What I’m Watching This Week – 16 May 2016

The Markets (as of market close May 13, 2016)

Despite gains earlier in the week, each of the indexes listed here closed last week down from their prior week’s closing values. The Dow and S&P 500 extended their losing streaks to three weeks, with the Dow suffering the largest weekly regression, falling over 205 points. Year-to-date, only the Dow and S&P 500 remain ahead of their 2015 closing values as the tech-heavy Nasdaq, the Russell 2000, and the Global Dow remain behind their respective year-end values.

Crude oil (WTI) jumped last week, closing at $46.37 a barrel, up $1.81 over the prior week’s closing price. The price of gold (COMEX) dropped by last week’s end, selling at $1,274.30 by late Friday afternoon, down from the prior week’s closing price of $1,289.70. The national average retail regular gasoline price decreased to $2.220 per gallon on May 9, 2016, $0.020 below the prior week’s price and $0.471 under a year ago.

Market/Index 2015 Close Prior Week As of 5/13 Weekly Change YTD Change
DJIA 17425.03 17740.63 17535.32 -1.16% 0.63%
Nasdaq 5007.41 4736.16 4717.68 -0.39% -5.79%
S&P 500 2043.94 2057.14 2046.61 -0.51% 0.13%
Russell 2000 1135.89 1114.72 1102.44 -1.10% -2.94%
Global Dow 2336.45 2313.29 2293.75 -0.84% -1.83%
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% 1.70% -7 bps -56 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 slow start in 2016, consumers picked up the retail spending pace in April. The Census Bureau’s advance estimate for retail and food services sales for April were at $453.4 billion, an increase of 1.3% over March, and 3.0% above April 2015. Retail trade sales were up 1.4% from March 2016, and up 2.7% from last year. Nonstore retailers (such as online shopping sites) were up 10.2% from April 2015, while gasoline stations were up 2.2% for the month, although gas stations are down 9.4% from last year. Since about two-thirds of economic output consists of consumer spending, this report is good news on the economic front.
  • The prices producers received for goods and services increased 0.2% in April following a 0.1% fall in March. For April, services edged up 0.1% and goods advanced 0.2%. Excluding volatile food and energy, prices for goods and services rose a scant 0.1% for April, and are up 0.9% on the year. Prices are unchanged for 12 months ended in April. As an indicator of inflationary trends, this report does not indicate significant movement toward the Fed’s target rate of 2.0%.
  • The latest Treasury budget report for April shows a surplus of $106.5 billion–significantly lower than the April 2015 surplus of $156.7 billion. For the month, total receipts were $438.4 billion–up $210.6 billion over the March total, while outlays were $332.0 billion–$3.9 billion lower than March’s outlays. Not surprisingly, April’s surge in receipts is attributable to the collection of individual income taxes, which are up 1.2% over the first seven months of the fiscal year. Outlays, which are up 4.4%, include increased Medicare payments (+11.3%) and defense spending (+0.4%). The year-to-date deficit is $355.0 billion, which is more than 25% higher than the deficit over the same period last year.
  • Higher fuel prices and a weaker dollar kicked up the price indexes for both imports and exports in April, according to the latest report from the Bureau of Labor Statistics. Import prices paid for goods manufactured abroad and purchased here rose 0.3% for the month following a 0.3% increase in March. April’s import price gain marked the largest increase since a 1.1% rise in May 2015. Overall, import prices declined 5.7% over the past year. Export prices paid for goods manufactured here but sold abroad increased 0.5% in April, after recording no change in March. Export prices registered the first monthly advance since a 0.5% increase last May, which also represents the largest 1-month index increase since the 0.9% rise in March 2014. The price index for exports fell 5.0% for the year ended in April, the smallest 12-month decline since the index decreased 5.0% from January 2014 to January 2015.
  • Although a bit dated, the most recent Job Openings and Labor Turnover (JOLTS) report from the Bureau of Labor Statistics provides useful information on the number of job openings available on the last business day of the reported month. For March, there were 5.757 million job openings on the last business day of March, up from 5.608 million in February. Hires edged down to 5.3 million, while separations were little changed at 5.0 million. This report provides continued good news on the labor front as job openings increased to 3.9%. Also, workers are staying on the job as the quits rate remained the same at 2.1%, while layoffs fell 0.1 percentage point to 1.2%.
  • The University of Michigan’s Surveys of Consumers report for May showed a bit more optimism compared to April. The Index of Consumer Sentiment rose to 95.8 from 89.0 in April. The Current Economic Conditions index increased from 106.7 in April to 108.6 in May, and the Index of Consumer Expectations jumped almost 10 points, from April’s 77.6 to 87.5 in May. According to the report, “consumer sentiment rebounded in early May due to more frequent income gains, an improved jobs outlook, and the expectation of lower inflation and interest rates.”
  • For the week ended May 7, there were 294,000 claims for unemployment insurance, an increase of 20,000 from the previous week’s revised level. The advance seasonally adjusted insured unemployment rate remained at 1.6% from the prior week’s revised level. The advance number for continuing unemployment insurance claims for the week ended April 30 was 2,161,000, an increase of 37,000 from the previous week’s revised level.

Eye on the Week Ahead

Information this week focuses on inflation data and retail sales. The week also brings the latest figures on import and export prices, which could get a boost from surging oil prices.