Month: July 2018

The Markets (as of market close July 27, 2018)

Tech stocks and small caps took a hit last week as both the Nasdaq and Russell 2000 lost value. The large caps of both the S&P 500 and the Dow closed in positive territory following a turbulent week of trading. Of note last week was the descent in value taken by a major social media company, which lost over $120 billion in market value. Even with the loss, the company’s value remains one of the highest in the world. Trade tensions between the United States and the European Union were eased somewhat last week as negotiations between the economic giants are ongoing. Conversely, relations between China and the United States remain icy. Long-term Treasury prices fell last week, sending yields higher as reports intimated that more restrictive monetary policies of some major central banks are in the offing.

The price of crude oil (WTI) fell again last week, closing at $69.00 per barrel, down from the prior week’s closing price of $70.31 per barrel. The price of gold (COMEX) advanced slightly last week, closing at $1,232.60 by early Friday evening, up from the prior week’s price of $1,231.30. The national average retail regular gasoline price climbed to $2.831 per gallon on July 23, 2018, $0.034 lower than the prior week’s price but $0.519 higher than a year ago.

Market/Index	2017 Close	Prior Week	As of 7/27	Weekly Change	YTD Change
DJIA	24719.22	25058.12	25451.06	1.57%	2.96%
Nasdaq	6903.39	7820.20	7737.42	-1.06%	12.08%
S&P 500	2673.61	2801.83	2818.82	0.61%	5.43%
Russell 2000	1535.51	1696.81	1663.34	-1.97%	8.32%
Global Dow	3085.41	3037.08	3085.75	1.60%	0.01%
Fed. Funds target rate	1.25%-1.50%	1.75%-2.00%	1.75%-2.00%	0 bps	50 bps
10-year Treasuries	2.41%	2.89%	2.95%	6 bps	54 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 advance estimate for the second-quarter gross domestic product projected economic growth at 4.1%. In the first quarter, the GDP increased 2.2%. Consumer spending (+4.1%) drove much of the estimated growth in the second quarter. Current dollar GDP grew 7.4% (4.3% in the first quarter). The price index for gross domestic purchases expanded 2.3%, compared with an increase of 2.5% in the first quarter. Disposable personal income increased $167.5 billion, or 4.5%, in the second quarter, compared with an increase of $256.7 billion, or 7.0%, in the first quarter. It is important to note that this advanced report is based on source data that is incomplete or subject to further revision, which will be noted in the next two reports in August and September.
• Sales of existing homes continued to slow in June. Sales declined 0.6% for the month following decreases in both April and May. Existing home sales are now 2.2% below their rate from a year ago. Single-family home sales fell 0.6% and are 2.3% below their sales pace of a year ago. According to the National Association of Realtors®, a severe housing shortage is keeping homes moving off the market at a quick clip while driving prices higher. The median existing-home price for all housing types in June was $276,900, surpassing last month as the new all-time high, and up 5.2% from June 2017 ($263,300). The median existing single-family home price was $279,300 in June, up 5.2% from June 2017. Total housing inventory climbed 4.3% in June and is up 0.5% from a year ago. Unsold inventory is at a 4.3-month supply at current prices.
• Sales of new single-family homes also dipped in June, falling 5.3% below their May pace. Nevertheless, new home sales are still up 2.4% over their June 2017 estimate. The median sales price of new houses sold in June was $302,100. The average sales price was $363,300. The estimate of new houses for sale at the end of June was 301,000. This represents a supply of 5.7 months at the current sales rate.
• Orders for long-lasting goods increased 1.0% in June following two consecutive monthly decreases. Transportation drove much of the gain last month. Excluding transportation, durable goods orders rose a moderate 0.4%. Shipments of durable goods escalated 1.7% in June as did unfilled orders, which increased 0.4%. Inventories fell for the second consecutive month, dropping 0.1%.
• The goods trade deficit was $68.3 billion in June, up $3.6 billion, or 5.5%, from May. Exports dropped $2.2 billion for the month, while imports increased $1.3 billion.
• In the week ended July 21, there were 217,000 initial claims for unemployment insurance, an increase of 9,000 from the previous week’s level, which was revised up 1,000. The advance rate for insured unemployment claims remained at 1.2%. The advance number of those receiving unemployment insurance benefits during the week ended July 14 was 1,745,000, a decrease of 8,000 from the prior week’s level, which was revised up by 2,000.

Eye on the Week Ahead

The last few days of July into August is a period that includes several important economic events. The Federal Open Market Committee (FOMC) meets for the first time since the second week of June when the Committee voted to increased interest rates by 25 basis points. Will the FOMC be influenced by President Trump’s appeal to refrain from another rate hike this summer? Employment figures for July are also available next week. There were 213,000 new jobs added in June; wages, meanwhile, increased by an average of only 0.2% for the month, but are up 2.7% over the past 12 months.

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The Markets (as of market close July 20, 2018)

Last week stocks held their own for the most part, with the Dow and S&P 500 posting marginal gains. The tech-heavy Nasdaq fell slightly, while the small caps of the Russell 2000 gained better than half a percent and the Global Dow jumped ahead about a quarter of a percent. Both the dollar and government bond prices reacted to President Trump’s criticism of the Fed for raising interest rates while claiming the European Union and China were “manipulating their currencies and interest rates lower.” The dollar fell nearly 7.0% and the yield on 10-year Treasuries increased 6 basis points as bond prices fell.

The price of crude oil (WTI) dipped again last week, closing at $70.31 per barrel, down from the prior week’s closing price of $70.62 per barrel. The price of gold (COMEX) continued to fall last week, closing at $1,231.30 by early Friday evening, down from the prior week’s price of $1,241.30. The national average retail regular gasoline price climbed to $2.865 per gallon on July 16, 2018, $0.008 higher than the prior week’s price and $0.587 higher than a year ago.

Market/Index	2017 Close	Prior Week	As of 7/20	Weekly Change	YTD Change
DJIA	24719.22	25019.41	25058.12	0.15%	1.37%
Nasdaq	6903.39	7825.98	7820.20	-0.07%	13.28%
S&P 500	2673.61	2801.31	2801.83	0.02%	4.80%
Russell 2000	1535.51	1687.08	1696.81	0.58%	10.50%
Global Dow	3085.41	3029.17	3037.08	0.26%	-1.57%
Fed. Funds target rate	1.25%-1.50%	1.75%-2.00%	1.75%-2.00%	0 bps	50 bps
10-year Treasuries	2.41%	2.83%	2.89%	6 bps	48 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

• Consumers spent more at the retail level last month. Retail and food services sales in June increased 0.5% over May’s totals, and are up 6.6% over June 2017. Sales at the retail level are up 0.3% for the month and 6.4% above last year. Gasoline station sales are up a noteworthy 21.6% from June 2017. Online retail sales have increased 10.2% from last year. Retail sales less auto and gas are up 0.3%. Motor vehicle and parts dealer sales jumped 0.9% for the month and 4.6% from last June. Restaurants and bars saw sales increase 1.5% in June and 8.0% over last year.
• New home construction slowed in June, according to the latest report from the Census Bureau. Building permits (-2.2%) and housing starts (-12.3%) fell to their lowest rates since last September. Housing completions were essentially unchanged in June.
• According to the Federal Reserve, industrial production rose 0.6% in June after declining 0.5% in May. For the second quarter as a whole, industrial production advanced at an annual rate of 6.0%, its third consecutive quarterly increase. Manufacturing output moved up 0.8% in June. Factory output increased 0.3% in June, while mining (1.2%) and utilities (1.5%) also expanded.
• In the week ended July 14, there were 207,000 initial claims for unemployment insurance, a decrease of 8,000 from the previous week’s level, which was revised up 1,000. This is the lowest level for initial claims since December 6, 1969, when it was 202,000. The advance rate for insured unemployment claims remained at 1.2%. The advance number of those receiving unemployment insurance benefits during the week ended July 7 was 1,751,000, an increase of 8,000 from the prior week’s level, which was revised up by 4,000.

Eye on the Week Ahead

Several important economic indicators are released this week, including June reports on new and existing home sales. The latest figures on international trade in goods may be impacted by the ongoing trade wars. Durable goods orders also could be influenced by increased tariffs on both imports and exports. Finally, the latest report on gross domestic product for the second quarter is released at the end of the week.

To view the What I’m Watching This Week Portfolio, please click here. (Free Membership is required) https://www.barchart.com/my/featured-portfolios

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

The second quarter of the year can be called a lot of things, but boring isn’t one of them. The potential for a trade war between the United States and China heated up in April as China responded to the threat of U.S. tariffs on Chinese imports by warning of the same magnitude of tariffs on American exports. Favorable corporate earnings reports helped calm some of the global economic angst investors may have felt. The indexes listed here ended the month ahead of their March closing values — but only barely. The Global Dow (1.16%) and the Russell 2000 (0.81%) posted the largest monthly gains, followed by marginal upticks in the S&P 500 (0.27%), the Dow (0.25%), and the Nasdaq (0.04%).

Despite expanding trade tensions between the United States, China, Canada, Mexico, and the European Union, equities enjoyed a better month in May, riding surging energy stocks. For most of the month, oil prices hit multi-year highs before falling at the end of May. Robust first-quarter earnings reports also helped push stock markets higher. In fact, each of the indexes listed here posted strong end-of-month gains. The small caps of the Russell 2000 (5.95%) and the tech-heavy Nasdaq (5.32%) enjoyed the largest gains, followed by the S&P 500 (2.16%) and the Dow (1.05%). Of the indexes in this report, only the Global Dow lost value, falling 1.95% by the end of May.

A strong jobs report kicked off the month of June on a mostly positive note. Stocks closed the first full week of June higher, led by the large caps of the S&P 500 and the Dow. However, by the middle of the month, investors were hit with China’s threat of increased tariffs on U.S. exports, while Canada pledged to impose retaliatory penalties as well. By the end of the month, the Dow and Global Dow lost some value, while the remaining indexes listed here posted marginal gains.

Overall, the second quarter saw the tech-heavy Nasdaq gain over 6.0%, only to be bested by small caps of the Russell 2000, which grew by almost 7.5%. The S&P 500 also closed the quarter ahead of its first-quarter closing values. The Dow didn’t fare as well, finishing the quarter up by less than 1.0%. Prices for 10-year Treasuries rose by the end of the quarter, pulling yields down by 13 basis points. Crude oil prices closed the quarter at about $74.25 per barrel by the end of June, almost $10 per barrel higher than prices at the close of the first quarter. Gold closed the quarter at roughly $1,254.20, noticeably lower than its $1,329.60 price at the end of March. Regular gasoline, which was $2.648 per gallon on March 26, climbed to $2.833 on the 25th of June.

Market/Index	2017 Close	As of June 29	Month Change	Quarter Change	YTD Change
DJIA	24719.22	24271.41	-0.59%	0.70%	-1.81%
NASDAQ	6903.39	7510.30	0.92%	6.33%	8.79%
S&P 500	2673.61	2718.37	0.48%	2.93%	1.67%
Russell 2000	1535.51	1643.07	0.58%	7.43%	7.00%
Global Dow	3085.41	2979.52	-0.75%	-1.56%	-3.43%
Fed. Funds	1.25%-1.50%	1.75%-2.00%	25 bps	25 bps	50 bps
10-year Treasuries	2.41%	2.86%	0 bps	13 bps	45 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 Month’s Economic News

• Employment: Total employment rose by 223,000 in May after adding 164,000 new jobs in April. The average monthly gain over the prior 12 months is 191,000. Notable employment gains occurred in professional and technical services (23,000), retail trade (31,000), and health care (29,000). The unemployment rate slipped to 3.8%. The number of unemployed persons declined to 6.1 million. Over the year, the unemployment rate was down by 0.5 percentage point, and the number of unemployed persons declined by 772,000. The labor participation rate was little changed at 62.7% (62.9% in April). The employment-population ratio held at 60.4%. The average workweek was unchanged at 34.5 hours for the month. Average hourly earnings increased by $0.08 to $26.92. Over the last 12 months, average hourly earnings have risen $0.71, or 2.7%.

• FOMC/interest rates: The Federal Open Market Committee raised the federal funds target range rate for the second time this year, bumping the range up by 25 basis points following the Committee’s June meeting. The target range now sits at 1.75%-2.00%. The Committee cited continued strengthening in the labor market and increased household spending as justifications for the rate hike. Also of note, the Committee forecasts the median funds rate at 2.4% by year’s end instead of 2.1% as forecasted in March. This means two more rate hikes could be in the offing before the end of the year.

• GDP/budget: The third and final estimate of the first-quarter gross domestic product showed the economy expanded at an annual rate of 2.0%, according to the Bureau of Economic Analysis. The fourth-quarter GDP grew at an annualized rate of 2.9%. According to the report, consumer spending was rather subdued, expanding at a rate of only 0.9%. Corporate profits increased $39.5 billion in the first quarter, in contrast to a decrease of $1.1 billion in the fourth quarter. Fewer exports and more imports during the quarter contributed to slower economic growth. Spending on durable goods, which had increased 13.7% in the fourth quarter, dropped 2.1% in the first quarter. Gross domestic income rose 3.6% in the first quarter — far surpassing the 1.0% growth rate in the fourth quarter. The government budget deficit was $146.8 billion in May following a surplus of $214.3 billion in April. For fiscal 2018 through May, the federal deficit sits at $532.2 billion — up by $99.4 billion, or about 23%, from the deficit over the same period last year.

• Inflation/consumer spending: Consumer spending, as measured by personal consumption expenditures, jumped 0.2% in May, after increasing 0.5% in April. Core consumer spending (excluding food and energy) also rose 0.2% in May. Core consumer prices, a tracker of inflationary trends, increased 0.2% in May. But of more importance, core prices have increased 2.0% over the last 12 months — an annual rate that could prompt more interest rate increases during the remainder of 2018.
• The Consumer Price Index rose 0.2% in May, the same increase as in April. Over the last 12 months ended in May, consumer prices are up 2.8%. Core prices, which exclude food and energy, also climbed 0.2% for the month, and are up 2.2% for the year.
• Prices at the wholesale level expanded noticeably in May. The Producer Price Index showed the prices companies receive for goods and services jumped 0.5% after climbing 0.1% in April. Year-over-year, producer prices have increased 3.1%. Prices less food and energy increased 0.3% for May and are up 2.4% over the last 12 months.
• Housing: Sales of existing homes continued to slow in May. Total existing-home sales fell 0.4% for May following a 2.5% drop in April. Year-over-year, existing home sales are down 3.0%. The May median price for existing homes was $264,800, which is 4.9% higher than the May 2017 price of $252,500. While inventory for all types of existing homes for sale rose 2.8% in May, it is 6.1% lower than a year ago. New home sales, on the other hand, climbed 6.7% in May after falling 1.5% in April. Falling home prices surely led to the spike in new home sales. The median sales price of new houses sold in May was $313,000 ($318,500 in April). The average sales price was $368,500 ($394,600 in April). Inventory fell slightly to 5.2 months, down from the 5.5-month supply in April.

• Manufacturing: Industrial production edged down 0.1% in May after increasing 0.9% in April. Nevertheless, total industrial production is 3.5% higher in May than it was a year earlier. Manufacturing production fell 0.7% in May, largely because truck assemblies were disrupted by a major fire at a parts supplier. Excluding motor vehicles and parts, factory output moved down 0.2%. The index for mining rose 1.8%, its fourth consecutive month of growth; the output of utilities moved up 1.1%. New orders for manufactured durable goods climbed 0.6% in May following two consecutive monthly decreases.

• Imports and exports: The advance report on international trade in goods revealed that the trade gap decreased by $2.5 billion in May from April. The deficit for May was $64.8 billion (the April deficit was $67.3 billion). May exports of goods jumped 2.1%, while imports increased 0.2%. On a seasonally adjusted basis, May’s total imports ($208,405 billion) far exceeded exports ($143,560 billion). Both import and export prices are starting to move higher. Import and export prices are starting to move higher; both increased 0.6% in May after climbing 0.3% and 0.6%, respectively, in April. Over the last 12 months, import prices have increased 4.3% and export prices are up 4.9%.

• International markets: Investors, both at home and abroad, may be concerned that the escalating trade dispute between the United States and several other important trade partners may stunt global economic growth. Despite the negative trade rhetoric, China’s economy expanded at a rate of 6.8% in the first quarter, much to the surprise of some investors and economic analysts. On the other hand, potential trade tariffs may have impacted Europe’s largest economy. Germany’s gross domestic product stalled in the first quarter, growing at a subdued rate of 1.2% after expanding 2.5% in the fourth quarter. Overall, the eurozone GDP also decelerated to a growth rate of 1.7% in the first quarter, down from the 2.7% rate of growth in the fourth quarter.

• Consumer confidence: Consumer confidence, as measured by The Conference Board Consumer Confidence Index®, dipped 2.4% in June following an increase in May. According to the report, consumers’ confidence in the present economic conditions remained relatively the same as in May, but expectations for future growth were tempered. This reading may be reflective of the imposition of tariffs and the ongoing trade war.

Eye on the Month Ahead

Moving to the second quarter of the year, the economy in general and the market, in particular, will likely react based on the ongoing global economic trade wars. Fewer imports could lead to more domestic sales, which could add to job growth. However, prices could also increase at a rate ahead of wage growth.

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

The benchmark indexes listed here continued to trend downward, losing value for the second week in a row. The Russell 2000 and the Nasdaq, both of which had been the leading performers for much of the year, suffered the biggest weekly losses, followed by the S&P 500, the Dow, and the Global Dow. While energy shares performed well on the heels of oil prices reaching a four-year high, overall fears of worsening trade relations between the United States and several of its trade partners pulled investors away from stocks.

The price of crude oil (WTI) surged last week, closing at $74.25 per barrel, up from the prior week’s closing price of $69.32 per barrel. The price of gold (COMEX) fell to $1,254.20 by early Friday evening, down from the prior week’s price of $1,271.70. The national average retail regular gasoline price fell to $2.833 per gallon on June 25, 2018, $0.046 lower than the prior week’s price but $0.545 higher than a year ago.

Market/Index	2017 Close	Prior Week	As of 6/29	Weekly Change	YTD Change
DJIA	24719.22	24580.89	24271.41	-1.26%	-1.81%
Nasdaq	6903.39	7692.82	7510.30	-2.37%	8.79%
S&P 500	2673.61	2754.88	2718.37	-1.33%	1.67%
Russell 2000	1535.51	1685.58	1643.07	-2.52%	7.00%
Global Dow	3085.41	3007.73	2979.52	-0.94%	-3.43%
Fed. Funds target rate	1.25%-1.50%	1.75%-2.00%	1.75%-2.00%	0 bps	50 bps
10-year Treasuries	2.41%	2.89%	2.86%	-3 bps	45 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 third and final estimate of the first-quarter gross domestic product showed the economy expanded at a rate of 2.0%. Fourth-quarter growth was 2.9%. Gross domestic income (the net sum of income earned in the production of GDP) increased 3.6% in the first quarter, compared with a 1.0% bump in the fourth quarter. In the first quarter, consumer spending grew at the relatively low rate of 0.9%, while business spending rose 7.5%.
• Both pre-tax and after-tax consumer income increased by 0.4% in May. Overall, consumer spending climbed 0.2% in the month, while core expenditures (excluding food and energy) also accelerated at 0.2%. Prices for consumer goods and services, overall and excluding food and energy, also increased 0.2%. Of note, consumer prices are up 2.3%, and core prices, an inflation indicator of importance to the Federal Open Market Committee, is up 2.0% over the past 12 months — right at the target inflation rate set by the Committee. Look for more interest rate increases intended to keep the reins on inflation.
• New home sales soared in May, up 6.7% over April’s figures and 14.1% ahead of the May 2017 estimate. Weakening sales prices may have helped boost sales in May. The median sales price of new houses sold in May 2018 was $313,000 ($318,500 in April). The average sales price was $368,500 ($394,600 in April). The seasonally adjusted estimate of new houses for sale at the end of May was 299,000. This represents a supply of 5.2 months at the current sales rate.
• New orders for durable goods fell 0.6% in May following a 1.0% drop in April. Excluding transportation, new orders decreased 0.3%. Shipments were down 0.1% after increasing nine consecutive months. Unfilled orders rose 0.5% in May after advancing 0.6% in April. Lastly, inventories increased 0.3% — the same increase as in April.
• Despite tariffs and trade wars, exports surged 2.1% in May, pulling down the trade deficit from $67.3 billion in April to $64.8 billion in May. Imports of goods for May were $208.4 billion, $0.4 billion (or 0.2%) more than April imports.
• In the week ended June 23, there were 227,000 initial claims for unemployment insurance, an increase of 9,000 from the previous week’s level. The advance insured unemployment rate remained at 1.2%. The advance number of those receiving unemployment insurance benefits during the week ended June 16 was 1,705,000, a decrease of 21,000 from the prior week’s level, which was revised up by 3,000.

Eye on the Week Ahead

Trading is usually subdued during the holiday-shortened week. Nevertheless, the following week could start off with a bang based on Friday’s employment data for June.