What I’m Watching This Week – 28 November 2016

The Markets (as of market close November 25, 2016)

Based on the performance of stock market indexes, it was another banner week for equities amidst slow trading volume. The Dow, S&P 500, Russell 2000, and Nasdaq each reached record highs, with the Dow eclipsing 19000 for the first time ever. Some analysts suggest the market surge is based on expectations that the new administration will reduce taxes and spend more on infrastructure. Money continues to move from long-term bonds and gold into equities. Also, investors may view the likelihood of the Fed raising interest rates next month with more certainty, which could lead to money fleeing from long-term bonds and gold.

The price of crude oil (WTI) increased by last week’s end, closing at $45.96 per barrel, up from the prior week’s price of $45.58 per barrel. The price of gold (COMEX) fell again last week closing at $1,186.10 by late Friday afternoon, down from the prior week’s price of $1,207.30. The national average retail regular gasoline price decreased to $2.155 per gallon on November 21, 2016, $0.029 less than the prior week’s price but $0.061 more than a year ago.

Market/Index 2015 Close Prior Week As of 11/25 Weekly Change YTD Change
DJIA 17425.03 18867.93 19152.14 1.51% 9.91%
Nasdaq 5007.41 5321.51 5398.92 1.45% 7.82%
S&P 500 2043.94 2181.90 2213.35 1.44% 8.29%
Russell 2000 1135.89 1315.64 1347.20 2.40% 18.60%
Global Dow 2336.45 2428.04 2466.14 1.57% 5.55%
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% 2.35% 2.35% 0 bps 9 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

  • For the second consecutive month, the number of existing home sales increased in October. According to the National Association of Realtors®, total existing home sales grew 2.0% in October to an annual rate of 5.60 million from 5.49 million in September. October’s sales pace is 5.9% above a year ago and is the highest annual rate since February 2007. The median existing-home price for all housing types in October was $232,200, up 6.0% from October 2015 ($219,100). Total housing inventory at the end of October declined 0.5% to 2.02 million, and is now 4.3% lower than a year ago (2.11 million). Unsold inventory is at a 4.3-month supply at the current sales pace, which is down from 4.4 months in September. According to Lawrence Yun of the NAR, “As a result of the anticipated economic stimulus in early 2017, mortgage rates post-election have now surged to around 4% as investors expect a strengthening economy and higher inflation. In the short-term, some prospective buyers may rush to lock in their rate and buy now, while others — especially those in higher-priced markets — may be forced to delay as a larger monthly payment outstretches their budget.”
  • While existing home sales increased in October, new home sales lagged a bit compared to the prior month. According to the Census Bureau, sales of new single family houses in October were at a rate of 563,000, 1.9% below the revised September rate, but still 17.8% above October 2015. The median sales price of new houses sold in October 2016 was $304,500; the average sales price was $354,900. The seasonally adjusted estimate of new houses for sale at the end of October was 246,000. This represents a supply of 5.2 months at the current sales rate.
  • The advance report on durable goods orders for October was generally favorable, according to the Census Bureau. New orders for manufactured durable goods (items expected to last at least three years) increased 4.8% to $239.4 billion, up $11 billion from September. Shipments of durable goods increased 0.1%. Unfilled orders, following four consecutive monthly decreases, gained 0.7% in October, while inventories remained relatively the same as the prior month. Year-to-date, shipments of durable goods are down 0.9%, while new orders for durable goods are lagging by 0.2%.
  • The minutes of the last Federal Open Market Committee meeting held on November 2 revealed that, by an 8-2 vote, members agreed to maintain the current Fed funds rate range of 0.25%-0.50%. A couple of points to note: members generally agreed that the case for an interest rate hike has strengthened, but several members wanted more evidence that inflationary trends are gaining momentum; and this meeting occurred before the results from the presidential election, the results of which could impact the Committee’s decision on interest rates when it next meets in December.
  • The international trade deficit widened to $62.0 billion in October, up $5.5 billion from September, according to the monthly advance report from the Census Bureau. Exports of goods were $122.1 billion, $3.4 billion less than September exports. Imports for goods for October were $184.1 billion, $2.1 billion more than September imports. Exports of foods, feed & beverages declined 11.8%, while exports of industrial supplies, including petroleum, fell 4.1%.
  • According to the University of Michigan’s Surveys of Consumers chief economist, Richard Curtin, “The initial reaction of consumers to Trump’s victory was to express greater optimism about their personal finances as well as improved prospects for the national economy.” The Index of Consumer Sentiment jumped 6.6 points to 93.8, the Current Economic Conditions Index increased from 103.2 in September to 107.3 for October, and the Index of Consumer Expectations climbed 8.4 points to 85.2.
  • In the week ended November 19, the advance figure for seasonally adjusted initial unemployment insurance claims was 251,000, an increase of 18,000 from the previous week’s revised level. The advance seasonally adjusted insured unemployment rate increased 0.1 percentage point to 1.5%. The advance number for seasonally adjusted insured unemployment during the week ended November 12 was 2,043,000, an increase of 60,000 from the previous week’s revised level.

Eye on the Week Ahead

Important economic indicators relied upon by the FOMC are posted this week ahead of the Committee’s meeting during the second full week of December. The latest reports on the third-quarter GDP, personal income and outlays, and the employment situation are on tap this week.