What I’m Watching This Week – 16 April 2018

The Markets (as of market close April 13, 2018)

Surging energy stocks led a market rebound last week as each of the benchmark indexes listed here posted gains. Although stocks closed higher by week’s end, volatility continued to be the benchmark during the week as investors remain uneasy amidst the turbulent political climate. The trade war rhetoric may have been replaced by escalating strife in Syria. Of the indexes listed here, the Nasdaq climbed the highest, followed by the Russell 2000. The large caps of the S&P 500 and the Dow each posted strong gains of almost 2.0%.

The price of crude oil (WTI) soared last week, closing at $67.39 per barrel early Friday evening, up from the prior week’s closing price of $61.95 per barrel. The price of gold (COMEX) rose to $1,348.60 by early Friday evening, ahead of the prior week’s price of $1,337.30. The national average retail regular gasoline price decreased to $2.694 per gallon on April 9, 2018, $0.006 lower than the prior week’s price but $0.270 more than a year ago.

Market/Index 2017 Close Prior Week As of 4/13 Weekly Change YTD Change
DJIA 24719.22 23932.76 24360.14 1.79% -1.45%
Nasdaq 6903.39 6915.11 7106.65 2.77% 2.94%
S&P 500 2673.61 2604.47 2656.30 1.99% -0.65%
Russell 2000 1535.51 1513.30 1549.51 2.39% 0.91%
Global Dow 3085.41 3002.47 3057.98 1.85% -0.89%
Fed. Funds target rate 1.25%-1.50% 1.50%-1.75% 1.50%-1.75% 0 bps 25 bps
10-year Treasuries 2.41% 2.77% 2.82% 5 bps 41 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

  • A potential trade war with China hasn’t been reflected in consumer prices, at least not in March. According to the latest report from the Bureau of Labor Statistics, the Consumer Price Index actually fell 0.1% after increasing 0.2% in February. Over the last 12 months, the CPI has risen 2.4%. A closer look at prices reveals that a decline in gasoline prices (-4.9%) more than offset increases in prices for shelter, medical care, and food. In fact, prices less food and energy actually rose 0.2% in March.
  • Wholesale (producer) prices for both goods and services rose 0.3% in March, according to the latest report from the Bureau of Labor Statistics. For the last 12 months, producer prices have advanced 3.0%. In March, prices less food, energy, and trade rose 0.4% — the same increase as in January and February. April should have a surplus as income taxes for 2017 provide a boost to government receipts.
  • The government’s deficit was $208.7 billion in March, following a deficit of $215.2 billion in February. Over the first five months of the fiscal year, the deficit sits at $599.7 billion. The deficit was $526.9 billion over the same period in fiscal 2017.
  • The price index for goods imported into the United States showed no change in March compared to February. A 1.6% drop in fuel prices helped keep import prices down, as non-fuel import prices actually increased 0.2%. The price index for goods exports rose 0.3%. For the 12 months ended in March, the import price index has risen 4.1%, while export prices have increased 3.6%.
  • There were 6.1 million new job openings in February, down slightly from the 6.2 million openings the prior month. Job openings increased in finance and insurance (69,000) and state and local government education (31,000). Job openings decreased in a number of industries, with the largest decreases being in accommodation and food services (91,000), construction (56,000), and wholesale trade (38,000). There were 1.6 million layoffs and discharges in February, slightly less than the 1.8 million in January. Over the 12 months ended in February, hires totaled 65.6 million and separations totaled 63.3 million, yielding a net employment gain of 2.3 million.
  • In the week ended April 7, there were 233,000 initial claims for unemployment insurance, a decrease of 9,000 from the previous week’s level. The advance insured unemployment rate remained at 1.3% for the week ended March 31. The advance number of those receiving unemployment insurance benefits during the week ended March 31 was 1,871,000, an increase of 53,000 from the prior week’s level, which was revised up by 10,000.

Eye on the Week Ahead

Another indicator of inflationary trends is the retail sales report, which is out this week. In February, retail sales fell 0.1% due, primarily, to a drop in auto sales. However, motor vehicle sales are expected to show improvement in March, and sales overall are expected to increase as well.

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What I’m Watching This Week – 9 April 2018

The Markets (as of market close April 6, 2018)

In likely reaction to the potential trade war with China, stocks fell last week, stripping away the previous week’s gains. Last week, China responded to the Trump administration’s proposal to increase tariffs on Chinese goods by announcing that it would impose 25% tariffs on several American imports, including soybeans and big-ticket items like automobiles and aircraft. In total, over 100 U.S. exports to China were included in the increased tariffs, affecting upwards of $50 billion of Chinese imports of U.S. products. Later last week, President Trump maintained that he is considering an additional $100 billion in tariffs on Chinese goods. It is worth noting that the tariffs from the global giants haven’t taken effect yet.

Each of the benchmark indexes listed here suffered losses last week and, except for the Nasdaq, are in the red year-to-date. A trade war between the world’s two largest economies could raise prices, boosting inflation — another potential ramification concerning investors.

The price of crude oil (WTI) dropped again last week, closing at $61.95 per barrel early Friday evening, down from the prior week’s closing price of $64.91 per barrel. The price of gold (COMEX) rose to $1,337.30 by early Friday evening, climbing ahead of the prior week’s price of $1,329.60. The national average retail regular gasoline price increased to $2.700 per gallon on April 2, 2018, $0.052 higher than the prior week’s price and $0.340 more than a year ago.

Market/Index 2017 Close Prior Week As of 4/6 Weekly Change YTD Change
DJIA 24719.22 24103.11 23932.76 -0.71% -3.18%
Nasdaq 6903.39 7063.44 6915.11 -2.10% 0.17%
S&P 500 2673.61 2640.87 2604.47 -1.38% -2.59%
Russell 2000 1535.51 1529.43 1513.30 -1.05% -1.45%
Global Dow 3085.41 3026.70 3002.47 -0.80% -2.69%
Fed. Funds target rate 1.25%-1.50% 1.50%-1.75% 1.50%-1.75% 0 bps 25 bps
10-year Treasuries 2.41% 2.73% 2.77% 4 bps 36 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 labor sector continued adding new jobs and average hourly earnings crept higher in March, according to the latest report from the Bureau of Labor Statistics. There were 103,000 new jobs added last month, with manufacturing, as well as healthcare and social assistance leading the way in new hires. The unemployment rate remained at 4.1%. The labor force participation rate, at 62.9%, changed little in March, and the employment-population ratio held at 60.4%. The average workweek was unchanged at 34.5 hours in March, but average wages rose by $0.08 to $26.82. Over the year, average hourly earnings have increased by $0.71, or 2.7%.
  • The IHS Markit final U.S. Manufacturing Purchasing Managers’ Index™ (PMI™) registered 55.6 in March, up from 55.3 in February. The latest PMI™ reading indicated the strongest improvement in manufacturing business conditions since March 2015. According to the report, manufacturing output and new orders rose markedly, and job creation was strong. Inflationary pressures strengthened as costs for materials used in manufacturing increased, as did prices for manufactured products.
  • According to the Institute for Supply Management® Manufacturing ISM® Report On Business®, manufacturing slowed in March. The March PMI® dropped 1.5 percentage points from February’s reading. New orders fell 2.3 percentage points, while production and employment also lost ground for the month. Nevertheless, February’s manufacturing growth was the highest in 14 years, so a slight drop-off was to be expected. Overall, the ISM® survey is still very positive in the manufacturing sector.
  • Growth slowed in the non-manufacturing (services) sector, according to the Institute for Supply Management®. Business activity and new orders slowed, while employment and prices increased.
  • The goods and services trade deficit continue to expand through February. According to the latest report from the Bureau of Economic Analysis, the goods and services deficit was $57.6 billion in February, up $0.9 billion, or 1.6%, from January. Both exports and imports increased by approximately 1.7% for the month. Year-to-date, the goods, and services deficit increased $21.1 billion, or 22.7%, from the same period in 2017. Exports increased $22.4 billion, or 5.9%. Imports increased $43.6 billion, or 9.1%.
  • In the week ended March 31, there were 242,000 initial claims for unemployment insurance, an increase of 24,000 from the previous week’s level, which was revised up by 3,000. The advance insured unemployment rate remained at 1.3% for the week ended March 24. The advance number of those receiving unemployment insurance benefits during the week ended March 24 was 1,808,000, a decrease of 64,000 from the prior week’s level, which was revised up by 1,000. This is the lowest level for insured unemployment since December 29, 1973, when it was 1,805,000.

Eye on the Week Ahead

This week, inflationary measures for March are found in both the Consumer Price Index and the Producer Price Index. Also, import and export prices for March are available. This report may begin to reflect the impact, if any, of the tariffs and trade policies initiated by the present administration.

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What I’m Watching This Week – 2 April 2018

The Markets (as of market close March 29, 2018)

Each of the benchmark indexes listed here posted weekly gains last week, as stocks recovered from the prior week’s steep losses. The S&P 500 and Dow posted returns exceeding 2.0%, respectively, followed by the Russell 2000 and the Nasdaq. While many of the markets were closed for Good Friday, last week was relatively slow in trading overall, albeit somewhat fruitful.

The price of crude oil (WTI) fell last week, closing at $64.91 per barrel early Thursday evening, off from the prior week’s closing price of $65.74 per barrel. The price of gold (COMEX) also dropped to $1,329.60 by early Friday evening, falling from the prior week’s price of $1,352.90. The national average retail regular gasoline price increased to $2.648 per gallon on March 26, 2018, $0.050 higher than the prior week’s price and $0.333 more than a year ago.

Market/Index 2017 Close Prior Week As of 3/29 Weekly Change YTD Change
DJIA 24719.22 23533.20 24103.11 2.42% -2.49%
Nasdaq 6903.39 6992.67 7063.44 1.01% 2.32%
S&P 500 2673.61 2588.26 2640.87 2.03% -1.22%
Russell 2000 1535.51 1510.08 1529.43 1.28% -0.40%
Global Dow 3085.41 2988.62 3026.70 1.27% -1.90%
Fed. Funds target rate 1.25%-1.50% 1.50%-1.75% 1.50%-1.75% 0 bps 25 bps
10-year Treasuries 2.41% 2.81% 2.73% -8 bps 32 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

  • Gross domestic product increased at an annual rate of 2.9% in the fourth quarter of 2017, according to the third and final estimate released by the Bureau of Economic Analysis. GDP increased 3.2% in the third quarter. The deceleration in real GDP growth in the fourth quarter reflected a downturn in private inventory investment that was partly offset by accelerations in personal consumption expenditures, exports, state and local government spending, nonresidential (business) fixed investment, and federal government spending, and an upturn in residential fixed investment. Imports, which are a subtraction in the calculation of GDP, increased. For the fourth quarter, consumer spending increased 4.0%, nonresidential (commercial/business) investment grew 6.8%, and residential investment expanded at a rate of 12.8%. GDP increased 2.3% in 2017 (that is, from the 2016 annual level to the 2017 annual level), compared with an increase of 1.5% in 2016. Overall, economic growth, as measured by GDP, was solid in 2017. However, heading into 2018, a slowdown in consumer spending may curtail growth in the first quarter.
  • Personal (pre-tax) income and disposable (after-tax) personal income increased 0.4%, respectively, in February. Of particular note, wages and salaries increased 0.5% over January. Personal consumption expenditures, which measures how much consumers are spending for goods and services, jumped 0.2% in February, matching January’s increase. Of that total, purchases of durable goods rose by 0.2%, while services climbed 0.3%. The prices paid by consumers for goods and services, as measured by the PCE price index and core PCE price index (excluding food and energy) each increased by 0.2% in February. While consumer prices for goods and services rose a bit in February, consumer spending remained somewhat subdued. Consumer saving, as expected, increased 0.2% to 3.4%.
  • The international trade deficit increased by $0.1 billion in February to $75.4 billion. Exports expanded by $2.9 billion (2.2%), while imports increased by $3.0 billion (1.4%).
  • Consumers lost a little faith in the economy in March, according to the latest report from The Conference Board. The Consumer Confidence Index® fell to 127.7 in March after reaching an 18-year high of 130.0 in February. Consumers’ confidence waned in their assessment of present economic conditions as well as short-term economic growth.
  • In the week ended March 24, there were 215,000 initial claims for unemployment insurance, a decrease of 12,000 from the previous week’s level, which was revised down by 2,000. This is the lowest level for initial claims since January 27, 1973, when it was 214,000. The advance insured unemployment rate remained at 1.3% for the week ended March 17. The advance number of those receiving unemployment insurance benefits during the week ended March 17 was 1,871,000, an increase of 35,000 from the prior week’s level, which was revised up by 8,000.

Eye on the Week Ahead

The latest employment report for March is out the end of this week. Job growth has been strong in 2018, although wage inflation has been rather subdued. A strong employment report could provide further assurance of economic strength, propelling investors back to the market.

 

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