What I’m Watching This Week – 28 March 2016

The Markets (as of market close March 25, 2016)

After five consecutive weeks of gains, stocks cooled as each of the major indexes listed here slid into negative territory by the close of last week. With the latest downturn, only the Dow is ahead of its 2015 year-end closing value. Several of the markets were closed for Good Friday. Favorable reports on the GDP and new home sales could spur the market this week.

The price of crude oil (WTI) had a volatile week, yet it is clearly trending upward as the price increased again last week, closing the week slightly ahead at $39.59 a barrel, $0.24 ahead of the prior week’s closing price. The price of gold (COMEX) fell by last week’s end, selling at $1,218.70 by late Friday afternoon, down from the prior week’s closing price of $1,256. The national average retail regular gasoline price increased for the fifth week in a row, selling at $2.007 per gallon on March 21, 2016, $0.046 over the prior week’s price but $0.450 under a year ago.

Market/Index 2015 Close Prior Week As of 3/25 Weekly Change YTD Change
DJIA 17425.03 17602.30 17515.73 -0.49% 0.52%
Nasdaq 5007.41 4795.65 4773.50 -0.46% -4.67%
S&P 500 2043.94 2049.58 2035.94 -0.67% -0.39%
Russell 2000 1135.89 1101.67 1079.54 -2.01% -4.96%
Global Dow 2336.45 2327.69 2279.29 -2.08% -2.45%
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% 1.98% 1.90% -8 bps -36 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

  • Following a strong month for existing home sales in January, which had yielded the highest annual rate in six months, the National Association of Realtors® reported that existing home sales fell 7.1% in February. Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums, and co-ops, dropped to a seasonally adjusted annual rate of 5.08 million in February, down from 5.47 million in January. Despite last month’s large decline, sales are still 2.2% higher than a year ago. The drop in sales is largely attributable to low supply levels and increasing asking prices. The median existing-home price for all housing types in February was $210,800, up 4.4% from February 2015 ($201,900). February’s price increase marks the 48th consecutive month of year-over-year gains. Total housing inventory at the end of February increased 3.3% to 1.88 million existing homes available for sale, which is still 1.1% lower than a year ago (1.90 million).
  • The new home sales market gained strength in February as the annual sales rate for new single-family houses increased to 512,000–2.0% ahead of January’s revised rate of 502,000 but 6.1% below the rate for February 2015. The median sales price of new houses sold in February increased over 6.0% to $301,400, while the average sales price came in at $348,900. The seasonally adjusted estimate of new houses for sale at the end of February was 240,000. This represents a supply of 5.6 months at the current sales rate.
  • Orders for durable goods (expected to last at least three years) fell 2.8% in February from January’s revised figures, according to the latest report from the Commerce Department. Low oil prices, a strong dollar, and overall financial volatility are the leading contributors to the decline. January’s spike in durable goods orders may have been an exception, as goods orders have otherwise fallen three of the past four months. Also, new orders for capital goods decreased 1.8%–an indication that business investment also pulled back in February.
  • An anticipated surge in the manufacturing sector in March apparently did not materialize, according to the latest Markit Flash U.S. Manufacturing Purchasing Managers’ Index™. The index, at 51.4, is indicative of “subdued growth” in the manufacturing sector, up marginally from February’s 51.3 reading. The index reading of 51.7 for the first quarter is the weakest improvement over any quarter since the third quarter of 2012. Slightly stronger rates of output, new business, and employment growth were offset by the sharpest decline in pre-production inventories since January 2014.
  • The gross domestic product can fluctuate with each release as new data is integrated. As such, the third estimate of the fourth-quarter 2015 GDP increased at an annual rate of 1.4%. Last month’s “second estimate” had the GDP increasing 1.0%. In the third quarter, real GDP increased 2.0%. The increase in real GDP in the fourth quarter reflected positive contributions from personal consumption expenditures, residential fixed investment, and federal government spending that were partly offset by negative contributions from nonresidential fixed investment, exports, private inventory investment, and state and local government spending. Imports, which are a subtraction in the calculation of GDP, decreased.
  • For the week ended March 19, there were 265,000 claims for unemployment insurance, an increase of 6,000 from the previous week’s revised level. The advance seasonally adjusted insured unemployment rate remained at 1.6%. The advance number for continuing unemployment insurance claims for the week ended March 12 was 2,179,000, a decrease of 39,000 from the prior week’s revised level.

Eye on the Week Ahead

As the month of March and the first quarter come to a close, there are several important economic reports to consider. The week starts with the latest information on consumer income and spending, and the Census Bureau’s report on international trade in goods. Federal Reserve Chair Janet Yellen may reveal more information on the Fed’s perspective of the economy and the status of interest rates when she speaks to the Economic Club of New York. The week closes with the latest report on the employment situation for March, which will likely have some impact on the equities markets to kick off the month of April.