Month: August 2017

The Markets (as of market close August 18, 2017)

Last week saw domestic and global conflicts heighten investors’ concerns, pushing stocks lower in what was a slow week for trading. The Dow lost over 270 points last Thursday, offsetting robust gains the prior Monday. The S&P 500 fell 0.65%, while the Nasdaq dropped .64% last week. Once again, the biggest fall struck the small-cap Russell 2000, which lost 1.20% for the week and is essentially at its 2016 year-end closing value, having lost all of the gains amassed during 2017. Long-term bond prices remained the same as the yield on 10-year Treasuries was unchanged from the prior week.

The price of crude oil (WTI) closed at $48.73 per barrel, down slightly from the prior week’s closing price of $48.79 per barrel. The price of gold (COMEX) closed last week at $1,290.30 by late Friday afternoon, $4.70 lower than the prior week’s price of $1,295.00. The national average retail regular gasoline price increased for the fourth week in a row to $2.384 per gallon on August 14, 2017, $0.006 higher than the prior week’s price and $0.235 more than a year ago.

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 Economic Headlines

• The volume of retail and food services sales picked up in July, increasing 0.6% over June’s sales figures. Sales were 4.2% above July 2016. Sectors whose sales expanded in July included motor vehicle and parts dealers (1.2%); building materials and garden equipment and supplies dealers (1.2%); and online retailers (1.3%).
• The dollar is declining in value, which is good news for exporters but not so good for importers. July’s import and export prices report shows that both import and export prices increased over the prior month. Import prices increased 0.1% as petroleum imports jumped 0.7%. Export prices climbed 0.4% following a -0.2% fall in June. Export prices were helped by a 2.1% spike in prices for agricultural products.
• The momentum created in June for new home construction did not carry over to July. According to the latest figures from the Census Bureau, building permits (-4.1%), housing starts (-4.8%), and housing completions (-6.2%) each decreased from their respective June rates. A slowdown in home building will not help an already dwindling supply and could prove to be a drag on overall economic growth.
• According to the latest report from the Federal Reserve, industrial production rose 0.2% in July following an increase of 0.4% in June. Overall, total industrial production was 2.2% above its year-earlier level. In July, manufacturing output edged down 0.1%; the production of motor vehicles and parts fell substantially, but that decrease was mostly offset by a net gain of 0.2% for other manufacturing industries. The indexes for mining and utilities in July rose 0.5% and 1.6%, respectively.
• In the week ended August 12, the advance figure for seasonally adjusted initial claims for unemployment insurance was 232,000, a decrease of 12,000 from the previous week’s unrevised level. The advance seasonally adjusted insured unemployment rate remained 1.4%, unchanged from the previous week’s unrevised rate. During the week ended August 5, there were 1,953,000 receiving unemployment insurance benefits, a decrease of 3,000 from the previous week’s revised level. The previous week’s level was revised up 5,000 from 1,951,000 to 1,956,000.

Eye on the Week Ahead

Stocks were unable to shake a recent slump last week. A week without violence would go a long way toward quelling investor concerns and pushing equities higher. On the economic front, the housing sector is an important gauge of economic momentum. In the first quarter, sales of new and existing homes were robust. However, lack of inventory and rising prices have stymied sales during the second quarter. High demand for housing may be a sign that people are comfortable enough with their financial situation to make a large purchase. However, the lack of inventory means builders can’t keep up with the demand for new housing, and homeowners aren’t inclined to sell their current homes. This week’s reports on sales of new and existing homes in July may shed some light on whether sales are picking up or lagging.

The Markets (as of market close July 31, 2017)

The last day of July saw each of the indexes listed here post gains over their June closing values. Despite slumping tech stocks at the end of the month, the Nasdaq led the benchmarks for the month, closely followed by the Global Dow, as each index gained over 3.0%. Both the large-cap Dow and S&P 500 posted gains, spurred by charging energy stocks and favorable corporate earnings reports. The small-cap Russell 2000, which has lagged behind the other indexes listed here, gained a little more than half a percent for the month and is up just over 5.0% year-to-date. The overall favorable performance of the market was more noteworthy considering the upheaval in the White House and the failure of Congress to enact health-care legislation. The yield on 10-year Treasuries was little changed from June. Yields increase as bond prices decrease.

By the close of trading on July 31, the price of crude oil (WTI) was $50.18 per barrel, up from the June 30 price of $46.33 per barrel. The national average retail regular gasoline price was $2.312 per gallon on July 24, up from the June 26 selling price of $2.288 but $0.106 more than a year ago. The price of gold increased by the end of July, closing at $1,275.60 on the last trading day of the month, up $34.20 from its June 30 price of $1,241.40.

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 Month’s Economic News

• Employment: In June, job growth expanded while wages showed little upward movement. There were 222,000 new jobs added in June following May’s weak 152,000 total. Employment growth has averaged 180,000 per month through June, in line with the average monthly gain of 187,000 in 2016. Notable employment gains occurred in health care, social assistance, financial activities, professional and business services, and food services. The unemployment rate was 4.4%, representing about 7.0 million unemployed persons. The labor participation rate was essentially unchanged at 62.8%. The average workweek for all employees rose by 0.1 hour to 34.5 hours in June. Average hourly earnings rose by $0.04, or 0.2%, to $26.25. Over the year, average hourly earnings have risen by $0.63, or 2.5%.

• FOMC/interest rates: Following its meeting in July, the Federal Open Market Committee held the target range for the federal funds rate at 1.00%-1.25%. As it was following the Committee’s meeting in June, inflation has failed to progress as anticipated. Otherwise, employment is solid and both household spending and business investment are up. The Committee gave no clear indication as to what it may do when it next meets in September.

• GDP/budget: The gross domestic product expanded over the second quarter at an annual rate of 2.6%, according to the advance estimate from the Bureau of Economic Analysis. The first-quarter GDP grew at an annualized rate of 1.2%. Consumer spending and business investment were positives in the report, offset by a deceleration in residential investment and net exports. As to the government’s budget, the federal deficit for June was $90.2 billion, an increase of 2.0% over the May deficit. Through the first nine months of the fiscal year, the deficit sits at $523.1 billion, which is about $124 billion more than the deficit over the same period last year.

• Inflation/consumer spending: For the past few months, the major indicators are showing that inflation data is weak. Consumer spending, as measured by personal consumption expenditures (PCE), expanded at a rate of 0.1% in June. In contrast, PCE climbed 0.2% in May. Core PCE (excluding energy and food) inched ahead 0.1% for the month. Both personal income (pre-tax earnings) and disposable personal income (income less taxes) were unchanged from the prior month.
• The prices companies receive for goods and services edged up 0.1% in June from May, according to the Producer Price Index. Year-over-year, producer prices have increased 2.0%. Energy prices fell for the second straight month, dropping 0.5% following a 3.0% decline in May. Prices less food and energy climbed 0.1% in June and 1.9% over the last 12 months.
• Consumer prices were unchanged in June following a 0.1% decrease in May. For the 12 months ended in June, consumer prices are up 1.6%, a mark that remains below the Fed’s 2.0% target for inflation. Core prices, which exclude food and energy, edged up 0.1% in June, the same increase as May, and are up 1.7% year-over-year.
• Housing: Scant inventory and rising prices have slowed sales of existing homes, which decreased 1.8% in June and are up only 0.7% from a year ago. The June median price for existing homes was $263,800 — up 6.5% from the price last June. Housing inventory declined 0.5% for the month and is 7.1% lower than a year ago. The Census Bureau’s latest report reveals sales of new single-family homes increased 0.8% in June to an annual rate of 610,000 — up from May’s revised rate of 605,000. The median sales price of new houses sold in June was $310,800. The average sales price was $379,500. The seasonally adjusted estimate of new houses for sale at the end of June was 272,000. This represents a supply of 5.4 months at the current sales rate, which is essentially unchanged from May (5.3 months).

• Manufacturing: Industrial production expanded by 0.4% in June, according to the Federal Reserve’s monthly index of industrial production (which includes factories, mines, and utilities). This is the fifth consecutive monthly increase. Manufacturing output increased 0.2% in June following a May decrease of 0.4%. Mining output was again strong, posting a gain of 1.6% in June after increasing 1.9% in May. The index for utilities, however, remained unchanged. For the second quarter as a whole, industrial production advanced at an annual rate of 4.7%, primarily as a result of strong increases for mining and utilities. Manufacturing output rose at an annual rate of 1.4%, a slightly slower increase than in the first quarter. Capacity utilization for the industrial sector edged up 0.2 percentage point in June to 76.6%, a rate that is 3.3 percentage points below its long-run average. As for durable goods, June’s report from the Census Bureau shows new orders increased $14.9 billion, or 6.5%, from the prior month. However, excluding the transportation segment, new durable goods orders increased 0.2%. Orders for core capital goods (excluding defense and transportation) dropped 0.1% in June following a revised increase in May of 0.7%. Over the 12 months ended in June, core capital goods orders are up 5.6%.

• Imports and exports: The advance report on international trade in goods revealed that the trade gap narrowed 3.76% in June. The overall trade deficit was $63.9 billion, down by $2.5 billion from the prior month. The total volume of exports increased $1.8 billion to $128.6 billion. Imports fell $0.7 billion to $192.4 billion. As to the prices for goods purchased and sold in the foreign marketplace, both import and export prices fell in June. Import prices decreased 0.2%; for the second consecutive month, the decline was driven by lower fuel prices, which dropped 2.1%. Prices for U.S. exports fell for a second consecutive month, declining 0.2% following a 0.5% decline in May.

• International markets: Greece is slowly showing signs of economic progress. Demand has been solid for the country’s first bond issuance in three years, although not significant enough to preclude the need for more debt relief. The euro continued to climb following the European Central Bank’s decision to maintain its current interest rate policy. However, a stronger euro and weaker oil prices have pushed European stocks lower. China’s second-quarter gross domestic product expanded at a rate of 6.9%, fueled by strong industrial production. Saudi Arabia promised to cut its August oil exports, but some OPEC members have not followed the Saudi lead and continue to ramp up drilling and exports.

• Consumer sentiment: The Conference Board Consumer Confidence Index® for July rose to 121.1 from June’s revised 117.3. Consumers expressed growing confidence in current economic conditions and future economic growth. The Index of Consumer Sentiment from the Surveys of Consumers of the University of Michigan dipped from 95.1 in June to 93.4 in July. While the overall sentiment of consumers waned, they were encouraged by the present economic conditions, although not so optimistic about future economic developments.

Eye on the Month Ahead

Trading typically has been light during the first two months of the summer — a trend that is expected to continue through August. Interest rates will remain unchanged at least until mid-September when the Federal Open Market meets again. The next release of the gross domestic product for the second quarter will be based on more current financial and economic information, which could impact the initial 2.6% growth rate that came out in July’s report.