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.