What I’m watching This Week – 14 August 2017

The Markets (as of market close August 11, 2017)

Investors may have been disturbed by the rising tensions between the United States and North Korea last week, resulting in a shift from stocks to long-term bonds. The Dow, which had surged to a new record high the prior week, sunk over 1.0% last week, while the large-cap S&P 500 fell almost 1.5% following some less than stellar second-quarter corporate earnings reports. Once again, the biggest drop was felt by the small-cap Russell 2000, which suffered the largest weekly decline of the indexes listed here, and has lost most of its year-to-date gains. On the other hand, demand for 10-year Treasuries increased, sending yields to their lowest level since June.

The price of crude oil (WTI) closed at $48.79 per barrel, down from the prior week’s closing price of $49.52 per barrel. The price of gold (COMEX) closed last week at $1,295.00 by late Friday afternoon, $30.70 higher than the prior week’s price of $1,264.30. The national average retail regular gasoline price increased to $2.378 per gallon on August 7, 2017, $0.026 higher than the prior week’s price and $0.228 more than a year ago.

Market/Index 2016 Close Prior Week As of 8/11 Weekly Change YTD Change
DJIA 19762.60 22092.81 21858.32 -1.06% 10.60%
Nasdaq 5383.12 6351.56 6256.56 -1.50% 16.23%
S&P 500 2238.83 2476.83 2441.32 -1.43% 9.04%
Russell 2000 1357.13 1412.32 1374.23 -2.70% 1.26%
Global Dow 2528.21 2870.04 2821.52 -1.69% 11.60%
Fed. Funds target rate 0.50%-0.75% 1.00%-1.25% 1.00%-1.25% 0 bps 50 bps
10-year Treasuries 2.44% 2.26% 2.19% -7 bps -25 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 Economic Headlines

  • According to the Job Openings and Labor Turnover report for June, the number of job openings increased to 6.2 million (+461,000). Over the month, the number of hires fell from 5.5 million in May to 5.4 million in June. There were 5.2 million total separations in June, little changed from May. Job openings increased in a number of industries, with the largest increases occurring in professional and business services (+179,000), health care and social assistance (+125,000), and construction (+62,000).
  • The monthly federal government budget deficit was $43 billion in July on the heels of a June deficit of $90 billion. Total government receipts were $232 million, while total outlays were $275 million. The total budget deficit for fiscal 2017 sits at $566 billion — 10.6% higher than the $512 billion deficit over the same 10-month period last year.
  • There continues to be little upward movement in consumer prices. The Consumer Price Index rose 0.1% in July following no movement in June and a 0.1% drop in May. The CPI has risen 1.7% over the last 12 months ended in July. Prices less food and energy also increased 0.1% for the month and 1.7% over the last 12 months.
  • Dwindling inflationary pressure has been the theme over much of 2017, and the latest figures from the Producer Price Index continue that trend. The prices producers receive for their goods and services declined 0.1% in July, following a 0.1% increase in June. Over 80% of the decrease is attributable to a 0.2% drop in services, although prices for goods edged down 0.1%. Prices less the volatile components of food, energy, and trade services were unchanged in July, while prices less food and energy fell 0.1%.
  • In the week ended August 5, the advance figure for seasonally adjusted initial claims for unemployment insurance was 244,000, an increase of 3,000 from the previous week’s revised level. The previous week’s level was revised up by 1,000 from 240,000 to 241,000. The advance seasonally adjusted insured unemployment rate remained 1.4%, unchanged from the previous week’s unrevised rate. During the week ended July 29, there were 1,951,000 receiving unemployment insurance benefits, a decrease of 16,000 from the previous week’s revised level. The previous week’s level was revised down 1,000 from 1,968,000 to 1,967,000.

Eye on the Week Ahead

July’s report on housing starts is out this week. The housing market has been up and down so far this year, with low inventory and rising prices discouraging would-be home shoppers. However, housing starts and building permits were up in June — a trend builders and home buyers would like to see continue in July. Another report released this week, the Treasury’s Industrial Production Index, not only shows how much factories are producing, but it also measures how much factory capacity is in use.

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