What I’m Watching This Week – 25 April 2016

The Markets (as of market close April 22, 2016)

Equities markets had a fair week as each of the major indexes listed here posted gains (except the Nasdaq) over the prior week. Both the large-cap Dow and S&P 500 are well ahead of their respective 2015 closing values. The Russell 2000 recorded the largest weekly gain and is now ahead of last year’s closing value. The Global Dow posted weekly gains despite the European Central Bank’s decision to maintain interest rates at their current level and the effects of the devastating earthquake in Japan. Of the major indexes listed here, only the Nasdaq remains below its end-of-year mark. As money moved into equities, the prices of investments such as gold and long-term bonds slipped. Oil prices gained, despite the collapse of talks between some major oil-producing nations aimed at capping production.

The price of crude oil (WTI) closed the week at $43.75 a barrel, up $3.35 over the prior week’s closing price. The price of gold (COMEX) fell by last week’s end, selling at $1,233.70 by late Friday afternoon, down from the prior week’s closing price of $1,235.80. The national average retail regular gasoline price increased to $2.137 per gallon on April 18, 2016, $0.068 above the prior week’s price but $0.348 below a year ago.

Market/Index 2015 Close Prior Week As of 4/22 Weekly Change YTD Change
DJIA 17425.03 17897.46 18003.75 0.59% 3.32%
Nasdaq 5007.41 4938.22 4906.23 -0.65% -2.02%
S&P 500 2043.94 2080.73 2091.58 0.52% 2.33%
Russell 2000 1135.89 1130.92 1146.69 1.39% 0.95%
Global Dow 2336.45 2367.41 2395.80 1.20% 2.54%
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% 1.75% 1.88% 13 bps -38 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 (HMI) came in at 58 for April, unchanged for the third consecutive month. The HMI is based on a monthly survey of NAHB members who are asked to rate the market conditions for single-family home sales currently and in the next six months, as well as traffic of prospective buyers of new homes. Compared to last April, the HMI is up 2 points. In particular, the index for present sales fell 2 points, coming in at 63, while builders expressed optimism for sales over the next six months, as that index increased 1 point to 62. Prospective buyer traffic continues to be lagging as that index has remained around 44 for three out of the last four months, possibly reflecting the reluctance of first-time homebuyers to enter the market–instead preferring to rent.
  • New home construction slowed during the end of the first quarter as housing starts fell 8.8% from a month earlier, according to the latest report from the Census Bureau. Single-family home starts dropped 9.2% and multifamily starts fell 8.5%. An indication of future construction, applications for building permits also lost ground, coming down 7.7% from February. On the plus side, housing completions jumped 3.5% for March and are up 31.6% year-over-year. Compared to last March, housing starts are up 14.2% while permits are up 4.6%.
  • While new home construction may be lagging, sales of existing homes gained ground in March jumping 5.1% from February, according to the National Association of Realtors®. The median existing home price for all housing types in March was $222,700, up 5.7% from March 2015 ($210,700). March’s price increase marks the 49th consecutive month of year-over-year gains. Total housing inventory available for sale at the end of March increased 5.9% to 1.98 million, but is still 1.5% lower than a year ago (2.01 million). Unsold inventory is at a 4.5-month supply at the current sales pace, up from 4.4 months in February. Properties typically stayed on the market for 47 days in March, a decrease from 59 days in February, while 42% of homes sold were on the market for less than a month–the highest percentage since July 2015 (43%).
  • Marking the weakest upturn in overall business conditions since September 2009, the Markit Flash U.S. Manufacturing PMI™ for April fell to 50.8 from 51.5 in March. The flash PMI index, which is based on approximately 85% of usual monthly survey replies, was only marginally above the crucial 50.0 no-change threshold. According to the report, softer rates of manufacturing output and new business growth, alongside a weaker rise in staffing numbers, were the main factors weighing on the headline PMI figure during April.
  • For the week ended April 16, there were 247,000 claims for unemployment insurance, a decrease of 6,000 from the previous week’s revised level. This is the lowest level for initial claims since November 24, 1973 when it was 233,000. The advance seasonally adjusted insured unemployment rate remained at 1.6%. The advance number for continuing unemployment insurance claims for the week ended April 9 was 2,137,000, a decrease of 39,000 from the prior week’s revised level.

Eye on the Week Ahead

The big news this week comes from the Federal Reserve, which is meeting for the third time this year. Since raising interest rates in December, the Fed has been cautious about increasing them again. While some experts believe the Fed will raise rates again in 2016, it may not be in April. The Committee does not meet again until June.

What I’m Watching This week – 18 April 2016

The Markets (as of market close April 15, 2016)

Despite inflationary trends slowing as retail and producer prices fell in March, stocks gained over the past week, buoyed by better than expected first-quarter corporate earnings reports. Each of the indexes listed here posted gains led by the Global Dow and the Russell 2000, followed by the large-cap Dow and S&P 500, which have risen about 14.0% since their February lows.

The price of crude oil (WTI) closed the week at $40.40 a barrel, up $0.74 over the prior week’s closing price. The price of gold (COMEX) fell by last week’s end, selling at $1,235.80 by late Friday afternoon, down from the prior week’s closing price of $1,240.10. The national average retail regular gasoline price fell for the first time in eight weeks, selling at $2.069 per gallon on April 11, 2016, $0.014 under the prior week’s price and $0.339 below a year ago.

Market/Index 2015 Close Prior Week As of 4/15 Weekly Change YTD Change
DJIA 17425.03 17576.96 17897.46 1.82% 2.71%
Nasdaq 5007.41 4850.69 4938.22 1.80% -1.38%
S&P 500 2043.94 2047.60 2080.73 1.62% 1.80%
Russell 2000 1135.89 1097.31 1130.92 3.06% -0.44%
Global Dow 2336.45 2287.60 2367.41 3.49% 1.33%
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% 1.71% 1.75% 4 bps -51 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

  • Prices consumers paid for goods increased slightly in March, indicating only marginal inflationary pressures in the economy. The Consumer Price Index rose 0.1% in March from February, according to the latest information from the Bureau of Labor Statistics. Over the last 12 months, the index rose 0.9%, a slightly smaller increase than the 1.0% change for the 12 months ended February. The food index declined 0.2% in March, while the indexes for energy (0.9%) and for all items less food and energy (0.1%) increased, leading to the slight seasonally adjusted increase in the all items index. The gain in the index less food and energy, referred to as core prices, was the smallest increase since August. The core prices index has risen 2.2% over the last 12 months–down 0.1% from the 12-month period ended February. Despite rising in March, the energy index has declined 12.6% over the last year.
  • In another report from the Bureau of Labor Statistics, real average hourly earnings for all employees increased 0.2% from February to March due to the increase in real average hourly earnings combined with no change in the average workweek. In fact, average hourly wages increased 0.3%, which is offset by the 0.1% increase in the Consumer Price Index referenced above.
  • Overall, receipts for retail goods and services sold to consumers fell in March, according to the U.S. Census Bureau. Advance estimates of U.S. retail and food services sales fell 0.3% from the previous month to $446.89 billion. Sales and services are still 1.7% above March 2015. A drop in auto sales impacted the latest figures. Retail sales excluding auto and gas sales actually rose 0.1% for the month. Total sales for the first quarter of 2016 were up 2.8% from the same period a year ago.
  • On the heels of curtailed consumer spending, producer prices also dropped as the Producer Price Index fell 0.1% in March following a 0.2% decline in February. Reversing trends, prices for services, which had risen each month since October, fell 0.2% in March, while prices for goods, which had declined each of the previous eight months, actually rose 0.2% in March. Three-quarters of the March decrease in prices for services can be attributed to margins for machinery, equipment, parts, and supplies wholesaling, which moved down 1.9%. Most of the increase in prices for goods can be traced to prices for energy, which rose 1.8%, with the gasoline index climbing 7.1%.
  • The Bureau of Labor Statistics last week reported that the U.S. import price index increased 0.2% in March following a 0.4% drop the prior month. An upturn in fuel and lubricant prices, which increased 4.9% in March, sparked the overall price increase as it more than offset lower nonfuel prices. Specifically, petroleum and petroleum product prices actually increased 6.5% from February. Prices for U.S. exports recorded no change in March, after falling 0.5% in February. The March advance was the largest one-month increase since the index increased 1.1% in May 2015. Despite the upturn, overall import prices remained down over the past year, falling 6.2% from March 2015.
  • The government deficit is expanding during the first six months of fiscal 2016, following several years of contraction. Since reaching its high point of $1.4 billion during the recession of 2009, the deficit has fallen, going from 9.8% of the GDP to around 2.5%. However, for fiscal 2016 (beginning October 2015), the deficit sat at about $461.04 billion–up almost 4.9% from the first half of fiscal 2015. In March, the deficit was $108.04 billion, $55.13 billion over the deficit from March 2015. Spending on Social Security and Medicare was up 3% and 6%, respectively. While the government is collecting more taxes from individuals, corporate tax receipts are down, possibly reflecting receding corporate profits.
  • The dollar amount of inventories held by manufacturers, wholesalers, and retailers in relation to sales provides an indication of the direction of production activity in the near term. The ratio of inventories to sales for February was 1.41, the same as January. A lower ratio means products are moving and inventories are not being held long term. An increase in inventories to sales could lead to a slowdown in production and job loss. Compared to January, inventories fell from $1,813,781 to $1,812,098, while sales fell even more, from $1,289,496 in January to $1,284,417 in February. The inventories to sales ratio for February is up from a year earlier–1.41 to 1.37.
  • Industrial production decreased 0.6% in March for a second month in a row. For the first quarter as a whole, industrial production fell at an annual rate of 2.2%. At 103.4% of its 2012 average, total industrial production in March was 2.0% below its year-earlier level. Manufacturing output fell 0.3% for the month–significantly impacted by a 1.6% decline in vehicle production. The output of consumer goods decreased 0.4% following a 0.8% drop in February.
  • The Index of Consumer Sentiment declined in early April, according to the latest report from the University of Michigan. At 89.7, the index fell for the fourth consecutive month. According to the report, “Consumers reported a slowdown in expected wage gains, weakening inflation-adjusted income expectations, and growing concerns that slowing economic growth would reduce the pace of job creation.”
  • For the week ended April 9, there were 253,000 claims for unemployment insurance, a decrease of 13,000 from the previous week’s revised level. This marks 58 consecutive weeks of initial claims below 300,000, the longest streak since 1973. The advance seasonally adjusted insured unemployment rate remained at 1.6%. The advance number for continuing unemployment insurance claims for the week ended April 2 was 2,171,000, a decrease of 18,000 from the prior week’s revised level.

Eye on the Week Ahead

The housing sector of the economy, which had been strong, recently has shown signs of slowing down. This week’s reports on new construction and existing home sales for March may shed some light on the direction of the housing market entering the spring–a historically favorable season for home sales. Globally, several major oil producers are scheduled to meet this week to consider limiting production.

What I’m Watching This Week – 11 April 2016

The Markets (as of market close April 8, 2016)

The equities market has been volatile thus far this year. Following last week’s gains, the indexes listed here all closed the week in negative territory. Both the Dow and the S&P 500 fell 1.21% for the week–this following a rally last Friday after gains in the price of oil. Uncertainty over whether continued austerity would hasten global growth was felt in the foreign markets, as the Global Dow fell more than half a point and is over 2.0% behind its year-end closing price. Money moved into long-term bonds as increasing prices drove 10-year Treasuries down 6 basis points from the prior week.

The price of crude oil (WTI) closed the week at $39.66 a barrel, up $3.03 over the prior week’s closing price. The price of gold (COMEX) rose by last week’s end, selling at $1,240.10 by late Friday afternoon, up from the prior week’s closing price of $1,223.60. The national average retail regular gasoline price increased for the seventh week in a row, selling at $2.083 per gallon on April 4, 2016, $0.017 over the prior week’s price but $0.330 under a year ago.

Market/Index 2015 Close Prior Week As of 4/8 Weekly Change YTD Change
DJIA 17425.03 17792.75 17576.96 -1.21% 0.87%
Nasdaq 5007.41 4914.54 4850.69 -1.30% -3.13%
S&P 500 2043.94 2072.78 2047.60 -1.21% 0.18%
Russell 2000 1135.89 1117.68 1097.31 -1.82% -3.40%
Global Dow 2336.45 2302.06 2287.60 -0.63% -2.09%
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% 1.77% 1.71% -6 bps -55 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

  • Reversing what had been a favorable report in January, factory orders decreased $8.0 billion, or 1.7%, following a 1.2% increase in January, according to the Commerce Department’s full report on manufacturers’ shipments, inventories, and orders for February. Shipments, down 10 of the last 11 months, once again decreased, falling $3.4 billion, or 0.7%. Unfilled orders for manufactured durable goods decreased $4.1 billion, or 0.3%, following a 0.1% increase in January. Inventories, down 8 consecutive months, continued that trend, dropping $2.6 billion, or 0.4%. This report once again highlights the continuing weakness in the manufacturing sector.
  • The Institute for Supply Management® Non-Manufacturing Index for March, at 54.5%, is 1.1 percentage points higher than February. Based on surveys from firms involved in services, construction, mining, agriculture, forestry, and fishing and hunting, index readings of 50% and above are indicative of growth. According to the ISM® report, respondents felt that business conditions are mostly positive and that the economy is stable and will continue on a course of slow, steady growth.
  • The trade deficit increased from $45.9 billion in January to $47.1 billion in February. The deficit is reflective of a greater increase in imports over exports. February imports were $225.1 billion, $3.0 billion more than January imports, while February exports were $178.1 billion, $1.8 billion more than January exports. Year-to-date, the goods and services deficit increased $10.8 billion, or 13.1%, from the same period in 2015. February’s trade deficit is the highest in the last six months as the ongoing strength of the dollar overseas continues to cut into exports, curtailing overall U.S. economic growth.
  • The latest job openings and labor turnover (JOLTS) report reveals that the number of job openings decreased from 5.6 million in January to 5.4 million on the last day of February. The job openings rate was 3.7%. The number of hires (5.4 million) and total separations (5.0 million) also increased over January’s figures. Over the 12 months ended in February, hires totaled 62.1 million and separations totaled 59.4 million, yielding a net employment gain of 2.7 million.
  • The Federal Open Market Committee (FOMC) minutes from its March meeting indicate that, while some positive economic trends were noted, many Committee members expressed a view that “the global economic and financial situation still posed appreciable downside risks to the domestic economic outlook.” As to the prospect of raising interest rates in the near term, “many participants expressed the view that a somewhat lower path for the federal funds rate than they had projected in December now seemed most likely to be appropriate for achieving the Committee’s dual mandate.” It is interesting to note that not all members of the Committee shared this view–some thought it was appropriate to raise rates in March, and will likely suggest raising rates in April unless economic conditions deteriorate.
  • For the week ended April 2, there were 267,000 claims for unemployment insurance, an increase of 9,000 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 26 was 2,191,000, an increase of 19,000 from the prior week’s revised level.

Eye on the Week Ahead

Inflation indicators are front and center this week as the latest figures on producer prices, retail sales, and consumer prices are available. The week closes with an important report from the Federal Reserve on industrial production, which has been sagging for quite some time.

What I’m Watching This Week – 4 April 2016

The Markets (as of market close April 1, 2016)

A solid jobs report for March, coupled with continued strength in the housing sector, may have influenced equities as each of the indexes listed here posted gains week-over-week. Following the prior week’s sell-off, gains in the large-cap indexes have moved the S&P 500 and Dow solidly into positive territory for the year. The biggest gainer, however, was the Russell 2000, which jumped 3.53% by week’s end and is closing in on its 2015 year-end value. Long-term bonds continue to attract investor money, driving prices higher as yields on the U.S. 10-year Treasuries fell 21 points over the prior week’s closing price.

The price of crude oil (WTI) continued to be volatile, closing at $36.63 a barrel, $2.96 less than the prior week’s closing price. The price of gold (COMEX) rose by last week’s end, selling at $1,223.60 by late Friday afternoon, up from the prior week’s closing price of $1,218.70. The national average retail regular gasoline price increased for the sixth week in a row, selling at $2.066 per gallon on March 28, 2016, $0.059 over the prior week’s price but $0.382 under a year ago.

Market/Index 2015 Close Prior Week As of 4/1 Weekly Change YTD Change
DJIA 17425.03 17515.73 17792.75 1.58% 2.11%
Nasdaq 5007.41 4773.50 4914.54 2.95% -1.85%
S&P 500 2043.94 2035.94 2072.78 1.81% 1.41%
Russell 2000 1135.89 1079.54 1117.68 3.53% -1.60%
Global Dow 2336.45 2279.29 2302.06 1.00% -1.47%
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% 1.77% -21 bps -49 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

  • Labor continues its relatively strong run as the latest information from the Bureau of Labor Statistics shows 215,000 new jobs were created in March. The labor force participation rate also increased slightly to 63% from 62.9% in February, and is up 0.6% since September. The unemployment rate increased marginally to 5.0% in March from 4.9% in February, with roughly 8.0 million unemployed persons. Employment increased in retail trade, construction, and health care. Job losses occurred in manufacturing and mining. Average hourly earnings rose $0.07 to $25.43 from February–an increase of 2.3% from a year ago.
  • Essentially reiterating what had been said following the December and subsequent FOMC meetings, Chair Janet Yellen suggested the Fed needs to proceed cautiously with respect to raising interest rates. In a speech before the Economic Club of New York, Yellen noted that ongoing global economic and financial uncertainty, impacted by the economic slowdown in China and falling oil prices, has heightened the risk to the U.S. economy.
  • While consumer income has grown over the first two months of 2016, personal spending has increased, but at a much slower pace, according to the Bureau of Economic Analysis. For February, both personal income and disposable personal income (personal income less taxes) increased $23.7 billion, or 0.2%, compared to January. Personal consumption expenditures (PCE), or what consumers are spending on durable goods, nondurable goods, and services, increased $11.0 billion, or 0.1% in February. On the other hand, consumers are saving at a higher rate as the personal saving rate increased 0.1% from January to 5.4% in February. The core PCE (excluding food and energy) increased 0.1% from January, while the PCE price index, which measures the increase in prices for consumer goods and services, fell 0.1% from January and is up only 1.0% from February 2015.
  • The Census Bureau’s advance report on U.S. International Trade in Goods for February has both exports (+2.0%) and imports (+1.6%) ahead of their January levels. However, the gap between imports and exports also expanded to an advance balance deficit of $62,864 in February from January’s final seasonally adjusted deficit figure of $62,398.
  • Pending home sales, those in which a contract has been signed but the transaction has not yet closed, rose 3.5% in February to 109.1, according to the National Association of Realtors®. Led by a sizable increase in the Midwest, all major regions except for the Northeast saw an increase in contract activity in February.
  • The S&P/Case-Shiller U.S. National Home Price Index showed home prices slightly increased in January, as the seasonally adjusted index gained 0.5% over December. The index recorded a higher year-over-year gain with a 5.4% annual increase in January.
  • According to the Census Bureau, construction spending in February was 0.5% below the revised January estimate but 10.3% above the February 2015 estimate. On the plus side, residential construction was up 0.9% over January. However, for February, nonresidential construction spending (-1.3%) and public construction spending (-1.7%) were below their respective January totals.
  • Purchasing managers’ manufacturing index (PMI) is based on a monthly survey of selected companies relative to the current and expected trends in the manufacturing sector. The Markit U.S. Manufacturing Purchasing Managers’ Index™ (PMI™) for March, at 51.5, is only slightly ahead of February’s 51.3. For the first quarter of 2016, the average reading of 51.7 is the weakest quarterly upturn since the third quarter of 2012. A reading of 50 or above signifies some overall growth in this sector. The Institute for Supply Management PMI for March was 51.8% (49.5% in February), which showed expansion in the manufacturing sector for the first time in the last six months.
  • The Conference Board Consumer Confidence Index®, which had decreased in February, improved in March. The index now stands at 96.2, up from 94.0 in February. Consumers surveyed expressed favorable outlooks for the labor market and business conditions, but they did not foresee the economy gaining any significant momentum in the near term. Conversely, the University of Michigan’s Index of Consumer Sentiment fell slightly in March to 91.0 from February’s reading of 91.7. The Sentiment Index in the first quarter of 2016 averaged 91.6, barely different from the 91.3 in the fourth quarter or the 90.7 in the third quarter of 2015.
  • For the week ended March 26, there were 276,000 claims for unemployment insurance, an increase of 11,000 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 19 was 2,173,000, a decrease of 7,000 from the prior week’s revised level.

Eye on the Week Ahead

This week reveals the latest information on the international trade balance on goods and services for February, which is a major indicator of foreign trade–an economic sector that has been lagging. The FOMC also releases the minutes from its March meeting, which may shed some light on the Committee’s intentions with respect to interest rates going forward.