Month: September 2016

The Markets (as of market close September 23, 2016)

The Markets (as of market close September 16, 2016)

Volatility in the markets reigned last week as each of the indexes listed here enjoyed gains early in the week, only to give most of them back by last week’s end. The Dow and S&P 500 closed last week only slightly ahead of their respective closing values from the previous week. While the small-cap Nasdaq finished the week up over 2.0% compared to the previous week, it too gave back plenty of gains from earlier in the week. The equities markets could be in for a ride, both domestically and abroad, as the Fed and the Central Bank of Japan are scheduled to meet later this week.

The price of crude oil (WTI) closed at $43.19 a barrel last week, down from $45.71 per barrel the previous week. The price of gold (COMEX) also fell, closing at $1,313.20 by late Friday afternoon, down from the prior week’s price of $1,331.80. The national average retail regular gasoline price decreased for the second consecutive week, falling to $2.202 per gallon on September 12, $0.021 lower than the prior week’s price and $0.173 below a year ago.

Market/Index	2015 Close	Prior Week	As of 9/16	Weekly Change	YTD Change
DJIA	17425.03	18085.45	18123.80	0.21%	4.01%
Nasdaq	5007.41	5125.91	5244.57	2.31%	4.74%
S&P 500	2043.94	2127.81	2139.16	0.53%	4.66%
Russell 2000	1135.89	1219.21	1224.78	0.46%	7.83%
Global Dow	2336.45	2442.56	2403.06	-1.62%	2.85%
Fed. Funds target rate	0.25%-0.50%	0.25%-0.50%	0.25%-0.50%	0 bps	0 bps
10-year Treasuries	2.26%	1.67%	1.69%	2 bps	-57 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

• Consumer prices rose 0.2% in August, facilitated by a 0.3% increase in the index less food and energy (the core index), which was the largest gain in that category since February. Over the last 12 months, the all items index has risen 1.1%, a larger increase than the 0.8% rise for the 12 months ended in July. Prices for medical care, shelter, and clothing increased in August. Major energy component indexes were mixed, with increases in the indexes for natural gas and electricity offsetting declines in the gasoline and fuel oil indexes. While it isn’t much, the increase in the Consumer Price Index for August shows some firming of inflationary pressure. However, price gains are still lagging compared to last August, when the all items index rose 1.1% and core prices increased 2.3%.
• An indicator of inflationary trends, the Producer Price Index (a measure of the change in prices received by U.S. producers of goods and services) was unchanged in August, the U.S. Bureau of Labor Statistics reported. Final demand prices declined 0.4% in July and rose 0.5% in June. Prices for final demand less foods, energy, and trade services increased 0.3% in August after no change in July. For the 12 months ended in August, the index for final demand less foods, energy, and trade services moved up 1.2%, the largest rise since climbing 1.3% for the 12 months ended in December 2014. A closer look at the report reveals that the price index for services increased a scant 0.1%, while the price index for goods dropped 0.4%, which can be traced to a 1.6% fall in food prices.
• Following increases in June and July, retail sales in August fell. According to the Census Bureau, advance estimates of U.S. retail and food services sales for August were at a seasonally adjusted rate of $456.3 billion, a decrease of 0.3% from the previous month, but 1.9% above August 2015. Excluding autos, retail sales dropped 0.1% in August. Sales for online retailers fell 0.3% in August, compared to July. A slowdown in consumer spending could impact the GDP for the quarter and the prospects of a Fed interest rate hike in September.
• The federal deficit grew to $107 billion in August, as total outlays ($338 billion) outpaced total receipts ($231 billion). For the fiscal year, which ends this month, the year-to-date deficit is $620.8 billion, compared to $530 billion over the same period last year. Year-to-date, total receipts are up 0.9% compared to last year, while total government expenditures have surged ahead by 13.6%.
• Industrial production decreased 0.4% in August after rising 0.6% in July. Manufacturing output also declined 0.4% in August, reversing its increase in July. Capacity utilization for the industrial sector decreased 0.4 percentage point in August to 75.5%, a rate that is 4.5 percentage points below its long-run (1972-2015) average.
• According to the latest report from the Bureau of Labor Statistics, both import prices and export prices fell in August compared to July. U.S. import prices declined 0.2% in August, after ticking up 0.1% in July. The August downturn was driven by lower fuel prices. Prices for U.S. exports decreased 0.8% in August following a 0.2% increase in July. The drop in import prices is another indication of weak inflationary pressure.
• Consumers’ opinions of the economy this month haven’t changed from August, according to the University of Michigan’s Surveys of Consumers. The Index of Consumer Sentiment was 89.8 for September, the same as August. Consumers’ opinions of the current economic conditions regressed a bit in September. However, consumers remain reasonably optimistic about their future economic prospects.
• In the week ended September 10, the advance figure for seasonally adjusted initial unemployment insurance claims was 260,000, an increase of 1,000 from the prior week’s unrevised level. The advance seasonally adjusted insured unemployment rate remained at 1.6%. The advance number for seasonally adjusted insured unemployment during the week ended September 3 was 2,143,000, an increase of 1,000 from the previous week’s revised level.

Eye on the Week Ahead

The latest reports on the sales of new and existing homes hit the news this week. But the biggest event of the week is the FOMC meeting. Clearly a market-mover, speculation as to whether the Fed will increase interest rates in September has run the gamut from “no chance” to “definitely.” Even if the Committee holds off on hiking interest rates, investors will likely focus on comments from Committee members, particularly Chair Janet Yellen, as to the future of the current quantitative easing measures.

The Markets (as of market close September 9, 2016)

Equities indexes rebounded early last week as lackluster economic reports in the labor and manufacturing sectors, coupled with a falling dollar, appear to be fueling speculation that the Fed won’t be raising interest rates following its meeting later this month. Energy shares made some positive headway early in the week, contributing to positive market returns.

However, by the close of the week, stocks and bonds posted their largest losses since the Brexit vote in June, as traders pulled an about-face, fearing that central banks would not continue further economic stimulus. First, the European Central Bank refused to commit to further stimulus. Then a few members of the Federal Reserve intimated that the time may be ripe for an interest rate increase.

By week’s end, the Dow had dropped over 400 points. Each of the indexes listed here (with the exception of the Global Dow) fell over 2.0%, led by the Russell 2000, which reversed the prior week’s gains with a fall in value of over 2.6%.

The price of crude oil (WTI) closed at $45.71 a barrel last week, up from $44.36 per barrel the previous week. The price of gold (COMEX) gained, closing at $1,331.80 by late Friday afternoon, up from the prior week’s price of $1,328.50. The national average retail regular gasoline price decreased for the first time in three weeks, falling to $2.223 per gallon on September 5, $0.014 lower than the prior week’s price and $0.214 below a year ago.

Market/Index	2015 Close	Prior Week	As of 9/9	Weekly Change	YTD Change
DJIA	17425.03	18491.96	18085.45	-2.20%	3.79%
Nasdaq	5007.41	5249.90	5125.91	-2.36%	2.37%
S&P 500	2043.94	2179.98	2127.81	-2.39%	4.10%
Russell 2000	1135.89	1251.83	1219.21	-2.61%	7.34%
Global Dow	2336.45	2463.98	2442.56	-0.87%	4.54%
Fed. Funds target rate	0.25%-0.50%	0.25%-0.50%	0.25%-0.50%	0 bps	0 bps
10-year Treasuries	2.26%	1.60%	1.67%	7 bps	-59 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 number of job openings increased to 5.9 million on the last business day of July, an increase of 228,000 from June, the U.S. Bureau of Labor Statistics reported. Most of the job gains occurred in the private sector, including professional and business services and durable goods manufacturing. The number of hires was 5.2 million in July, little changed from June.
• The Non-Manufacturing ISM® Report, which is based on a survey of the nation’s purchasing and supply executives, covers non-manufacturing industries including utilities, real estate, hotel and food services, education, and health care. The majority of survey respondents indicated that there has been a slowing in the level of business for their respective companies, as non-manufacturing business activity, new orders, employment, and prices each decreased in August from July. According to the report, the ISM® Non-Manufacturing Index (NMI®) fell to 51.4% in August from July’s reading of 55.5%. A reading over 50% indicates growth, so the non-manufacturing sector grew in August, but at a slower pace compared to the previous month.
• In the week ended September 3, the advance figure for seasonally adjusted initial unemployment insurance claims was 259,000, a decrease of 4,000 from the prior week’s unrevised level. The advance seasonally adjusted insured unemployment rate remained at 1.6%. The advance number for seasonally adjusted insured unemployment during the week ended August 27 was 2,144,000, a decrease of 7,000 from the previous week’s revised level.

Eye on the Week Ahead

Several key economic reports are released this week ahead of next week’s Federal Open Market Committee meeting. Inflationary trends may be gleaned from the perspective of both the seller (producer prices and retail sales) and the consumer (consumer prices).

The Markets (as of market close September 2, 2016)

Trading continues to be light heading into the Labor Day weekend. Stocks finished modestly higher for the week, buoyed by last Friday’s favorable employment report. Of the indexes listed here, the small-cap Russell 2000 led the charge, gaining 1.11% by last week’s end and over 10% year-to-date.

The price of crude oil (WTI) closed at $44.36 a barrel last week, down from $47.33 per barrel the previous week. The price of gold (COMEX) gained, closing at $1,328.50 by late Friday afternoon, up from the prior week’s price of $1,325.00. The national average retail regular gasoline price increased for the second consecutive week to $2.237 per gallon on August 29, $0.044 higher than the prior week’s price but $0.273 below a year ago.

Market/Index	2015 Close	Prior Week	As of 9/2	Weekly Change	YTD Change
DJIA	17425.03	18395.40	18491.96	0.52%	6.12%
Nasdaq	5007.41	5218.92	5249.90	0.59%	4.84%
S&P 500	2043.94	2169.04	2179.98	0.50%	6.66%
Russell 2000	1135.89	1238.03	1251.83	1.11%	10.21%
Global Dow	2336.45	2442.01	2463.98	0.90%	5.46%
Fed. Funds target rate	0.25%-0.50%	0.25%-0.50%	0.25%-0.50%	0 bps	0 bps
10-year Treasuries	2.26%	1.63%	1.60%	-3 bps	-66 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 labor sector cooled a bit but remained solid in August, according to the Bureau of Labor Statistics. Total nonfarm payroll employment added 151,000 jobs in August, down from 275,000 in July. The unemployment rate remained at 4.9%, as the number of unemployed persons was essentially unchanged at 7.8 million. Job gains were robust in the services sector, particularly in food services and drinking places, which has added 312,000 new jobs over the year. The average workweek for all employees on private nonfarm payrolls decreased by 0.1 hour to 34.3 hours in August. Also for the month, average hourly earnings for all employees on private nonfarm payrolls rose by $0.03 to $25.73. Over the year, average hourly earnings have risen by 2.4%.

• Consumer income and expenditures rose in July, according to the latest report from the Bureau of Economic Analysis. Personal income and disposable personal income (after tax income) each increased 0.4% to $71.6 billion and $60.1 billion, respectively. Personal consumption expenditures climbed for the fourth straight month in July, jumping 0.3% to $42.0 billion. Excluding volatile food and energy components, the core personal consumption expenditures index (a preferred inflation gauge of the Fed) moved very little, gaining only 0.1% for the month. Year-on-year, the core PCE sits at 1.6%–still below the Fed’s target inflation rate of 2.0%.

• Favorable news from the international trade sector as the goods and services deficit was $39.5 billion in July, down $5.2 billion from $44.7 billion in June, revised. July exports were $186.3 billion, $3.4 billion more than June exports. July imports were $225.8 billion, $1.8 billion less than June imports. The July decrease in the goods and services deficit reflected a decrease in the goods deficit of $5.3 billion to $60.3 billion and a decrease in the services surplus of $0.1 billion to $20.9 billion. Year-to-date, the goods and services deficit decreased $0.5 billion, or 0.2%, from the same period in 2015.

• July was a good month in the manufacturing sector. New orders for manufactured goods increased $8.4 billion, or 1.9%, following two consecutive monthly declines. Shipments decreased $0.9 billion, or 0.2%, following four consecutive monthly increases. Inventories gained for the first time in a year–increasing $0.9 billion, or 0.1%.

• The S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index, covering all nine U.S. census divisions, reported a 5.1% annual gain in June. The 20-City Composite Index reported a year-over-year gain of 5.1%, down from 5.3% in May.

• According to the survey of manufacturing executives by the Institute for Supply Management, economic activity in the manufacturing sector contracted in August following five consecutive months of expansion, while the overall economy grew for the 87th consecutive month. The August Purchasing Managers’ Index registered 49.4%, a decrease of 3.2 percentage points from July’s PMI®. A reading of 50% or less indicates contraction. On the other hand, Markit’s U.S. manufacturing index for August showed growth, but at a slower pace, registering 52.0, compared to 52.9 in July–signaling weaker improvement in overall business conditions.

• Consumer confidence improved in August over July as The Conference Board Consumer Confidence Index®, which had decreased slightly in July, increased in August. The index now stands at 101.1, compared to 96.7 in July. Consumers expressed more confidence in current business and labor market conditions in August, but weren’t too optimistic about future developments in those sectors.

• In the week ended August 27, the advance figure for seasonally adjusted initial unemployment insurance claims was 263,000, an increase of 2,000 from the prior week’s unrevised level. The advance seasonally adjusted insured unemployment rate remained at 1.6%. The advance number for seasonally adjusted insured unemployment during the week ended August 20 was 2,159,000, an increase of 14,000 from the previous week’s revised level.

Eye on the Week Ahead

The first full week of September doesn’t offer much in terms of economic reports. Trading is expected to be slow during the Labor Day week, as investors gear up for the fall and election season.

The Markets (as of market close August 31, 2016)

With no Federal Open Market Committee meeting and little news to jar the markets, the lazy, hazy days of August seemed to lull investors into a state of lethargy. Trading was light and volatility, limited. Despite the fact that several of the indexes tracked here posted new highs during the month, weekly changes shifted up and down within a narrow range. The month’s end saw mixed results, with large caps losing whatever momentum they had gained, while technology, small caps, and international stocks posted respectable monthly gains.

Long-term bond yields also showed limited movement over the month, ending 13 basis points higher than where they started. The price of gold (COMEX) slumped, selling at $1,312.20–about $46 lower than July’s closing price of $1,357.90.

Market/Index	2015 Close	Prior Month	As of 8/31	Month Change	YTD Change
DJIA	17425.03	18432.24	18400.88	-0.17%	5.60%
Nasdaq	5007.41	5162.13	5213.22	0.99%	4.11%
S&P 500	2043.94	2173.60	2170.95	-0.12%	6.21%
Russell 2000	1135.89	1219.94	1239.91	1.64%	9.16%
Global Dow	2336.45	2411.26	2445.17	1.41%	4.65%
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%	1.45%	1.58%	13 bps	-68 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.

The Month in Review

• Employment: The Bureau of Labor Statistics reported that 255,000 new jobs were added in July, while the unemployment rate remained at a relatively low 4.9% (7.8 million unemployed). For the month, job gains occurred in professional and business services, health care, and financial activities. Average hourly earnings for all employees on private nonfarm payrolls increased by $0.08 to $25.69 in July. Over the year, average hourly earnings have risen by 2.6%.
• FOMC/interest rates: Since there was no FOMC meeting in August, investors carefully scrutinized Fed Chair Janet Yellen’s remarks at a late-month event in Jackson Hole, Wyoming. The highlight of her presentation was the statement that, “in light of the continued solid performance of the labor market and our outlook for economic activity and inflation, I believe the case for an increase in the federal funds rate has strengthened in recent months.”

• Oil: After rising sharply throughout the month on speculation that oil-producing countries would agree to cut production, oil prices fell back at month’s end due to both a strong dollar and reports that U.S. reserves had increased more than expected, to a record high.

• GDP/budget: According to the second estimate released by the Bureau of Economic Analysis, the gross domestic product increased at an annual rate of 1.1% in the second quarter of 2016. July’s advance estimate had the second-quarter GDP increasing by 1.2%. The increase in real GDP in the second quarter primarily reflected positive contributions from personal consumption expenditures (PCE or consumer spending) and exports that were partly offset by negative contributions from private inventory investment, residential fixed investment, state and local government spending, and nonresidential fixed investment. Imports (a subtraction in the calculation of GDP) increased. The budget deficit through the first 10 months of the fiscal year totaled $513.7 billion–about 10% higher than the deficit over the same period last year ($465.5 billion).

• Inflation: Following a mundane report showing that producer prices fell 0.4% in July, the Consumer Price Index remained unchanged in July after rising each of the previous 4 months. Over the prior 12 months, the CPI rose 0.8%. Energy prices dropped 1.6% from June after advancing each of the previous 4 months. The index for all items less food and energy increased a scant 0.1%–the smallest increase since March 2016.

• Housing: The housing market continued to show momentum during the heat of the summer. The Census Bureau reported sales of new single-family homes increased 12.4% compared to June, and were 31.3% above July 2015. The median sales price of new houses sold in July 2016 was $294,600; the average sales price was $355,800. The seasonally adjusted estimate of new houses for sale at the end of July was 233,000, representing a supply of 4.3 months at the current sales rate. On the other hand, lack of inventory in many parts of the country has been curtailing the sale of existing homes, reported the National Association of Realtors®. Total existing home sales fell 3.2% to a seasonally adjusted annual rate of 5.39 million in July, down from 5.57 million in June. For only the second time in the last 21 months, sales are now below (1.6%) a year ago (5.48 million). With inventory at a premium, the lack of affordable homes for sale is discouraging prospective buyers despite low mortgage rates. The Census Bureau also reported that housing starts were up 2.1% in July, while building permits and privately owned completions were down 0.1% and 8.3%, respectively.

• Manufacturing: The manufacturing sector seems to be showing signs of life. According to the Federal Reserve’s latest report, industrial production rose 0.7% in July after moving up 0.4% in June. The advance in July was the largest for the index since November 2014. Manufacturing output increased 0.5% in July for its largest gain since July 2015. Capacity utilization for the industrial sector, a measure of how much factory capacity is in use, increased 0.5 percentage point in July to 75.9%, a rate that is 4.1 percentage points below its long-run (1972-2015) average. Another sign of good news on the manufacturing front: new orders for durable goods (expected to last at least three years) jumped 4.4% in July after falling 4.2% in June, reported the Census Bureau. Shipments increased by 0.2% for the month, while factory inventories, down for the past six months, gained 0.3% over June. And finally, both the Markit U.S. Manufacturing Purchasing Managers’ Index™ and the PMI® from the Institute for Supply Management posted upticks for July; however, the ISM PMI’s growth was slower than the previous month. The Markit PMI™ registered 52.9 for July, up from 51.3 in June. And the ISM PMI registered 52.6%, down 0.6 percentage point from the previous month. A reading over 50% indicates growth.

• Imports and exports: The prices of imported goods continued to rise in July, moving up 0.1% following a 0.6% increase in June. Prior to July, import price increases were driven by rising fuel prices. In contrast, in July, nonfuel prices led the advance while fuel prices recorded a decrease. Nevertheless, import prices have fallen 3.7% over the last 12 months. Prices for exports rose 0.2% after increasing 2.4% over the 3 previous months. However, for the last 12 months, export prices have declined 3.0%.

• International markets: Early in the month, Japan approved a $274 billion stimulus package, which included a payment of approximately $147 to each of about 22 million low-income workers. Also, in the wake of the Brexit vote, the Bank of England cut interest rates to 0.25% and introduced a series of new measures designed to stimulate growth, citing as rationale a potentially faster rise in inflation due to the drop in the pound. Later in the month, the UK reported an uptick in retail sales due to its weak currency, which seemed to be attracting foreign consumers. In China, further evidence of an economic slowdown was reported in weakening industrial production and retail sales.

• Consumer sentiment: The Conference Board Consumer Confidence Index® improved to 101.1 in August from 96.7 in July, the highest level in nearly a year. “Consumers’ assessment of both current business and labor market conditions was considerably more favorable than last month,” said Lynn Franco, Director of Economic Indicators at The Conference Board, in the August 30 news release.

Eye on the Month Ahead

As U.S. investors arise from their summer snooze, eyes will focus on the upcoming jobs report due this week, followed by the Federal Open Market Committee meeting later this month, and the final second-quarter GDP figures coming at month’s end. Have economic conditions improved enough to warrant a tightening? Time will tell. International investors will also keep watchful eyes on monetary policy, as the Bank of Japan, the Bank of England, and the European Central Bank all hold meetings this month. Finally, OPEC and non-OPEC oil producers are scheduled to meet in Algeria toward month’s end, the outcome of which may influence both oil prices and energy stocks.