What I’m Watching This Week – 26 December 2017

The Markets (as of market close December 22, 2017)

Last week saw moderate trading and lukewarm gains. The small caps of the Russell 2000 outperformed the Dow and S&P 500, while the Global Dow posted the highest gains last week. Rising energy shares helped push the S&P 500, as oil prices continued to expand. The tax code overhaul didn’t seem to impact equities, at least not in the immediate aftermath of the passage of the landmark legislation. Meanwhile, long-term bond prices fell, pushing yields higher. The yield on 10-year Treasuries eclipsed its 2016 year-end closing yield heading into the last week of 2017.

The price of crude oil (WTI) climbed to $58.35 per barrel last Friday, up from the prior week’s closing price of $57.63 per barrel. The price of gold (COMEX) rose to $1,279.10 by early Friday evening, ahead of the prior week’s price of $1,258.20. The national average retail regular gasoline price decreased for the fourth week in a row to $2.450 per gallon on December 18, 2017, $0.035 lower than the prior week’s price but $0.186 more than a year ago.

Market/Index 2016 Close Prior Week As of 12/22 Weekly Change YTD Change
DJIA 19762.60 24651.74 24754.06 0.42% 25.26%
Nasdaq 5383.12 6936.58 6959.96 0.34% 29.29%
S&P 500 2238.83 2675.81 2683.34 0.28% 19.85%
Russell 2000 1357.13 1530.42 1542.93 0.82% 13.61%
Global Dow 2528.21 3041.15 3078.46 1.23% 21.76%
Fed. Funds target rate 0.50%-0.75% 1.25%-1.50% 1.25%-1.50% 25 bps 75 bps
10-year Treasuries 2.44% 2.35% 2.48% 13 bps 4 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 Bureau of Economic Analysis, the gross domestic product for the third quarter grew at an annual rate of 3.2%. The second-quarter GDP increased 3.1%. Gross domestic income — the sum of incomes earned and costs incurred in the production of GDP — increased 2.0% in the third quarter, compared with an increase of 2.3% in the second. The increase in the third-quarter GDP reflected growth in consumer spending, private inventory investment, nonresidential (commercial/business) fixed investment, exports, and government spending. Negatives in the report reflected decreases in residential fixed investment and imports. Also noteworthy, corporate profits increased $90.2 billion in the third quarter compared with an increase of $14.4 billion in the second quarter.
  • Consumer income and spending increased in November, according to the latest report from the Bureau of Economic Analysis. Personal (pre-tax) income increased $54.0 billion, or 0.3%; disposable (after-tax) personal income increased $50.9 billion, or 0.4%; and personal consumption expenditures (consumer spending) increased $87.1 billion, or 0.6%. Core personal consumption expenditures (excluding the volatile food and energy components) gained only 0.1% in November. Core PCE is an inflation indicator closely followed by the Fed. Personal saving, as a percentage of disposable personal income, increased 2.9% in November.
  • New residential construction (all housing types) slowed in November, according to the latest report from the Census Bureau. Building permits, an indicator of future construction, fell 1.4% compared to October, although applications for single-family homes increased 1.4%. Home completions dropped 6.1% in November from the prior month (single-family completions declined 4.6%). While permits and home completions fell, the number of new home construction starts increased by 3.3% in November, led by building starts for single-family homes, which climbed 5.3%.
  • Sales of new single-family homes soared in November, increasing 17.5% above the revised October rate. November’s new home sales are 26.6% above the November 2016 estimate. The median sales price of new houses sold in November 2017 was $318,700 ($319,600 in October). The average sales price was $377,100 ($394,700 in October). The seasonally adjusted estimate of new houses for sale at the end of November was 283,000. This represents a supply of 4.6 months at the current sales rate.
  • According to the National Association of Realtors®, sales of existing homes in November jumped 5.6% over October’s sales pace. Total sales, which include single-family homes, townhomes, condominiums, and co-ops, are 3.8% higher than a year ago, and haven’t been this high since the 6.42 million annual sales pace of December 2006. The median existing-home price for all housing types in November was $248,000, up 5.8% from November 2016 ($234,400). November’s price increase marks the 69th straight month of year-over-year gains. Total housing inventory at the end of November dropped 7.2% to 1.67 million existing homes available for sale (9.7% lower than a year ago), and has fallen year-over-year for 30 consecutive months. Unsold inventory is at a 3.4-month supply at the current sales pace, which is down from 4.0 months a year ago. The lack of inventory could slow sales down in December.
  • Demand for long-lasting manufactured goods increased in November — a good sign for manufacturers. New orders for durable goods increased $3.1 billion, or 1.3%, in November over the prior month. This increase, up 3 of the last 4 months, followed a 0.4% October decrease. Shipments of manufactured durable goods in November, up 6 of the last 7 months, increased $2.4 billion, or 1.0%, to $244.5 billion. This followed a 0.5% October increase. Unfilled orders for manufactured durable goods in November, up 3 consecutive months, increased $1.1 billion, or 0.1%, to $1,137.0 billion. Inventories of manufactured durable goods in November, up 16 of the last 17 months, increased $0.9 billion, or 0.2%, to $405.2 billion.
  • In the week ended December 15, the advance figure for initial claims for unemployment insurance was 245,000, an increase of 20,000 from the previous week’s level. The advance insured unemployment rate ticked up to 1.4%. The advance number of those receiving unemployment insurance benefits during the week ended December 9 was 1,932,000, an increase of 43,000 from the previous week’s level, which was revised up 3,000.

Eye on the Week Ahead

Typically, the week between Christmas and New Year’s Day does not provide much in terms of economic reports or stock market movement. However, this week does offer an opportunity to reflect on 2017 in general, and the stock market in particular, which has outpaced its 2016 performance.

Advertisements

What I’m Watching This Week – 18 December 2017

The Markets (as of market close December 15, 2017)

Each of the benchmark indexes listed here closed last week in the black, led by the Nasdaq and the Dow, both of which climbed over 1.00%. Stocks appear to have followed the ebb and flow of the proposed tax plan, which seems to have enough support for congressional passage this week. Investors may see a lowering of corporate taxes as leading to an increase in company profits and value. A 25 basis point increase in the federal funds rate did not seem to have much of an impact on investors.

The price of crude oil (WTI) climbed slightly to $57.63 per barrel last Friday, up from the prior week’s closing price of $57.34 per barrel. The price of gold (COMEX) rose to $1,258.20 by early Friday evening, ahead of the prior week’s price of $1,250.50. The national average retail regular gasoline price decreased to $2.485 per gallon on December 11, 2017, $0.015 lower than the prior week’s price but $0.249 more than a year ago.

Market/Index 2016 Close Prior Week As of 12/15 Weekly Change YTD Change
DJIA 19762.60 24329.16 24651.74 1.33% 24.74%
Nasdaq 5383.12 6840.08 6936.58 1.41% 28.86%
S&P 500 2238.83 2651.50 2675.81 0.92% 19.52%
Russell 2000 1357.13 1521.72 1530.42 0.57% 12.77%
Global Dow 2528.21 3015.17 3041.15 0.86% 20.29%
Fed. Funds target rate 0.50%-0.75% 1.00%-1.25% 1.25%-1.50% 25 bps 75 bps
10-year Treasuries 2.44% 2.37% 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

  • Not unexpectedly, the Federal Open Market Committee decided to raise the target range for the federal funds rate 25 basis points to 1.25%-1.50%. This marks the third such rate increase in 2017. The Committee based this rate hike on continued strengthening of the labor market and rising economic activity. Despite hurricane-related disruptions, the Committee continues to expect that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace and labor market conditions will remain strong. Inflation on a 12-month basis is expected to remain somewhat below 2% in the near term but to stabilize around the Committee’s 2% objective over the medium term.
  • Producer prices increased 0.4% in November, the same increase as in each of the previous two months. Over the last 12 months, producer prices are up 3.1%, which is the largest 12-month price gain since the 12-month period ended January 2012. The producer prices less foods, energy, and trade services rose 0.4% in November, the largest advance since increasing 0.6% in April. For the 12 months ended in November, prices less foods, energy, and trade services moved up 2.4%.
  • The increase in producer prices may be impacting consumer prices. The Consumer Price Index (CPI) rose 0.4% in November and is up 2.2% over the past 12 months. Energy prices rose 3.9% for the month and accounted for about three-fourths of the increase in the CPI. The index for all items less food and energy increased a marginal 0.1%, and is up 1.7% over the 12 months ended in November.
  • November retail sales were $492.7 billion, an increase of 0.8% from the previous month, and 5.8% above November 2016. Retail sales excluding auto sales increased 1.0% in November. Gasoline station sales increased 2.8% for the month and are up 12.2% over last November. Nonstore (online) retail sales climbed 2.5% in November and are 10.4% ahead of November 2016 sales.
  • The number of job openings dipped by about 181,000 in October compared to September, according to the latest Job Openings and Labor Turnover report from the Bureau of Labor Statistics. Job openings have been at or near record high levels since June. Job openings increased in accommodation and food services (+94,000), construction (+48,000), and real estate and rental and leasing (+40,000). Job openings decreased in wholesale trade (-90,000), finance and insurance (-47,000), information (-32,000), and nondurable goods manufacturing (-26,000). In October, hires increased to 5.6 million and separations were little changed at 5.2 million. Over the 12 months ended in October, hires totaled 64.3 million and separations totaled 62.2 million, yielding a net employment gain of 2.1 million.
  • The federal deficit for November soared to $138.5 billion, about $75 billion higher than the October deficit and $1.8 billion higher than the November 2016 deficit. Total government receipts for November were $208.4 billion, and total government outlays were $346.9 billion. Over the first two months of the 2018 fiscal year, the deficit stands at $201.8 billion, which is 10.6% greater than the deficit over the same period last fiscal year.
  • S. import prices rose 0.7% in November after ticking up 0.1% in October. Higher prices for fuel drove the increase in November as nonfuel prices recorded no change. Import fuel prices rose 22.2% over the past year, driven by a 24.1% increase in petroleum prices. U.S. export prices increased 0.5% in November following a 0.1% advance the previous month. Export prices advanced 3.1% over the past 12 months and have not recorded an over-the-year decrease since the index fell 0.2% in November 2016.
  • According to the Federal Reserve, industrial production moved up 0.2% in November after posting an upwardly revised increase of 1.2% in October. Manufacturing production also rose 0.2% in November, its third consecutive monthly gain. The output of utilities dropped 1.9%. The index for mining increased 2.0%. The index for mining increased 2.0%, as oil and gas extraction returned to normal levels after being held down in October by Hurricane Nate. Excluding the post-hurricane rebound in oil and gas extraction, total industrial production would have been unchanged in November. Total industrial production was 3.4% above its year-earlier level.
  • In the week ended December 9, the advance figure for initial claims for unemployment insurance was 225,000, a decrease of 11,000 from the previous week’s level. The advance insured unemployment rate slipped to 1.3%. The advance number of those receiving unemployment insurance benefits during the week ended December 2 was 1,886,000, a decrease of 27,000 from the previous week’s level, which was revised up 5,000.

Eye on the Week Ahead

The week before Christmas is a busy one for economic news. The third and final report on the gross domestic product for the third quarter is available this week, along with November’s monthly report on sales of new and existing homes.

What I’m Watching This Week – 11 December 2017

The Markets (as of market close December 8, 2017)

Last week proved to be a mixed bag of market returns as the large caps of the Dow and S&P 500 posted moderate gains, while the tech-heavy Nasdaq and small caps of the Russell 2000 closed the week down. A stronger than expected jobs report may have helped push the Dow and S&P 500 to positive territory by last Friday. Global stocks climbed on news of an agreement between the UK and the European Union, which will allow negotiations on other issues, such as a trade agreement, to move forward.

The price of crude oil (WTI) fell to $57.34 per barrel last Friday, down from the prior week’s closing price of $58.34 per barrel. The price of gold (COMEX) fell to $1,250.50 by early Friday evening, down from the prior week’s price of $1,283.00. The national average retail regular gasoline price decreased to $2.500 per gallon on December 4, 2017, $0.033 lower than the prior week’s price but $0.292 more than a year ago.

Market/Index 2016 Close Prior Week As of 12/8 Weekly Change YTD Change
DJIA 19762.60 24231.59 24329.16 0.40% 23.11%
Nasdaq 5383.12 6847.59 6840.08 -0.11% 27.07%
S&P 500 2238.83 2642.22 2651.50 0.35% 18.43%
Russell 2000 1357.13 1537.02 1521.72 -0.99% 12.13%
Global Dow 2528.21 3007.96 3015.17 0.24% 19.26%
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% 2.36% 2.37% 1 bps -7 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

  • November provided another strong month for new job hires, according to the latest report from the Bureau of Labor Statistics. Employment increased by 228,000 last month. Employment growth has averaged 174,000 per month thus far this year. Employment continued to trend up in professional and business services, manufacturing, and health care. The unemployment rate remained at 1.4%, and the number of unemployed persons was essentially unchanged at 6.6 million. The average workweek for all employees increased by 0.1 hour to 34.5 hours in November. The average hourly earnings for all employees rose by $0.05 to $26.55. Over the year, average hourly earnings have risen by $0.64, or 2.5%.
  • According to the Census Bureau, the international trade deficit increased $3.8 billion to $48.7 billion in October over September. The October increase in the goods and services deficit reflected an increase in the goods deficit of $3.8 billion to $69.1 billion and a decrease in the services surplus of less than $0.1 billion to $20.3 billion. Year-to-date, the goods and services deficit increased $49.1 billion, or 11.9%, from the same period in 2016.
  • The non-manufacturing (services) sector accelerated in November, but at a slower pace than in October. According to the Institute for Supply Management, the pace of growth slowed in business activity, new orders, employment, and prices.
  • In the week ended December 2, the advance figure for initial claims for unemployment insurance was 236,000, a decrease of 3,000 from the previous week’s level. The advance insured unemployment rate remained at 1.4%. The advance number of those receiving unemployment insurance benefits during the week ended November 25 was 1,908,000, a decrease of 52,000 from the previous week’s level, which was revised up 3,000.

Eye on the Week Ahead

This week, the Federal Open Market Committee formally meets for the final time in 2017 under chairperson Janet Yellen. Some observers predict the FOMC will raise the federal funds rate by 25 basis points to a range of 1.25%-1.50%. The target range hasn’t reached 1.50% since the end of October 2008

What I’m Watching This Week – 4 December 2017

The Markets (as of market close December 1, 2017)

Equities surged for much of last week until an abrupt decline midday last Friday culled some of the earlier gains. Nevertheless, of the indexes listed here, only the Nasdaq lost value from the prior week. The Dow led the way posting an impressive gain of 2.86%, followed by the S&P 500, which climbed over 1.5%. Reports that the Senate was close to passing a tax reform bill may have heightened investor confidence as trading picked up during the week. However, news surrounding former national security advisor Michael Flynn involving the Russian probe could have squelched investor enthusiasm last Friday.

The price of crude oil (WTI) fell to $58.34 per barrel last Friday, down slightly from the prior week’s closing price of $58.97 per barrel. The price of gold (COMEX) fell to $1,283.00 by early Friday evening, down from the prior week’s price of $1,292.60. The national average retail regular gasoline price decreased to $2.533 per gallon on November 27, 2017, $0.035 lower than the prior week’s price but $0.379 more than a year ago.

Market/Index 2016 Close Prior Week As of 12/1 Weekly Change YTD Change
DJIA 19762.60 23557.99 24231.59 2.86% 22.61%
Nasdaq 5383.12 6889.16 6847.59 -0.60% 27.20%
S&P 500 2238.83 2602.42 2642.22 1.53% 18.02%
Russell 2000 1357.13 1519.16 1537.02 1.17% 13.25%
Global Dow 2528.21 2992.73 3007.96 0.51% 18.98%
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% 2.34% 2.36% 2 bps -8 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 second estimate of the third-quarter gross domestic product was more favorable than the first reading. The GDP increased at an annual rate of 3.3% in the third quarter ahead of the first estimate’s growth rate of 3.0%. In the second quarter, the GDP increased 3.1%. Gross domestic income (the sum of various incomes earned and costs incurred in the production of GDP) increased 2.5% in the third quarter, compared with an increase of 2.3% (revised) in the second. The increase in the second estimate of the GDP is due to an increase in nonresidential (business) investment and inventory growth, while residential investment and net exports (imports less exports) subtracted less than initially estimated.
  • Consumer price inflation continues to slowly expand. Consumers increased their spending by 0.3% in spite of an increase in income. Personal (pre-tax) income increased 0.4% in October, while disposable personal (after-tax) income jumped 0.5% for the month. Core personal consumption expenditures, excluding food and energy, increased 0.2% over September. The personal consumption price index, a measure of the prices consumers are paying for consumer goods and services, increased a mere 0.1% in October.
  • New home sales continued to increase in October, according to the Census Bureau. Sales of new single-family homes were at an annual rate of 685,000 in October, up 6.2% from September’s rate. The sales rate in October is 18.7% above the October 2016 estimate. The median new-home price in October was $312,800, while the average sales price was $400,200. The estimate of new houses for sale at the end of October was 282,000, representing a supply of 4.9 months at the current sales rate.
  • The Census Bureau announced that the trade deficit in October, the first month of the 2018 fiscal year, was $68.3 billion, up $4.2 billion from September. Exports were $129.1 billion, $1.3 billion less than September exports, while imports increased $2.9 billion in October from the prior month.
  • According to the IHS Markit final U.S. Manufacturing Purchasing Managers’ Index™ (PMI™), the manufacturing sector grew in November, but at a slightly slower pace than the previous month. Goods output slowed as well, while new orders received by manufacturers rose at the second-fastest pace since March.
  • The Conference Board Consumer Confidence Index®, which had improved in October, increased further in November. The index now stands at 129.5, up from 126.2 in October. The Present Situation Index increased from 152.0 to 153.9, while the Expectations Index rose from 109.0 last month to 113.3. Average prices charged by manufacturers in November rose at the fastest rate in the last four years.
  • The Manufacturing ISM® Report On Business® also showed manufacturing accelerated in November, but not quite as fast as in October. Manufacturing production and new orders outpaced October’s rates, while deliveries slowed.
  • Claims for unemployment insurance are on the upswing after falling the past few weeks. In the week ended November 25, the advance figure for initial claims for unemployment insurance was 238,000, a decrease of 2,000 from the previous week’s level, which was revised up by 1,000. The advance insured unemployment rate remained at 1.4%. The advance number of those receiving unemployment insurance benefits during the week ended November 18 was 1,957,000, an increase of 42,000 from the previous week’s level, which was revised up 11,000.

Eye on the Week Ahead

The last week of November reveals some important economic information. The second report on the third-quarter GDP is out this week. The initial estimate in October showed the GDP increased at a 3.0% annualized growth rate. Also revealed this week is the report on personal income and spending for October. This indicator of inflationary trends is one of the economic reports relied on by the Fed in determining whether to raise interest rates.