What I’m Watching This Week – 17 September 2018

The Markets (as of market close September 14, 2018)

Tech and foreign stocks led the way as the market rebounded from the prior week’s decline. The prospect of renewed trade talks between China and the United States eased investor concerns. Large caps outperformed small caps as both the Dow and S&P 500 outpaced the Russell 2000. Soft inflation data also helped drive investors to stocks while spurning long-term bonds as prices for 10-year Treasuries plummeted, pushing yields to 3.0%.

The price of crude oil (WTI) climbed for the first time in several weeks, closing at $68.98 per barrel, up from the prior week’s closing price of $67.84 per barrel. The price of gold (COMEX) continued to fall, dropping to $1,198.30 by early Friday evening, down from the prior week’s price of $1,201.80. The national average retail regular gasoline price fell to $2.833 per gallon on September 10, 2018, $0.009 higher than the prior week’s price and $0.148 more than a year ago.

Market/Index 2017 Close Prior Week As of 9/14 Weekly Change YTD Change
DJIA 24719.22 25916.54 26154.67 0.92% 5.81%
Nasdaq 6903.39 7902.54 8010.04 1.36% 16.03%
S&P 500 2673.61 2871.68 2904.98 1.16% 8.65%
Russell 2000 1535.51 1713.18 1721.72 0.50% 12.13%
Global Dow 3085.41 3029.59 3076.93 1.56% -0.27%
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% 2.94% 3.00% 6 bps 59 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

  • While wage inflation may motivate the Federal Reserve to raise interest rates at the end of the month, prices for consumer products and services have been relatively stagnant. The Consumer Price Index for goods and services increased by a marginal 0.2% in August, according to the Bureau of Labor Statistics. Over the last 12 months, consumer prices have risen 2.7%. Increases in energy and housing were the main movers of the CPI. Prices less food and energy rose a scant 0.1% in August, the smallest increase since April.
  • Producer prices in August fell for the first time in over a year, according to the Bureau of Labor Statistics. Prices dropped 0.1% after registering no change in July following a 0.3% increase in June. Receding prices for foods and trade services more than offset an increase in prices for energy products. Prices less foods, energy, and trade inched up 0.1%. Producer prices were up 2.8% from the 12 months ended in August.
  • According to the Census Bureau, retail sales increased 0.1% in August following a 0.7% (revised) jump in July. Retail sales are 6.6% above their August 2017 totals. Of particular note, gas station sales were up 20.3% from last August, while nonstore (online) sales were up 10.4%.
  • The federal deficit grew to $214 billion in August. The deficit was $77 billion in July. For the month, government receipts totaled $219 billion, while expenditures were about $433 billion. Individual income taxes were $1.5 trillion for the year ($1.4 trillion last year) while corporate income taxes were $164 billion for the year ($234 billion last year). Year-to-date, the deficit sits at $898 billion, or 33.3% higher than the deficit over the same period last year ($674 billion).
  • Job openings reached a new high of 6.9 million in July, according to the latest Job Openings and Labor Turnover Survey. Job openings increased in finance and insurance (46,000) and nondurable goods manufacturing (32,000), but decreased in retail trade (85,000), educational services (34,000), and federal government (19,000). There were 5.7 million hires in July and 5.5 million total separations.
  • Import prices fell 0.6% in August, the largest monthly drop since prices fell 1.3% in January 2016. For the 12 months ended in August, import prices have advanced 3.7%. Prices for U.S. exports decreased 0.1% in August, after declining 0.5% in July. Export prices advanced 3.6% for the year ended in August.
  • The latest report from the Federal Reserve indicates that industrial production rose 0.4% in August for its third consecutive monthly increase. Manufacturing jumped up 0.2% on the strength of a rise in motor vehicles and parts production. The output of utilities advanced 1.2% and mining production increased 0.7%.
  • In the week ended September 8, the advance figure for seasonally adjusted initial claims for unemployment insurance was 204,000, a decrease of 1,000 from the previous week, which was revised up by 2,000. This is the lowest level for initial claims since December 6, 1969, when it was 202,000. According to the Department of Labor, the advance rate for insured unemployment claims remained at 1.2% for the week ended September 1. The advance number of those receiving unemployment insurance benefits during the week ended September 1 was $1,696,000, a decrease of 15,000 from the prior week’s level, which was revised up by 4,000. This is the lowest level for insured unemployment since December 1, 1973, when it was 1,692,000.

Eye on the Week Ahead

The housing sector is in the news next week with reports for August on housing starts and sales of existing homes.

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What I’m Watching This Week – 10 September 2018

The Markets (as of market close September 7, 2018)

Apparently, a strong labor report, which included increasing wages, wasn’t enough to quell investors’ fears as stocks plummeted last week. President Trump’s threat to raise tariffs on an additional $267 billion in Chinese imports heightened trade war rhetoric and frightened investors. Each of the benchmark indexes listed here felt the heat, particularly the tech-heavy Nasdaq, which sank over 2.50%. The small caps and energy stocks of the Russell 2000 were also hit hard, as was the Global Dow. The S&P 500 dropped over 1.0%. Only the Dow managed to weather the storm, falling a comparatively slight 0.19%. The favorable employment report may be seen as a sign of rising interest rates as demand for long-term bonds increased, sending prices lower and yields up (bond prices move in the opposite direction from bond yields).

The price of crude oil (WTI) dropped last week, closing at $67.84 per barrel, down from the prior week’s closing price of $69.90 per barrel. The price of gold (COMEX) fell to $1,201.80 by early Friday evening, down from the prior week’s price of $1,206.80. The national average retail regular gasoline price fell to $2.824 per gallon on September 3, 2018, $0.003 lower than the prior week’s price but $0.145 more than a year ago.

Market/Index 2017 Close Prior Week As of 9/7 Weekly Change YTD Change
DJIA 24719.22 25964.82 25916.54 -0.19% 4.84%
Nasdaq 6903.39 8109.54 7902.54 -2.55% 14.47%
S&P 500 2673.61 2901.52 2871.68 -1.03% 7.41%
Russell 2000 1535.51 1740.75 1713.18 -1.58% 11.57%
Global Dow 3085.41 3075.52 3029.59 -1.49% -1.81%
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% 2.85% 2.94% 9 bps 53 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 latest report from the Bureau of Labor Statistics, 201,000 new jobs were added in August while the unemployment rate remained at 3.9%. Job gains occurred in professional and business services, healthcare, wholesale trade, transportation and warehousing, and mining. The employment-population ratio (a ratio of the civilian labor force currently employed compared to the total working-age population) fell 0.2 percentage point to 60.3%. The average workweek for all employees was unchanged at 34.5 hours in August. Last month, average hourly earnings rose by $0.10 to $27.16. Over the year, average hourly earnings have increased by $0.77, or 2.9%. Strong job gains and wage growth are likely to lead to a rate hike when the Federal Open Market Committee meets at the end of this month.
  • Supply executives were generally upbeat in their assessment of the manufacturing sector in August, according to the Manufacturing ISM® Report On Business®. Not only did the purchasing managers index advance in August over July, but growth was noted in new orders, production, employment, supplier deliveries, and inventories. Only prices fell in August.
  • A similar survey from IHS Markit showed growth in the manufacturing sector, but at a slower pace in August. The IHS Markit final U.S. Manufacturing Purchasing Managers’ Index™ (PMI™) registered 54.7 in August, down from 55.3 in July. Growth in new orders slowed only slightly, while backlogs and employment rose.
  • Economic activity in the non-manufacturing (services) sector grew in August for the 103rd consecutive month, according to the latest Non-Manufacturing ISM® Report On Business®. Within the non-manufacturing sector, also advancing at a faster pace in August over July were business activity, new orders, and employment. Prices in August grew, but at a slower pace than in the previous month.
  • The Bureau of Economic Analysis reported that the goods and services trade deficit was $50.1 billion in July, up $4.3 billion from June’s revised figures. This is the largest monthly increase since July 2015. July exports were $211.1 billion, $2.1 billion less than June exports. July imports were $261.2 billion, $2.2 billion more than June imports. Year-to-date, the goods, and services deficit increased $22.0 billion, or 7.0% higher than 2017. Exports increased $115.7 billion, or 8.6%. Imports increased $137.7 billion, or 8.3%. Of particular note, the deficit increased $1.7 billion with the European Union ($14.5 billion) and $1.7 billion with China ($34.1 billion).
  • In the week ended September 1, the advance figure for seasonally adjusted initial claims for unemployment insurance was 203,000, a decrease of 10,000 from the previous week. This is the lowest level for initial claims since December 6, 1969, when it was 202,000. According to the Department of Labor, the advance rate for insured unemployment claims remained at 1.2% for the week ended August 25. The advance number of those receiving unemployment insurance benefits during the week ended August 25 was 1,707,000, a decrease of 3,000 from the prior week’s level, which was revised up by 2,000.

Eye on the Week Ahead

Inflation indicators are available next week with the Producer Price Index, Consumer Price Index, and retail sales report. While trending slightly higher, inflationary pressures generally have been subdued.

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Monthly Market Review – August 2018

The Markets (as of market close August 31, 2018)

Stocks enjoyed a record-setting month in August as several of the benchmark indexes reached new all-time highs during the month. Of the benchmark indexes listed here, only the Global Dow lost value. Otherwise, indexes representing large caps, small caps, and tech stocks all posted noteworthy monthly gains. A strong employment situation, positive economic growth, and relatively stagnant inflation have contributed to investor confidence, despite ongoing global trade wars. Tech stocks soared in August, as the Nasdaq jumped almost 6.0% — its strongest August showing in 18 years. Following the Nasdaq was the Russell 2000, which gained over 4.0%. The large caps of both the Dow and S&P 500 also posted notable gains.

By the close of trading on August 31, the price of crude oil (WTI) was $69.90 per barrel, up from the July 31 price of $68.43 per barrel. The national average retail regular gasoline price was $2.827 per gallon on August 27, down from the July 30 selling price of $2.846 but $0.418 more than a year ago. The price of gold decreased by the end of August, closing at $1,206.90 on the last trading day of the month, down from its price of $1,232.90 at the end of July.

Market/Index 2017 Close Prior Month As of August 31 Month Change YTD Change
DJIA 24719.22 25415.19 25964.82 2.16% 5.04%
NASDAQ 6903.39 7671.79 8109.54 5.71% 17.47%
S&P 500 2673.61 2816.29 2901.52 3.03% 8.52%
Russell 2000 1535.51 1670.80 1740.75 4.19% 13.37%
Global Dow 3085.41 3091.69 3075.52 -0.52% -0.32%
Fed. Funds 1.25%-1.50% 1.75%-2.00% 1.75%-2.00% 0 bps 50 bps
10-year Treasuries 2.41% 2.96% 2.85% -11 bps 44 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 157,000 in July after adding 248,000 (revised) new jobs in June. The average monthly gain over the last 12 months is 203,000. Notable employment gains for the month occurred in professional and business services (51,000), manufacturing (37,000), and health care (34,000). The unemployment rate edged down 0.1% to 3.9%. The number of unemployed persons declined by 284,000 to 6.3 million. Both measures were down over the year, by 0.4 percentage point and 676,000, respectively. The labor participation rate was unchanged at 62.9%. The employment-population ratio increased 0.1% to 60.5%. The average workweek in July decreased by 0.1 hour to 34.5 hours. Average hourly earnings increased by $0.07 to $27.05. Over the last 12 months, average hourly earnings have risen $0.71, or 2.7%.
  • FOMC/interest rates: The Federal Open Market Committee met in early August and held the target rate at 1.75%-2.00%. However, there is nothing from this meeting that would preclude two more 25 basis point rate increases before the end of 2018.
  • GDP/budget: The second-quarter gross domestic product showed the economy expanded at an annual rate of 4.2%, according to the Bureau of Economic Analysis. The first-quarter GDP grew at an annualized rate of 2.2%. According to the report, consumer spending (personal consumption expenditures) surged, expanding at a rate of 3.8% (0.5% in the first quarter). Net exports expanded by 9.1%. Imports fell 0.4%, while government spending grew by 2.3% (1.5% in the first quarter). With only two months to go in fiscal 2018, the government deficit sits at roughly $684 billion. The deficit increased by $76.9 billion in July. The FY 2018 deficit is $118 billion, or 20.8%, greater than the deficit over a comparable period last year. Through 10 months of the fiscal year, individual tax receipts are up 7.8% while corporate receipts are down 28.5%.
  • Inflation/consumer spending: Prices for consumer goods and services rose only 0.1% in July. Core consumer prices, a tracker of inflationary trends, increased 0.2% in July (0.1% in June). Core prices have increased 2.0% over the last 12 months. Consumer spending jumped 0.4% in July, matching June’s increase, while consumer income rose 0.3%.
  • The Consumer Price Index rose 0.2% in July after increasing 0.1% in June. Over the last 12 months ended in July, consumer prices are up 2.9% — the same increase as for the period ended in June. Core prices, which exclude food and energy, climbed 0.2% for the month (the same as May and June), and are up 2.4% over the 12 months ended in July.
  • According to the Producer Price Index, the prices companies receive for goods and services were unchanged in July from June. Producer prices have increased 3.3% over the 12 months ended in July. Prices less food and energy crept up 0.1% in July and are up 2.7% over the last 12 months.
  • Housing: Sales of residential properties continued to slow in July. Total existing-home sales fell 0.7% for the month after dropping 0.6% in June. Year-over-year, existing home sales are down 1.5%. The July median price for existing homes was $269,600, down from $276,900 in June. Nevertheless, prices are up 4.55% from July 2017. Total housing inventory for existing homes for sale dropped 0.5%, representing a 4.3-month supply at the current sales pace. New home sales fell 1.7% in July from June, but are up 12.8% over the July 2017 estimate. The median sales price of new houses sold in July was $328,700 ($302,100 in June). The average sales price was $394,300 ($363,300 in June). Inventory rose slightly in July to 5.9 months, up from the 5.7-month supply in June.
  • Manufacturing: Industrial production advanced 0.1% in July after climbing 0.6% in June. For the second quarter as a whole, industrial production advanced at an annual rate of 6.0% — its third consecutive quarterly increase. Manufacturing output increased 0.8% following a 0.7% drop in May. Manufacturing production increased 0.3%, the output of utilities moved down 0.5%, and, after posting five consecutive months of growth, the index for mining declined 0.3%. Compared to last July, total industrial production is up 4.2%.
  • Imports and exports: The advance report on international trade in goods revealed that the trade gap expanded in July by $4.3 billion, or 6.3%, over June. The deficit for July was $72.2 billion (the June deficit was $67.9 billion). July exports of goods fell 1.7%, while imports increased 0.9%. On a seasonally adjusted basis, July’s total imports ($212.2 billion) far exceeded exports ($140.0 billion). Prices for imported goods were unchanged in July from June. Export prices fell 0.5%. Over the last twelve months ended in July, import prices are up 4.8%, while export prices have advanced 4.3%.
  • International markets: Trade wars between the United States and China continued to escalate. A proposed trade agreement between the United States and Mexico is pending legislative approval. The eurozone’s economy slowed during the second quarter as trade tensions with the United States hampered economic growth. Slowing business investment, decreasing industrial production, and dwindling exports also helped to slow economic growth in Europe.
  • Consumer confidence: Consumer confidence, as measured by The Conference Board Consumer Confidence Index®, increased in August. According to a report from The Conference Board, consumer confidence increased to its highest level since October 2000. Surveyed consumers reported increased confidence in present economic conditions, business, and the labor market.

Eye on the Month Ahead

Stocks enjoyed a very good August with benchmark indexes reaching new highs. As the summer and third quarter come to a close, September may prove to be a very telling month for the remainder of the year. Housing has been sliding while inflation is creeping higher. The Federal Open Market Committee meets at the end of the month and could bump interest rates up by 25 basis points. Favorable corporate earnings reports could further bolster the economy in general and stocks specifically, as the current administration continues to negotiate new trade agreements.

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What I’m Watching This Week – 4 September 2018

The Markets (as of market close August 31, 2018)

Trade concerns pushed stocks lower at the end of the week, wiping out some early-week gains. Canada and the United States couldn’t come up with a trade agreement, and a major U.S. auto manufacturer changed its plans to import a car made in China due to increased tariffs. Nevertheless, each of the indexes listed here gained ground on their respective prior week’s value. The Nasdaq led the way for the week and continues to enjoy the largest yearly gain through 2018. The S&P 500 and Dow posted solid gains, while the small-cap stocks of the Russell 2000 pushed that index higher. Only the Global Dow recorded a very modest gain of less than .20%.

The price of crude oil (WTI) surged last week, closing at $69.90 per barrel, up from the prior week’s closing price of $65.91 per barrel. The price of gold (COMEX) fell to $1,206.80 by early Friday evening, down from the prior week’s price of $1,212.10. The national average retail regular gasoline price climbed to $2.827 per gallon on August 27, 2018, $0.006 higher than the prior week’s price and $0.428 more than a year ago.

Market/Index 2017 Close Prior Week As of 8/31 Weekly Change YTD Change
DJIA 24719.22 25790.35 25964.82 0.68% 5.04%
Nasdaq 6903.39 7945.98 8109.54 2.06% 17.47%
S&P 500 2673.61 2874.69 2901.52 0.93% 8.52%
Russell 2000 1535.51 1725.67 1740.75 0.87% 13.37%
Global Dow 3085.41 3070.76 3075.52 0.16% -0.32%
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% 2.82% 2.85% 3 bps 44 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

  • With more economic source data from which to draw, the second release of the gross domestic product for the second quarter showed the economy grew at an annual rate of 4.2%. The first reading estimated a growth rate of 4.1%. In the first quarter, the GDP advanced at an annual rate of 2.2%. Real gross domestic income (GDI) increased 1.8% in the second quarter, compared with an increase of 3.9% in the first quarter. Contributing to the expanding economy was consumer spending, which jumped to 3.8% (0.5% in the first quarter), and government spending (up 2.3% from 1.5% in the prior quarter). Tax cuts and strong growth pushed corporate profits higher, climbing 3.3% in the second quarter and 7.7% over the past year.
  • Job security and confidence in the economy may have pushed consumers to spend more than they made in July. According to the latest information from the Bureau of Economic Analysis, July saw pre- and after-tax personal income rise 0.3% while consumer spending advanced 0.4%. Prices for consumer products and services inched up only 0.1%, while core prices (less food and energy) bumped up 0.2%. Over the last 12 months ended in July, prices are up 2.3% and core prices have increased 2.0%.
  • The goods trade deficit expanded by $4.3 billion, or 6.3%, to $72.2 billion in July. Exports of goods for July were $140.0 billion, $2.5 billion less than June exports. Imports of goods for July were $212.2 billion, $1.8 billion more than June imports.
  • In the week ended August 25, the advance figure for seasonally adjusted initial claims for unemployment insurance was 213,000, an increase of 3,000 from the previous week. According to the Department of Labor, the advance rate for insured unemployment claims remained at 1.2% for the week ended August 18. The advance number of those receiving unemployment insurance benefits during the week ended August 18 was 1,708,000, a decrease of 20,000 from the prior week’s level, which was revised up by 1,000.

Eye on the Week Ahead

The international trade deficit for goods and services expanded at a rate of 7.3% in June as imports increased while exports receded. The July report is out this week and is expected to show decreasing exports and increasing imports — resulting in a larger trade deficit. The August report on employment is also out this week. Last month saw 157,000 new jobs added with an unemployment rate hovering around 3.9%.

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