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.