Volatility continues to best describe the markets throughout the first month of 2016, as stocks continued to rebound after a very shaky start to the new year. Boosted by a jump in oil prices, favorable earnings reports, and an end-of-the-week move by the Japanese central bank to set negative interest rates, each of the indexes listed here posted gains for the week. The Global Dow increased just under 2.0%, while the Dow, likely influenced by favorable earnings reports, gained over 370 points to close up 2.32% for the week.

Despite a surplus, rumors of overseas production cuts pushed the price of crude oil (WTI) up, closing at $33.74 a barrel. The price of gold (COMEX) increased, selling at $1,118.39 by late Friday afternoon, up from the prior week’s closing price of $1,098.50. The national average retail regular gasoline price decreased for the fourth week in a row to $1.856 per gallon on January 25, 2016, $0.058 below the prior week’s price and $0.188 under a year ago.

Market/Index 2015 Close Prior Week As of 1/29 Weekly Change YTD Change
DJIA 17425.03 16093.51 16466.30 2.32% -5.50%
Nasdaq 5007.41 4591.18 4613.95 0.50% -7.86%
S&P 500 2043.94 1906.90 1940.24 1.75% -5.07%
Russell 2000 1135.89 1020.77 1035.38 1.43% -8.85%
Global Dow 2336.45 2135.79 2177.64 1.96% -6.80%
Fed. Funds 0.50% 0.50% 0.50% 0 bps 0 bps
10-year Treasuries 2.26% 2.03% 1.92% -11 bps -34 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 Reserve decided not to raise interest rates at its meeting last week. Even as economic growth slowed since its last meeting, the Federal Open Market Committee noted that labor market conditions improved and household spending and business fixed investment have been increasing at moderate rates, while housing has improved further. However, exports have been soft and inventory investment slowed. Inflation has continued to run below the committee’s 2% objective, partly reflecting declines in prices for energy and non-energy imports. Nevertheless, the committee expects economic activity will expand at a moderate pace and labor market indicators will continue to strengthen. Inflation is expected to remain low in the near term, in part because of the further declines in energy prices, but to rise to 2% over the medium term. The committee will continue to assess realized and expected economic conditions, but expects the federal funds rate to remain, for some time, below levels that are expected to prevail in the longer run.
  • A key indicator of economic growth is the gross domestic product, which is the most comprehensive measure of productivity. The latest figures from the Bureau of Economic Analysis show the economy generally sputtered for the fourth quarter of 2015, expanding at a seasonally adjusted annualized rate of only 0.7%. Comparatively, the GDP had expanded 2.0% in the third quarter and 3.9% in the second quarter. While the housing and job markets have been steadily improving, falling oil prices and a strong dollar have impacted business production, sales, and consumer spending. For the year, the GDP expanded 2.4%, essentially the same as the prior year and in keeping with the 2.1% average annual growth rate since 2010.
  • Further evidence that growth in the manufacturing sector is moving at a slow pace, orders for durable goods decreased for the fourth time in the last five months in December, according to the latest information from the Census Bureau. New orders for manufactured durable goods (expected to last at least three years) decreased $12.0 billion, or 5.1%, to $225.4 billion following a 0.5% November decrease. Excluding transportation, new orders decreased 1.2%. Excluding defense, new orders decreased 2.9%.
  • The advance report on the U.S. international trade in goods and services from the Census Bureau reveals that the trade gap in December was $61.513 billion, compared to a revised $60.298 billion in November, reflecting further contraction in exports.
  • There was some positive news for U.S. workers as wages and benefits grew 0.6% in the fourth quarter, according to the Bureau of Labor Statistics’ Employment Cost Index. Wages and salaries, which make up about 70% of the overall index, grew 0.6%, while benefits rose 0.7%. Overall, compensation costs for civilian workers increased 2.0% for the 12-month period ended in December 2015.
  • Toward the end of 2015, home prices continued to rise across the United States according to the latest S&P Case-Shiller Home Price Index, which recorded a 5.3% annual increase in November versus a 5.1% increase in October. The 20-City Composite’s year-over-year gain was 5.8% versus 5.5% reported in October.
  • Sales of new homes increased by 10.8% in December from the prior month, based on the latest information from the Census Bureau. The median sales price for new houses sold in December was $288,900, while the average sales price was $346,400–both figures representing a sharp decrease compared to November’s prices of $297,000 and $364,200, respectively. An estimated 501,000 new homes were sold in 2015. This is 14.5% above the 2014 figure of 437,000.
  • The National Association of Realtors® indicated that pending home sales inched up in December. Bolstered by increased activity in the Northeast, the Pending Home Sales Index came in at 106.8, 0.1% ahead of November’s reading. Warm weather in the Northeast and favorable inventory conditions compared to the rest of the country fueled the Northeast’s increased contract signings for home purchases.
  • The Conference Board Consumer Confidence Index®, which had increased in December, improved moderately in January. The index now stands at 98.1, up from 96.3 in December. “Consumer confidence improved slightly in January, following an increase in December,” said Lynn Franco, Director of Economic Indicators at The Conference Board. “Consumers’ assessment of current conditions held steady, while their expectations for the next six months improved moderately.” On the other hand, the University of Michigan’s Index of Consumer Sentiment fell 0.6% in January, primarily based on stock market declines and somewhat weakened prospects for the national economy.
  • For the week ended January 23, there were 278,000 initial claims for unemployment insurance, a decrease of 16,000 from the prior week’s revised total. For the week ended January 16, the advance number for continuing unemployment insurance claims was 2,268,000, an increase of 49,000 from the previous week’s revised level. The advance seasonally adjusted insured unemployment rate increased to 1.7% for the week ended January 16.

Eye on the Week Ahead

On tap for the week are the latest reports on consumer spending and manufacturing, as well as the all-important employment situation summary from the Bureau of Labor Statistics.