What I’m Watching This Week – 30 October 2017

The Markets (as of market close October 27, 2017)

Strong third-quarter corporate earnings and an expanding gross domestic product helped push the S&P 500 and Nasdaq to new record highs last week. The Dow also gained close to 0.50%. While technology stocks led the way, health-care shares didn’t fare as well, pushing the small-cap Russell 2000 to a small end-of-week loss. A fading euro may have impacted the Global Dow, which fell off a bit by last week’s end. Positive economic signs also affected the bond market, which saw the yield on 10-year Treasuries reach its highest level since March.

The price of crude oil (WTI) rose to $54.02 per barrel last Friday, up from the prior week’s closing price of $52.07 per barrel. The price of gold (COMEX) dropped to $1,273.90 by early Friday evening, decreasing from the prior week’s price of $1,281.80. The national average retail regular gasoline price decreased for the sixth week in a row to $2.479 per gallon on October 23, 2017, $0.010 lower than the prior week’s price but $0.236 more than a year ago.

Market/Index 2016 Close Prior Week As of 10/27 Weekly Change YTD Change
DJIA 19762.60 23328.63 23434.19 0.45% 18.58%
Nasdaq 5383.12 6629.05 6701.26 1.09% 24.49%
S&P 500 2238.83 2575.21 2581.07 0.23% 15.29%
Russell 2000 1357.13 1509.25 1508.32 -0.06% 11.14%
Global Dow 2528.21 2969.47 2962.88 -0.22% 17.19%
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% 2.39% 2.41% 2 bps -3 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

  • The first estimate of the third-quarter gross domestic product showed economic growth at an annual rate of 3.0%. The second quarter grew at an annual rate of 3.1%. Each succeeding estimate (three in all) is based on more complete data. The increase in the GDP in the third quarter reflected positive contributions from personal consumption expenditures (consumer spending), private inventory investment, nonresidential (business) fixed investment, exports, and federal government spending. These increases were partly offset by decreases in residential fixed investment and state and local government spending. Imports, which are a subtraction in the calculation of GDP, decreased.
  • Good news on the manufacturing front as new orders for long-lasting goods (durable goods) gained $5.1 billion, or 2.2%, in September. This increase follows a 2.0% rise in August. Also increasing in September were shipments (1.0%), unfilled orders (0.2%), and inventories (0.6%). More importantly, new orders for durable goods are up 5.2% over the last 12 months.
  • The number of sales and average selling prices of new homes soared in September following a poor August. Sales of new single-family houses were at an annual rate of 667,000, 18.9% above the revised August rate of 561,000 and 17.0% ahead of the September 2016 estimate. The median sales price of new houses sold in September 2017 was $319,700 ($303,800 in August). The average sales price was $385,200 ($364,300 in August). The estimate of new houses for sale at the end of September was 279,000, which represents a supply of 5.0 months at the current sales rate.
  • The trade in goods deficit was $64.1 billion in September, up $0.8 billion from August. Exports of goods were $129.6 billion, $0.9 billion more than August exports. Imports of goods for September were $193.7 billion, $1.7 billion more than August imports.
  • In the week ended October 21, the advance figure for initial claims for unemployment insurance was 233,000, an increase of 10,000 from the previous week’s level, which was revised up by 1,000. The advance insured unemployment rate remained 1.3%. The advance number of those receiving unemployment insurance benefits during the week ended October 14 was 1,893,000, a decrease of 3,000 from the previous week’s level, which was revised up 8,000.

Eye on the Week Ahead

The Federal Open Market Committee is expected to raise interest rates this week as inflation and economic growth seem to be moving upward. The jobs report for October is out at week’s end. September saw the number of new jobs decrease for the first time in several months. That trend is expected to be short-lived.

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What I’m Watching This Week – 23 October 2017

The Markets (as of market close October 20, 2017)

The Dow jumped 2.00% last week, reaching 23000 for the first time in its history. Strong corporate earnings and the anticipation of Congress reaching a budget resolution swayed investors toward equities. Each of the benchmark indexes listed here posted weekly gains, although not as considerable as the more narrowly focused Dow. Year-to-date, equities have surged ahead of their 2016 closing values, led by the Nasdaq (up over 23%), followed by the Dow, Global Dow, S&P 500, and the Russell 2000, which, while trailing the pack, is still over 11% ahead of last year’s closing value.

The price of crude oil (WTI) rose to $52.07 per barrel last Friday, up from the prior week’s closing price of $51.37 per barrel. The price of gold (COMEX) dropped to $1,281.80 by early Friday evening, decreasing from the prior week’s price of $1,305.60. The national average retail regular gasoline price decreased to $2.489 per gallon on October 16, 2017, $0.015 lower than the prior week’s price but $0.232 more than a year ago.

Market/Index 2016 Close Prior Week As of 10/20 Weekly Change YTD Change
DJIA 19762.60 22871.72 23328.63 2.00% 18.04%
Nasdaq 5383.12 6605.80 6629.05 0.35% 23.15%
S&P 500 2238.83 2553.17 2575.21 0.86% 15.02%
Russell 2000 1357.13 1502.66 1509.25 0.44% 11.21%
Global Dow 2528.21 2955.99 2969.47 0.46% 17.45%
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% 2.27% 2.39% 12 bps -5 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

  • Following three consecutive months of declining activity, the number of existing home sales increased by 0.7% in September. Nevertheless, continuing supply shortages and recent hurricanes muted overall activity for the year. October’s sales pace is 1.5% below a year ago. The median existing-home price for all housing types in September was $245,100, up 4.2% from September 2016 ($235,200). September’s price increase marks the 67th straight month of year-over-year gains. Total housing inventory at the end of September rose 1.6% to 1.90 million existing homes available for sale, which is 6.4% lower than a year ago (2.03 million) and has fallen year-over-year for 28 consecutive months.
  • The end of the fiscal year saw the federal deficit sit at $665,712 billion, up $80,066 billion, or almost 14%, over the 2016 fiscal year deficit. September saw a small surplus of $8,000 billion for the month. For the fiscal year, total receipts increased by $48,120 billion to $3,314,894 trillion, while total government expenditures were $3,980,605 trillion — $128,185 billion ahead of last fiscal year.
  • New home construction took a hit in September, somewhat impacted by Hurricanes Harvey and Irma. Building permits fell 4.5% from August (although permits for single-family homes rose 2.4%) and housing starts dropped 4.7%. On the plus side, new home completions increased 1.1% in September over August.
  • Industrial production rose 0.3% in September. The continued effects of Hurricane Harvey and, to a lesser degree, the effects of Hurricane Irma combined to hold down the growth in total production in September by 0.25 percentage point. For the third quarter as a whole, industrial production fell 1.5% at an annual rate; excluding the effects of the hurricanes, the index would have risen at least 0.50%. Manufacturing output edged up 0.1% in September but fell 2.2% at an annual rate in the third quarter. The indexes for mining and utilities in September rose 0.4% and 1.5%, respectively.
  • S. import prices increased 0.7% in September after advancing 0.6% in August. This is the largest monthly rise in import prices since an increase of 0.7% in June 2016. Import prices have risen 2.7% over the past 12 months. The price index for U.S. exports rose 0.8% in September after increasing 0.7% the previous month. This is also the largest price increase for exports since a comparable increase in June 2016. Export prices have risen 2.9% over the past year.
  • In the week ended October 14, the advance figure for initial claims for unemployment insurance was 222,000, a decrease of 22,000 from the previous week’s level, which was revised up by 1,000. This is the lowest level for initial claims since March 31, 1973, when it was 222,000. The advance insured unemployment rate remained 1.3%. The advance number of those receiving unemployment insurance during the week ended October 7 was 1,888,000, a decrease of 16,000 from the previous week’s revised level. This is the lowest level for insured unemployment since December 29, 1973, when it was 1,805,000.

Eye on the Week Ahead

The first report on the third-quarter gross domestic product is out at the end of the week. The second quarter saw the economy grow at a rate of 3.1%, although prices expanded at a more moderate 1.0%. Other important economic reports out this week include the September figures on orders for durable goods and international trade in goods.

What I’m Watching This Week – 16 October 2017

The Markets (as of market close October 13, 2017)

Each of the benchmark indexes listed here posted gains by last week’s end, except for the Russell 2000, which fell 0.50%. The large caps of the Dow and S&P 500 enjoyed moderate increases, as did the Global Dow, which gained the most last week. Most impressively, the Nasdaq ended the week at a new all-time record. While equities marginally increased in value, investors favored gold and long-term bonds, both of which saw prices rise.

The price of crude oil (WTI) rose to $51.37 per barrel last Friday, up from the prior week’s closing price of $49.25 per barrel. The price of gold (COMEX) climbed to $1,305.60 by early Friday evening, an increase over the prior week’s price of $1,278.90. The national average retail regular gasoline price decreased to $2.504 per gallon on October 9, 2017, $0.061 lower than the prior week’s price but $0.232 more than a year ago.

Market/Index 2016 Close Prior Week As of 10/13 Weekly Change YTD Change
DJIA 19762.60 22773.67 22871.72 0.43% 15.73%
Nasdaq 5383.12 6590.18 6605.80 0.24% 22.71%
S&P 500 2238.83 2549.33 2553.17 0.15% 14.04%
Russell 2000 1357.13 1510.22 1502.66 -0.50% 10.72%
Global Dow 2528.21 2929.76 2955.99 0.90% 16.92%
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% 2.35% 2.27% -8 bps -17 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

  • Inflationary pressure may be gaining some traction, but only minimally. The Consumer Price Index rose 0.5% in September, largely due to a 13.1% increase in the gasoline index. Over the last 12 months, the CPI has risen 2.2%. Core prices, less food and energy, increased a slight 0.1% in September. For the 12 months ended in September, the core CPI is up 1.7%.
  • Retail food and service sales increased 1.6% in September after falling 0.1% in August. Vehicle sales (3.6%) and gasoline sales (5.8%) contributed to the overall retail sales price increase. Retail prices, less auto and gas, increased 0.5% for the month. For the 12 months ended in September, retail sales have increased 4.4%.
  • The prices producers receive for goods and services advanced 0.4% in September after moving up 0.2% in August. For the 12 months ended in September, producer prices have increased 2.6%, the largest rise since a 2.8% increase for the 12 months ended February 2012. Prices for services climbed 0.4% and prices for goods rose 0.7%. Over 80% of the September advance for goods prices can be traced to rising energy prices (particularly gas prices), which climbed 3.4%. Higher energy prices were likely the result of reduced refining capacity in the Gulf Coast area due to Hurricane Harvey. Adding some perspective, prices less foods, energy, and trade services increased 0.2% in September, the same as in August.
  • According to the Bureau of Labor Statistics, the number of job openings decreased slightly in August, falling to 6.08 million from July’s 6.14 million. Job openings increased in health care and social assistance (+71,000) and in durable goods manufacturing (+31,000), and dropped in other services (-95,000), educational services (-51,000), and nondurable goods manufacturing (-48,000). Total hires declined from 5.52 million in July to 5.43 million in August, while total separations fell to 5.23 million from July’s total of 5.36 million. Over the 12 months ended in August, hires totaled 63.8 million and separations totaled 61.7 million, yielding a net employment gain of 2.1 million.
  • In the week ended October 7, the advance figure for initial claims for unemployment insurance was 243,000, a decrease of 15,000 from the previous week’s level, which was revised down by 2,000. The advance insured unemployment rate dropped slightly to 1.3%. The advance number of those receiving unemployment insurance during the week ended September 30 was 1,889,000, a decrease of 32,000 from the previous week’s revised level. This is the lowest level for insured unemployment since December 29, 1973, when it was 1,805,000.

Eye on the Week Ahead

Trading volume should pick up following the Columbus Day week. Hurricane Harvey affected industrial production in August. September’s report should reflect the impact, if any, of Hurricane Irma on industrial production in September. The latest report on existing home sales is available at the end of the week, followed by September’s new home sales figures, which come out next week.

What I’m Watching This Week – 9 October 2017

The Markets (as of market close October 6, 2017)

Equities continued to surge last week as each of the benchmark indexes listed here posted notable gains — despite a late Friday’s downturn. The Dow rose by 1.65%, followed by the Nasdaq, Russell 2000, and the S&P 500. Only the Global Dow failed to increase by at least 1.0%. The labor report’s strong wage gains may have enticed long-term bond investors to sell, pushing prices on 10-year Treasuries lower while inflating yields.

The price of crude oil (WTI) reversed a rising trend over the past few weeks, falling to $49.25 per barrel, down from the prior week’s closing price of $51.64 per barrel. The price of gold (COMEX) fell to $1,278.90 by early Friday evening, down from the prior week’s price of $1,282.50. The national average retail regular gasoline price decreased to $2.565 per gallon on October 2, 2017, $0.018 less than the prior week’s price and $0.320 more than a year ago.

Market/Index 2016 Close Prior Week As of 10/6 Weekly Change YTD Change
DJIA 19762.60 22405.09 22773.67 1.65% 15.24%
Nasdaq 5383.12 6495.96 6590.18 1.45% 22.42%
S&P 500 2238.83 2519.36 2549.33 1.19% 13.87%
Russell 2000 1357.13 1490.86 1510.22 1.30% 11.28%
Global Dow 2528.21 2907.67 2929.76 0.76% 15.88%
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% 2.33% 2.35% 2 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 Economic Headlines

  • Hurricanes Harvey and Irma could have had a significant impact on the employment figures for September, according to the latest report from the Department of Labor Statistics. The unemployment rate declined to 4.2% — 0.2 percentage point below August’s rate. Hourly earnings rose by $0.12 to $26.55 and are up $0.74, or 2.9%, over the last 12 months. For the first time in seven years, nonfarm employment fell by 33,000 in September from August. This information, which may be revised over the next few months, certainly indicates that employment is reaching capacity and wage inflation is spiking, making it more likely that the Fed will raise interest rates in October.
  • Hurricane Harvey may have disrupted shipping along the Gulf Coast, impacting foreign trade in August. The goods and services deficit was $42.4 billion in August, down $1.2 billion from $43.6 billion in July, revised. August exports were $195.3 billion, $0.8 billion more than July exports. August imports were $237.7 billion, $0.4 billion less than July imports. Year-to-date, the goods, and services deficit increased $29.1 billion, or 8.8%, from the same period in 2016. Exports increased $84.9 billion, or 5.8%. Imports increased $114.0 billion, or 6.4%. A relatively weak dollar has made U.S. goods and services cheaper to buy for foreign consumers, expanding exports. Moderate domestic economic growth has encouraged buyers to shop in less expensive foreign markets, pushing imports higher.
  • Purchasing managers were optimistic about the manufacturing sector in September. The IHS Markit final U.S. Manufacturing Purchasing Managers’ Index™ expanded to 53.1 from August’s reading of 52.8. A similar survey, the Manufacturing ISM® Report On Business®, also grew from 58.8% in August to 60.8% in September. Both the Markit and ISM reports also showed growth in new orders, production, and employment.
  • In the services sector, purchasing managers were optimistic as reflected in the September non-manufacturing index of 59.8%, which is an increase of 4.5 percentage points over August. A reading over 50.0% represents growth, so September’s reading indicates continued growth in the non-manufacturing sector but at a faster rate. This is the highest reading since August 2005, when the index registered 61.3%. Non-manufacturing industries reporting growth in September include retail trade; real estate, rental & leasing; finance & insurance; and accommodation & food services.
  • In the week ended September 30, the advance figure for initial claims for unemployment insurance was 260,000, a decrease of 12,000 from the previous week’s unrevised level. The advance insured unemployment rate remained at 1.4%. The advance number of those receiving unemployment insurance during the week ended September 23 was 1,938,000, an increase of 2,000 from the previous week’s revised level.

Eye on the Week Ahead

Trading during the Columbus Day week is expected to be slow. From an economic perspective, the first reports of inflationary indicators for September are out next week, including the Consumer Price Index and the Producer Price Index. Price growth has been weak for 2017 and is not expected to have changed much in September.

Quarterly Market Review: July-September 2017

The Markets (as of market close September 29, 2017)

Trading during the summer months is customarily slow, and the summer of 2017 proved no different. July kicked off the third quarter with equity markets enjoying noteworthy gains over their June closing values. Both the Dow (2.54%) and S&P 500 (1.93%) posted significant gains, as did the Global Dow (3.13%). The Nasdaq posted a very favorable 3.38% monthly increase. The yield on long-term bonds changed very little from June as investors seemed to focus on surging equities. Crude oil prices reached $50 per barrel by the end of July after closing June at $46 per barrel. The national average retail regular gasoline price was $2.269 per gallon on July 31, down from the June 26 selling price of $2.288.

Equities held their own in August, despite hurricanes that devastated several southern states and Puerto Rico, causing extraordinary economic loss. Conflicts both at home and abroad certainly influenced investor sentiment. Clashes between protestors in Charlottesville, Virginia, and escalating tensions between the United States and North Korea dominated the news. Nevertheless, a late-month rally in August pushed equities ahead of their July values. The Russell 2000 decreased from its July closing value as energy stocks plunged. The Dow and S&P 500 posted marginal gains, while the Nasdaq led the month ticking up 1.27%. Long-term bond prices rose, with the yield on 10-year Treasuries falling to 2.12%, or 17 basis points below July’s end-of-month yield.

Investors regained some of their confidence in September, pushing stocks ahead of their August closing values. Each of the indexes listed here posted notable gains, led by the small-cap Russell 2000, which surged 6.09%, followed by the Global Dow, the Dow, and the S&P 500, each of which closed the month up about 2.0%. The tech-heavy Nasdaq gained a modest 1.05%, yet that index still leads the way for the year, up almost 21.0% over its final 2016 value.

Ultimately, investors saw the benchmark indexes make impressive gains by the end of the third quarter. The Nasdaq and the Russell 2000 posted gains in excess of 5.0%, followed closely by the Global Dow and the Dow. The S&P 500 trailed the other indexes listed here, yet still managed to increase by almost 4.0% over its second-quarter close. Crude oil jumped from $46.33 per barrel on the last day of June to $51.64 on the last business day of September. Gold, which had been climbing, fell at the end of the quarter, closing at $1,282.50 — still ahead of its June closing price of $1,241.10. Regular gasoline, which was $2.288 per gallon on June 26, soared to $2.508 on the 25th of September.

Market/Index
2016 Close
As of September 29
Month Change
Quarter Change
YTD Change
DJIA
19762.60
22405.09
2.08%
4.94%
13.37%
NASDAQ
5383.12
6495.96
1.05%
5.79%
20.67%
S&P 500
2238.83
2519.36
1.93%
3.96%
12.53%
Russell 2000
1357.13
1490.86
6.09%
5.33%
9.85%
Global Dow
2528.21
2907.67
2.13%
4.99%
15.01%
Fed. Funds
0.50%-0.75%
1.00%-1.25%
0 bps
0 bps
50 bps
10-year Treasuries
2.44%
2.33%
21 bps
3 bps
-11 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.

Monthly Economic News

  • Employment: August saw 156,000 new jobs added, which is a little below the monthly average of 176,000 per month for 2017. The unemployment rate increased slightly to 4.4% and has been either 4.3% or 4.4% since April. There were about 7.1 million unemployed persons in August. According to the Bureau of Labor Statistics, Hurricane Harvey had no discernable effect on the employment and unemployment data for August. Notable job gains occurred in manufacturing, construction, professional and technical services, healthcare, and mining. The labor participation rate was unchanged at 62.9%. The average workweek for all employees declined 0.1 hour to 34.4 hours in August. Average hourly earnings rose by $0.03 to $26.39. Over the 12 months ended in August, average hourly earnings have risen $0.65, or 2.5%.
  • FOMC/interest rates: The Federal Open Market Committee met in September following its last meeting in July. Noting moderate economic activity, stagnant inflation, and the temporary effects of two damaging hurricanes, the FOMC left the target federal funds rate range at 1.00%-1.25%. Nevertheless, the Committee indicated that it will remain on schedule to raise interest rates at least once more this year.
  • GDP/budget: The gross domestic product expanded over the second quarter at an annual rate of 3.1%, according to the final estimate from the Bureau of Economic Analysis. The first-quarter GDP grew at an annualized rate of 1.2%. Gross domestic income, which estimates all income earned while producing goods and services, increased 2.9% in the second quarter compared to an increase of 2.7% in the first quarter. As to the government’s budget, the federal deficit for August was $107.7 billion, $64.8 billion higher than the July deficit. Through 11 months of the fiscal year, the deficit sits at $673.7 billion, which is about 8.8% above the deficit over the same period last year.
  • Inflation/consumer spending: Upward price inflation continues to be weak. The personal consumption expenditures (PCE) price index (a measure of what consumers pay for goods and services) ticked up only 0.2% in August following a 0.1% bump in July. The core PCE (excluding energy and food) price index inched ahead 0.1% for the month. Personal (pre-tax) income increased 0.2% and disposable personal (after-tax) income gained 0.1% from the prior month. Personal consumption expenditures (the value of the goods and services purchased by consumers) also rose only 0.1%.
  • Consumer prices rose 0.4% in August, after recording a 0.1% gain in July. For the 12 months ended in August, consumer prices are up 1.9%, a mark that remains slightly below the Fed’s 2.0% target for inflation. Core prices, which exclude food and energy, edged up 0.2% in August, and are up 1.7% since August 2016.
  • Prices companies receive for goods and services advanced 0.2% in August from July, according to the Producer Price Index. Year-over-year, producer prices have increased 2.4%. Prices less food and energy increased 0.1% for the month and are up 2.0% over the past 12 months.
  • Housing: Scant inventory and rising prices slowed sales of new and existing homes in August. Total existing-home sales slipped 1.7% for the month following a 1.3% drop in July. Over the last 12 months, sales of existing homes are up only 0.2%. The August median price for existing homes was $253,500, 1.9% lower than July’s median price of $258,300 but up 5.6% from the price last August. Inventory for existing homes declined 2.1% for the month and is now 6.5% lower than a year ago. The Census Bureau’s latest report reveals sales of new single-family homes fell 3.4% in August to an annual rate of 560,000 — down from July’s upwardly revised rate of 580,000. The median sales price of new houses sold in August was $300,200, 6.6% below the median price in July. The average sales price was $368,100 ($371,200 in July). The number of houses for sale increased at the end of August to 284,000 (274,000 in July), which represents a supply of 6.1 months at the current sales rate.
  • Manufacturing: Industrial production declined 0.9% in August following six consecutive monthly gains. Hurricane Harvey is estimated to have reduced the rate of change in the total output by roughly 0.75 percentage point. Also impacted by Harvey, manufacturing output edged down 0.3% after increasing 0.1% in July. The manufacturing industries with the largest estimated storm-related effects were petroleum refining, organic chemicals, plastics materials, and resins. Mining output fell 0.8% in August after increasing 0.5% in July. The index for utilities dropped 5.5% as mild temperatures, particularly on the East coast, reduced the demand for air conditioning. New orders for manufactured durable goods increased 1.7% in August. This increase follows a sharp 6.8% drop in new orders in July. However, excluding the transportation segment, new durable goods orders increased 0.5%. Shipments of manufactured goods increased 0.3%, while unfilled orders remained virtually unchanged in August from July.
  • Imports and exports: The advance report on international trade in goods revealed that the trade gap narrowed 1.4% in August over July. The goods trade deficit was $62,943 billion in August, compared to the $63,858 billion goods deficit from the prior month. Exports of goods were $128,870 billion in August ($128,601 billion in July) while August imports were $191,813 billion ($192,459 billion in July).
  • International markets: Inflation may be rising in Europe as eurozone wages increased at the fastest rate in over two years. Despite Brexit, the eurozone economy has grown stronger than expected, which could reduce the need for continued government stimulus. On the other hand, the Bank of Japan has kept its monetary policy intact with the short-term interest rate remaining at -0.1%. China’s GDP grew 1.7% in the second quarter and is up 6.9% from a year earlier. For the year, benchmark stock indexes remain ahead in most foreign countries. The Nikkei 225 is up 6.2%, China’s Shanghai Composite is ahead of last year by 8.0%, and the UK’s FTSE 100 is up 2.3% on the year.
  • Consumer sentiment: The Conference Board Consumer Confidence Index® for September declined to 119.8 from July’s revised 120.4. Not surprisingly, consumer confidence in the economy decreased considerably in Texas and Florida following the devastation caused by hurricanes Harvey and Irma. Consumers expressed growing confidence in current economic conditions but were reticent about future economic prospects.

Eye on the Month Ahead

The summer saw the economy slow a bit, as inflation remained relatively stagnant, wages advanced only slightly, rhetoric between North Korea and the United States became testy, and Mother Nature blasted the southern states with two very powerful hurricanes. Through it all, the stock market continued to enjoy monthly gains, with several of the benchmark indexes reaching all-time highs. The start of the year’s last quarter may see the economy pick up as some economic indicators are projecting. While the Federal Open Market Committee didn’t raise interest rates in September, it most likely will do so at least once during the fourth quarter. Employment is expected to remain steady as it has averaged roughly 176,000 new jobs per month.

What I’m watching This week – 2 October 2017

The Markets (as of market close September 29, 2017)

The large caps of the Dow and S&P 500 closed last week with moderate gains, while small caps of the Russell 2000 enjoyed substantial gains. The Nasdaq also climbed over 1.0% and continues to lead in the year-to-date race, having gained almost 21.0% over its 2016 year-end value. Analysts suspect that the Trump administration’s proposed tax plan, if passed, would add to the federal deficit. This possibility has helped push long-term Treasury yields higher in anticipation of the issuance of more government bonds to offset the deficit.

The price of crude oil (WTI) continued to climb, closing at $51.64 per barrel, up from the prior week’s closing price of $50.66 per barrel. The price of gold (COMEX) fell to $1,282.50 by early Friday evening, down from the prior week’s price of $1,300.50. The national average retail regular gasoline price decreased to $2.583 per gallon on September 25, 2017, $0.051 less than the prior week’s price and $0.359 more than a year ago.

Market/Index 2016 Close Prior Week As of 9/29 Weekly Change YTD Change
DJIA 19762.60 22349.59 22405.09 0.25% 13.37%
Nasdaq 5383.12 6426.92 6495.96 1.07% 20.67%
S&P 500 2238.83 2502.22 2519.36 0.68% 12.53%
Russell 2000 1357.13 1450.78 1490.86 2.76% 9.85%
Global Dow 2528.21 2907.95 2907.67 -0.01% 15.01%
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% 2.20% 2.33% 13 bps -11 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

  • The value of the goods and services produced by the economy is measured by gross domestic product. In the second quarter, the GDP increased at a rate of 3.1% compared to an increase of 1.2% in the first quarter. The rise in the rate of economic growth in the second quarter is attributable to increasing personal consumption expenditures, business investment, exports, federal government spending, and private inventory investment. A measure of the income earned during the production of goods and services, the gross domestic income index increased 2.9% in the second quarter after climbing 2.7% in the first quarter. This report may be providing evidence that the economy is slowly but steadily gaining momentum heading into the third quarter.
  • August saw personal income (pre-tax), disposable personal income (after-tax), and consumer expenditures increase over July. Personal income increased $28.6 billion, or 0.2% disposable personal income gained $14.9 billion, or 0.1% and personal consumption expenditures increased $18.0 billion, or 0.1%. While each of these indicators increased, the gains are considered marginal at best and highlight what has been a weak stretch of upward inflation. Core personal consumption expenditures (excluding food and energy) is one of the inflation gauges relied upon by the Federal Reserve. Further evidencing weakness in price increases, the core PCE increased a scant 0.1% for the month and is up only 1.3% over the last 12 months.
  • Sales of single-family homes dropped 3.4% in August from July. The August sales rate is 1.2% below the August 2016 rate. New home sales prices fell in August. The median sales price of new houses sold in August 2017 was $300,200 ($319,900 in July). The average sales price was $368,100 ($371,300 in July). The estimate of new houses for sale at the end of August was 284,000. This represents a supply of 6.1 months at the current sales rate.
  • Manufacturers of durable goods saw a rebound in new orders and shipments in August following a slow July. New orders for durable goods increased $3.9 billion, or 1.7%, in August. Transportation equipment, up 2 of the last 3 months, led the increase, up $3.6 billion, or 4.9%. Shipments of machinery, which climbed 1.1% for the month, led a 0.3% increase in total shipments. Inventories of manufactured durable goods in August, up 13 of the last 14 months, increased $1.4 billion, or 0.3%. Again, machinery, up 9 of the last 10 months, led the increase, gaining 0.8%.
  • The international trade gap for goods narrowed in August. The international trade deficit was $62.9 billion in August, down $0.9 billion from $63.9 billion in July. Exports of goods for August were $128.9 billion, $0.3 billion more than July exports. Imports of goods for August were $191.8 billion, $0.6 billion less than July imports.
  • The Conference Board Consumer Confidence Index® and the University of Michigan’s Index of Consumer Sentiment each showed consumer confidence fell in September from August. The hurricanes, North Korea, Charlottesville, and the country’s growing divisiveness have affected consumers’ economic outlook.
  • In the week ended September 23, the advance figure for initial claims for unemployment insurance was 272,000, an increase of 12,000 from the previous week’s level, which was revised up 1,000. Hurricanes Harvey and Irma impacted initial claims. The advance insured unemployment rate remained at 1.4%. The advance number of those receiving unemployment insurance during the week ended September 16 was 1,934,000, a decrease of 45,000 from the previous week’s revised level.

Eye on the Week Ahead

The August report on international trade in goods and services is out this week. The trade deficit for July was about $44 billion. The week ends with employment figures for September. The labor market has been steady for much of the year, although wage increases have been minimal. Average hourly earnings for August increased only 0.1% and were up 2.5% year-over-year. The September report is not expected to significantly deviate from those figures.