What I’m Watching This Week – 5 July 2016

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

The beginning of the week saw equities still reeling from the Brexit vote. However, the markets closed with a flourish, recouping all of the losses from the prior week. Each of the indexes listed here enjoyed positive returns by week’s end with each index gaining over 3.0% week-over-week, except the Russell 2000, which finished the week up about 2.6%. Year-to-date, only the Nasdaq and Global Dow remain below their 2015 closing values, but they’re gaining ground. While equities gained some traction, long-term bond yields touched lows that hadn’t been seen in quite some time.

Crude oil (WTI) closed at $49.28 a barrel last week, up $1.71 from the previous week. The price of gold (COMEX) rose to $1,344.90 by late Friday afternoon, up from the prior week’s price of $1,319.10. The national average retail regular gasoline price decreased to $2.329 per gallon on June 27, $0.024 under the prior week’s price and $0.472 below a year ago.

Market/Index 2015 Close Prior Week As of 7/1 Weekly Change YTD Change
DJIA 17425.03 17400.75 17949.37 3.15% 3.01%
Nasdaq 5007.41 4707.98 4862.57 3.28% -2.89%
S&P 500 2043.94 2037.41 2102.95 3.22% 2.89%
Russell 2000 1135.89 1127.54 1156.77 2.59% 1.84%
Global Dow 2336.45 2250.69 2323.19 3.22% -0.57%
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% 1.55% 1.44% -11 bps -82 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 third estimate of the first quarter 2016 gross domestic product–the value of the goods and services produced by the nation’s economy less the value of the goods and services used up in production, adjusted for price changes–increased at an annual rate of 1.1%. The second estimate for the first quarter GDP showed an increase of only 0.8%. The third estimate is based on more complete data. The primary difference between the second and third estimates for the first quarter GDP is that exports increased more than previously estimated. In the fourth quarter of 2015, the GDP increased 1.4%. Compared to the fourth quarter, total business investment declined as did consumer spending in the first quarter 2016. The economy traditionally starts off slower during the first three months of the year, often picking up speed over the spring and summer months, leading to guarded optimism for the second quarter GDP.
  • Personal income increased $37.1 billion, or 0.2%, and disposable personal income (net after taxes) increased $33.9 billion, or 0.2% in May, according to the Bureau of Economic Analysis. Personal consumption expenditures, the Federal Reserve’s preferred inflation measure, increased $53.5 billion, or 0.4%. Compared to April, both income and spending (PCE) slowed in May. In April, personal income increased $75.4 billion, or 0.5%, DPI increased $68.6 billion, or 0.5%, and PCE increased $141.2 billion, or 1.1%, based on revised estimates.
  • The trade gap between imports and exports grew in May, according to the latest report from the Census Bureau. Exports for May were at $119.0 billion, while imports came in at $179.6 billion, resulting in a trade deficit of roughly $60.6 billion. Exports fell 0.2% from April, and imports increased a sharp 1.6%. The trade gap in April was $57.5 billion.
  • Home prices continue to rise according to the latest report from the S&P/Case-Shiller Home Price Index, which reported a 5.0% annual gain in April, down from 5.1% the previous month. Before seasonal adjustment, the National Index posted a month-over-month gain of 1.0% in April.
  • Following three straight months of gains, pending home sales took a step back in May, according to the National Association of Realtors®. The Pending Home Sales Index dropped 3.7% to 110.8 in May from a downwardly revised 115.0 in April. Low mortgage rates and scant inventory are pushing home prices higher, affecting the number of home sales.
  • US manufacturers expressed guarded optimism in May and June as manufacturing expanded. The Institute for Supply Management® (ISM®) Purchasing Managers’ Index® registered 51.3 for May, an increase of 0.5 percentage point from April’s reading of 50.8. According to the report, new orders and production were seen as growing, while employment and inventories were contracting. The seasonally adjusted final Markit U.S. Manufacturing Purchasing Managers’ Index™ (PMI™) registered 51.3 in June, up from 50.7 in May, and the highest reading for three months. Higher levels of production, new orders, and employment all helped to boost the index.
  • The Conference Board Consumer Confidence Index® increased to 98.0 in June, up from 92.4 in May. The Present Situation Index increased from 113.2 to 118.3, while the Expectations Index rose from 78.5 to 84.5 in June. According to the Conference Board’s Lynn Franco, “Consumers were less negative about current business and labor market conditions, but only moderately more positive, suggesting no deterioration in economic conditions, but no strengthening either.”
  • In the week ended June 25, the advance figure for seasonally adjusted initial unemployment insurance claims was 268,000, an increase of 10,000 from the previous week’s unrevised level. The advance seasonally adjusted insured unemployment rate dropped to 1.5%. The advance number for seasonally adjusted insured unemployment during the week ended June 18 was 2,120,000, a decrease of 20,000 from the previous week’s revised level.

Eye on the Week Ahead

Equities markets, at least domestically, seem to have halted the downfall from the UK’s referendum vote to withdraw from the European Union. How this major world event affects other economic indicators remains to be seen. This week, important reports on international trade and the employment situation are released.