What I’m Watching This Week – 14 March 2016

The Markets (as of market close March 11, 2016)

Both the large-cap Dow and S&P 500 posted gains for the fourth consecutive week, helped by a late rally at week’s end. The latest run of gains has pulled the Dow and S&P 500 to within 1.22% and 1.06% of their 2015 year-end levels. The Global Dow, possibly boosted by additional stimulus measures announced by the European Central Bank, gained 1.2% and is also closing in on its 2015 closing value. The midcaps also posted marginal gains of under 1%, and remain farthest away from their 2015 year-end levels compared to the other indexes listed here.

The price of crude oil (WTI) is clearly trending upward as the price increased again last week, closing the week at $38.49 a barrel, $2.16 ahead of the prior week’s closing price. The price of gold (COMEX) fell by last week’s end, selling at $1,251.10 by late Friday afternoon, down from the prior week’s closing price of $1,260.10. The national average retail regular gasoline price increased for the third week in a row, selling at $1.841 per gallon on March 7, 2016, $0.058 over the prior week’s price but $0.646 under a year ago.

Market/Index 2015 Close Prior Week As of 3/11 Weekly Change YTD Change
DJIA 17425.03 17006.77 17213.31 1.21% -1.22%
Nasdaq 5007.41 4717.02 4748.47 0.67% -5.17%
S&P 500 2043.94 1999.99 2022.19 1.11% -1.06%
Russell 2000 1135.89 1081.93 1087.56 0.52% -4.25%
Global Dow 2336.45 2260.08 2287.17 1.20% -2.11%
Fed. Funds rate target 0.25%-0.50% 0.25%-0.50% 0.25%-0.50% 0 bps 0 bps
10-year Treasuries 2.26% 1.87% 1.98% 11 bps -28 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

  • In a further effort to boost its sagging economy, the European Central Bank initiated additional stimulus moves intended to spur the eurozone’s low inflation. Only three months after instituting similar–though less comprehensive measures–the latest ECB program includes cutting interest rates and increasing its monthly bond purchases. ECB President Mario Draghi said the latest stimulus measures are intended to “further ease financing conditions, stimulate new credit provision and thereby reinforce the momentum of the euro area’s economic recovery and accelerate the return of inflation to levels below, but close to, 2.0%.” With euro area inflation dropping to -0.2% in February from 0.3% in January, Draghi cautioned that the Governing Council will closely monitor price-setting behavior and wage developments to “ensure that the current low inflation environment does not become entrenched in second-round effects on wage and price-setting.” How these moves will affect the eurozone economy and the U.S. equity markets remains to be seen.
  • The Treasury statement for February shows the federal deficit is at $192.6 billion. There was a surplus of $55 billion in January. The deficit for fiscal 2016 (October through February) sits at $353 billion. Compared to the first five months of fiscal 2015, receipts for fiscal year 2016 are up 5.3%, while outlays are up 1.86%.
  • S. import prices (for goods bought in the United States but produced abroad) fell 0.3% in February following a 1.0% drop in January, according to the latest information from the U.S. Bureau of Labor Statistics. The February decrease was mostly led by declining fuel prices. The price index for exports of goods made in the United States and sold abroad decreased 0.4% in February, after falling 0.8% the previous month. Import prices actually gained 0.1% excluding food and fuels–the first positive reading since last May. Generally, falling import prices are a strike against rising inflation. Low oil prices and a strong dollar continue to keep prices of goods down for U.S. buyers.
  • Claims for unemployment insurance and the insured unemployment rate are down. For the week ended March 5, there were 259,000 initial claims for unemployment insurance, a decrease of 18,000 from the prior week’s revised level of 277,000–the lowest level since last October. The advance seasonally adjusted insured unemployment rate dropped to 1.6% for the week ended February 27. Also for the same week, the advance number for continuing unemployment insurance claims was 2,225,000, a decrease of 32,000 from the week ended February 20.

Eye on the Week Ahead

There’s plenty of information available this week, including the outcome of FOMC meeting. Reports on producer prices, retail sales, industrial production, and the Fed’s announcement from its latest meeting are sure to have some influence on equities.