Author: dredheadz

The Markets (as of market close October 26, 2018)

The benchmark indexes suffered another sharp decline last week. Each of the indexes listed here lost value, led by the Global Dow. The S&P 500 and the Nasdaq could be nearing a correction (down more than 10% from recent peaks) following last week’s drop. Equally noteworthy is the fact that all of the year-to-date gains have essentially dissipated, with only the Nasdaq still ahead of last year’s closing value. Quarterly earnings season reached its busiest time, offering a mixed bag with some major corporations posting healthy gains, while other companies reported a slowdown in revenue. Business investment has waned, while oil prices pulled energy stocks down.

The price of crude oil (WTI) fell once again last week, closing at $67.69 per barrel by late Friday, down from the prior week’s closing price of $69.37 per barrel. The price of gold (COMEX) rose for the fourth week in a row, reaching $1,236.10 by Friday evening, up from the prior week’s price of $1,230.00. The national average retail regular gasoline price was $2.841 per gallon on October 22, 2018, $0.038 lower than the prior week’s price but $0.362 higher than a year ago.

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 of the third-quarter gross domestic product showed the economy grew at a 3.5% annual rate. The second-quarter GDP increased 4.2%. Consumer spending was a major driver of the overall growth in the third quarter, jumping 4.0%, after increasing 3.8% in the second quarter. Nonresidential (business) investment inched up 0.8% in the third quarter, following a robust 8.7% bump in the prior quarter. As expected, residential investment fell a dismal 4.0% for the quarter and has been a negative for 2018. Also of note is the expanding deficit in net exports, which widened by $98 billion.
• The housing sector continued to slide in September as new home sales dipped 5.5% below their August rate. The pace of sales lagged despite more new homes on the market, as inventory increased from August’s 6.5- month supply to 7.1 months in September. Sales of new homes are 13.2% below the September 2017 rate. The median sales price of new houses sold in September was $320,000 ($319,200 in August). The average sales price was $377,200 ($384,500 in August). Rising mortgage rates and higher prices (along with a disastrous hurricane) may be undercutting the housing market, as sales of new and existing homes have stagnated.
• Led by a 1.9% jump in transportation, new orders for manufactured durable goods rose 0.8% in September, following a 4.6% jump in August. Excluding transportation, new orders edged up 0.1%. Shipments (1.3%), unfilled orders (0.8%), and inventories (0.7%) also showed gains in September over the prior month. The negative in this report is the 2.4% drop in capital goods orders. Capital goods are machinery and equipment used in everyday business. Capital goods orders are reflective of real business spending since they exclude large orders for defense, aircraft, and automobiles. Having fallen for the second consecutive month, the decline in capital goods orders could be a sign of concerns over global trade rifts.
• The international trade deficit was $76.0 billion in September, up $0.6 billion from $75.5 billion in August. Exports of goods for September were $141.0 billion, $2.5 billion more than August exports. Imports of goods for September were $217.0 billion, $3.1 billion more than August imports. From September 2017, exports are up 8.3%, while imports have advanced 11.2%. Overall, the goods deficit in September of 2018 is $11.1 billion, or 17%, higher than the deficit a year ago.
• For the week ended October 20, the advance figure for seasonally adjusted initial claims for unemployment insurance was 215,000, an increase of 5,000 from the previous week’s level. According to the Department of Labor, the advance rate for insured unemployment claims fell to 1.1% for the week ended October 13. The advance number of those receiving unemployment insurance benefits during the week ended October 13 was 1,636,000, a decrease of 5,000 from the prior week’s level, which was revised up by 1,000. This is the lowest level for insured unemployment since August 4, 1973, when it was 1,633,000.

Eye on the Week Ahead

The employment figures for October are out this week. A good report is usually enough to move the market in a positive direction, at least temporarily.

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 October 19, 2018)

After a sweat-inducing ride on Wall Street last week, several earnings reports helped ease some of the pain in domestic large caps by Friday’s close. The Dow managed to see a 0.41% rise for the week, while the S&P 500 was relatively unchanged. The Nasdaq, Russell 2000, and Global Dow all saw losses of less than 1%. Observers attributed ongoing volatility to concerns about interest rates and the global economy.

The price of crude oil (WTI) fell once again last week, closing at $69.37 per barrel by late Friday, down from the prior week’s closing price of $71.49 per barrel. The price of gold (COMEX) rose for the third week in a row, reaching $1,230.00 by Friday evening, up from the prior week’s price of $1,221.10. The national average retail regular gasoline price was $2.879 per gallon on October 15, 2018, $0.024 lower than the prior week’s price but $0.390 more than a year ago.

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

• Total retail sales inched up 0.1% in September, the same increase as in August. Retail sales are 4.7% ahead of their September 2017 rate. Some retailers enjoyed a strong September, including motor vehicle and parts dealers (0.8%), furniture and home furnishings stores (1.1%), nonstore (online) retailers (1.1%), and electronics and appliance stores (0.9%). Retailers that saw a drop in sales include food services and bars (-1.8%), department stores (-0.8%), and health and personal care stores (-0.3%).
• The federal budget posted a surplus of $119.1 billion in September — the last month of the fiscal year. For fiscal year 2018, the total deficit was $779 billion, 17% higher than the prior fiscal year deficit of $665.8 billion. For the year, government outlays totaled $4.1 trillion, $3.2 trillion above fiscal 2017. Compared to last year, Medicare spending increased 4.5%, defense spending was 5.3% higher, and net interest expense was 24% greater, reflecting the increased cost to fund the larger government deficit. On the other hand, government receipts for the fiscal year increased by 0.4%, as a 6.1% increase in individual tax receipts was partially offset by a 31% drop in corporate tax receipts.
• September proved to be another weak month for new home construction. Impacted by Hurricane Florence, building permits (-0.6%), housing starts (-5.3%), and housing completions (-4.1%) each failed to reach their August levels.
• According to the Federal Reserve, industrial production increased 0.3% in September, about the same rate of change as in the previous two months. In September, manufacturing increased 0.2% and mining advanced 0.5%. The output of utilities was unchanged from August.
• According to the Job Openings and Labor Turnover Summary, the number of job openings reached a series high of 7.1 million on the last business day of August. The job openings rate was 4.6%. The number of hires in August soared to 5.8 million. The hires rate was 3.9%. Over the 12 months ended in August, hires totaled 67.0 million and separations totaled 64.7 million, yielding a net employment gain of 2.4 million.
• Existing home sales declined in nearly every region of the country last month, according to the National Association of Realtors®. The Midwest, which reported no change from August to September, was the only region to avoid a drop. Total sales fell 3.4% in September to a seasonally adjusted rate of 5.15 million, representing a 4.1% drop from a year prior and the lowest sales rate since November 2015. Lawrence Yun, NAR’s chief economist, attributed the decline to higher mortgage interest rates and a low level of listings in the “affordable” range.
• For the week ended October 13, the advance figure for seasonally adjusted initial claims for unemployment insurance was 210,000, a decrease of 5,000 from the previous week’s level. According to the Department of Labor, the advance rate for insured unemployment claims remained at 1.2%. The advance number of those receiving unemployment insurance benefits during the week ended October 6 was 1,640,000, a decrease of 13,000 from the prior week’s level, which was revised down by 7,000.

Eye on the Week Ahead

The first estimate of the gross domestic product for the third quarter is out this week. Increasing imports, which are a subtraction in the calculation of the GDP, may pull the economic growth rate back from the second quarter’s 4.2%.

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 October 12, 2018)

Despite a surge at the end of the week, stocks plummeted last week. Each of the benchmark indexes listed here lost value, led by the small caps of the Russell 2000, which fell over 5.0%. The S&P 500, which rebounded last Friday, suffered through its biggest two-day decline last Wednesday and Thursday since early February. The Cboe Volatility Index shot to its highest level since late March last Thursday as trading volumes soared. The cause of the latest stock dump is hard for analysts to determine, and may be due to a combination of the trade conflict between the United States and China, a weakening global economy, and rising interest rates. As investors moved from equities, some money was pushed to bonds, driving long-term bond yields lower as prices rose.

The price of crude oil (WTI) fell back last week, closing at $71.49 per barrel by late Friday, down from the prior week’s closing price of $74.29 per barrel. The price of gold (COMEX) rose for the second week in a row, closing at $1,221.10 by early Friday evening, up from the prior week’s price of $1,206.70. The national average retail regular gasoline price was $2.903 per gallon on October 8, 2018, $0.037 higher than the prior week’s price and $0.399 more than a year ago.

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 pressures at the consumer level remained subdued last month as the Consumer Price Index increased a scant 0.1%. Over the last 12 months, the CPI has risen 2.3%. The index less food and energy rose 0.1% in September, the same increase as in August, and is up 2.2% over the last 12 months.
• Sellers of domestic goods and services saw their prices rise 0.2% in September, according to the Bureau of Labor Statistics. Prices fell 0.1% in August. Over the past 12 months ended in September, producer prices have risen 2.6%. Prices less foods, energy, and trade services moved up 0.4% for the month, the largest increase since January, when prices rose 0.5%. A closer look at prices shows that services, particularly transportation services, drove the price index. Goods prices actually fell 0.1% for the month, as energy prices dropped 0.8% and food prices fell 0.6%. However, goods prices less foods and energy actually rose 0.2% in September. Overall, price pressures at the producer level remained relatively subdued in September.
• Import prices rebounded in September, climbing 0.5%, after declining 0.4% in August. Higher fuel prices led the import price increase. For the year, import prices are up 3.5%. Export prices recorded no change in September following a 0.2% drop in August. Export prices have advanced 2.7% for the year ended in September 2018. A strong dollar has kept upward pressures of import prices in check.
• For the week ended October 6, the advance figure for seasonally adjusted initial claims for unemployment insurance was 214,000, an increase of 7,000 from the previous week’s level. According to the Department of Labor, the advance rate for insured unemployment claims remained at 1.2%. The advance number of those receiving unemployment insurance benefits during the week ended September 29 was 1,660,000, an increase of 4,000 from the prior week’s level, which was revised up by 6,000.

Eye on the Week Ahead

The housing sector is one segment of the economy that’s been lagging for some time. September’s figures on housing starts and existing home sales may finally show some upward movement, particularly in home prices.

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 October 5, 2018)

Another tough week on Wall Street as stocks and long-term bond prices fell, pushing yields higher. While each of the benchmark indexes listed here lost value last week, the large caps of the Dow and S&P 500 held up better than the tech stocks of the Nasdaq and the small-cap Russell 2000. With the continuing rise in oil prices, energy stocks and utilities fared well as did financial shares, which benefitted from a spike in interest long-term rates. On the other hand, tech stocks fell, dropping the Nasdaq to its worst week since early spring. Economic news continues to be somewhat encouraging, making another Fed interest rate hike likely. Speaking of interest rates, they’ve been on the rise, pushing long-term bond prices lower and yields higher.

The price of crude oil (WTI) continued to surge, closing at $74.29 per barrel by late Friday, up from the prior week’s closing price of $73.53 per barrel. The price of gold (COMEX) rose, closing at $1,206.70 by early Friday evening, up from the prior week’s price of $1,195.20. The national average retail regular gasoline price was $2.866 per gallon on October 1, 2018, $0.022 higher than the prior week’s price and $0.301 more than a year ago.

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 September unemployment rate fell to its lowest rate since 1969, according to the latest report from the Bureau of Labor Statistics. The unemployment rate declined by 0.2 percentage point to 3.7% in September, and the number of unemployed persons decreased by 270,000 to 6.0 million. Over the year, the unemployment rate and the number of unemployed persons declined by 0.5 percentage point and 795,000, respectively. Job gains for the month were a bit tempered at 134,000, although August’s figure was revised 69,000 higher to 270,000. Over the last 12 months, the average monthly gain sits at 201,000. Jobs were added in professional and business services (54,000), health care (26,000), transportation and warehousing (24,000), and construction (23,000). The average workweek remained unchanged at 34.5 hours in September. The average hourly earnings for all employees rose by $0.08 to $27.24. Over the year, average hourly earnings have increased by $0.73, or 2.8%.
• While the effects of trade tariffs may still be unknown, the trade deficit continues to expand. According to the Census Bureau, the goods and services deficit was $53.2 billion in August, up $3.2 billion from July. August exports were $209.4 billion, $1.7 billion less than July exports. August imports were $262.7 billion, $1.5 billion more than July imports. In what is sure to impact the third-quarter GDP, exports fell 0.8% in August after dropping 1.0% in July. While service exports actually rose 0.3%, exports of goods declined 1.4%.
• Reaching a four-month high, the IHS Markit final U.S. Manufacturing Purchasing Managers’ Index™ (PMI™) registered 55.6 in September, up from 54.7 in August. Production across the goods-producing sector rose at an accelerated and sharp rate in September due to a sustained rise in new business and favorable demand conditions.
• In contrast to the Markit PMI™, the Institute for Supply Management® reported that its PMI® registered 59.8%, a decrease of 1.5 percentage points from the August reading. Driving the fall was a drop in new orders. Otherwise, production and employment increased in September.
• In the non-manufacturing (services) sector, the latest Non-Manufacturing ISM® Report On Business® for September revealed survey respondents were bullish in their assessment of business in the services. In fact, growth in the non-manufacturing sector is moving at a faster rate and is at an all-time high since the inception of the composite index in 2008. Business activity, new orders, employment, and prices all increased in September over their August totals.
• For the week ended September 29, the advance figure for seasonally adjusted initial claims for unemployment insurance was 207,000, a decrease of 8,000 from the previous week’s level, which was revised up by 1,000. According to the Department of Labor, the advance rate for insured unemployment claims remained at 1.2%. The advance number of those receiving unemployment insurance benefits during the week ended September 22 was 1,650,000, a decrease of 13,000 from the prior week’s level.

Eye on the Week Ahead

While consumer spending has risen, price inflation has been slow. Out this week are both the Producer Price Index and the Consumer Price Index for September, which are expected to show only marginal price increases.

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 September 28, 2018)

The third quarter proved to be very strong for domestic stocks. July saw the major benchmark indexes listed here enjoy robust gains, led by the large caps of the Dow and S&P 500. Global stocks also rebounded in July, with the Global Dow surging 3.76% by the end of July. Favorable economic indicators and encouraging corporate earnings reports were enough to quell investor concerns over the continuing saga that is the back-and-forth trade tariffs between the United States and China.

August saw stocks continue to push ahead. Several of the benchmark indexes listed here reached record highs during the month. Both the Dow and S&P 500 posted monthly gains of 2.16% and 3.03%, respectively. However, tech stocks and small caps made notable monthly gains. The Nasdaq increased by almost 6.0%, while the Russell 2000 eclipsed 4.0%. Corporate earnings continued to soar on the heels of corporate tax cuts, consumer spending, and global growth.

Toward the end of September, a new round of reciprocal tariffs between the United States and China kicked in as it appears neither economic giant is ready to flinch. The United States imposed an additional $200 billion in tariffs on Chinese goods, prompting China to assess $60 billion worth of tariffs on U.S. products. This follows each country’s initial volley of $50 billion in tariffs on their respective imports. As a result, the benchmark indexes listed here produced a mixed bag of returns for the month. The large caps of the Dow and S&P 500 posted gains, as did the Global Dow, which rose a strong 1.50% for September. However, the Nasdaq and the Russell 2000 fell from their August end-of-month values.

For the third quarter, each of the indexes listed here posted solid gains, led by the large caps of the Dow and the S&P 500. The tech-heavy Nasdaq continued its strong showing while the small caps of the Russell 2000 posted moderate quarterly gains. Prices for 10-year Treasuries dropped by the end of the quarter, pushing yields higher by 20 basis points. Crude oil prices closed the quarter at about $73.53 per barrel by the end of September, $0.72 per barrel lower than prices at the close of the second quarter. Gold closed the quarter at roughly $1,195.20, noticeably lower than its $1,254.20 price at the end of June. Regular gasoline, which was $2.833 on the 25th of June, inched higher to $2.844 on September 24.

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 201,000 in August after adding 147,000 (revised) new jobs in July. The average monthly gain over the last 12 months is 196,000. Notable employment gains for the month occurred in professional and business services (53,000), health care (33,000), and wholesale trade (22,000). The unemployment rate was unchanged for the month at 3.9% (4.4% in August 2017). The number of unemployed persons fell to 6.2 million (7.1 million unemployed in August 2017). The labor participation rate was relatively unchanged at 62.7%. The employment-population ratio decreased 0.2 percentage point to 60.3%. The average workweek in August was unchanged at 34.5 hours. Average hourly earnings increased by $0.10 to $27.16. Over the last 12 months, average hourly earnings have risen $0.77, or 2.9%.

• FOMC/interest rates: The Federal Open Market Committee met in late September and raised the target rate range 25 basis points to 2.00%-2.25%. This is the highest rate since April 2008. There is also the likelihood that another 25 basis point increase is on tap for December, with the possibility of three more hikes coming next year.

• GDP/budget: The second-quarter gross domestic product showed the economy expanded at an annualized 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 surged, expanding at a rate of 3.8% (0.5% in the first quarter). Net exports expanded by 9.3%. Imports fell 0.6%, while government spending grew by 2.5% (1.5% in the first quarter). The government deficit sits at roughly $898 billion through August — an increase of almost $224 billion, or 33.3%, over the same period last fiscal year. The deficit increased by $137 billion in August over July. Through 11 months of the fiscal year, individual tax receipts are up 7.0% while corporate tax receipts are down 30.4%.

• Inflation/consumer spending: Inflationary pressures have remained weak while consumer spending continues to be strong. Prices for consumer goods and services rose only 0.1% in August, the same mark reached in July. Core consumer prices, a tracker of inflationary trends, showed no increase following July’s 0.2% gain. Core prices (excluding food and energy) have increased 2.0% over the last 12 months. Consumer spending climbed 0.3% in August after jumping 0.4% in July. Consumer income (pre-tax and after-tax) rose 0.3% for the month.
• The Consumer Price Index rose 0.2% in August after increasing 0.2% in July. Over the last 12 months ended in August, consumer prices are up 2.7%. Core prices, which exclude food and energy, climbed 0.1% for the month and are up 2.2% over the 12 months ended in August.
• According to the Producer Price Index, the prices companies receive for goods and services actually fell 0.1% in August after remaining unchanged in July from June. Producer prices have increased 2.8% over the 12 months ended in August. Prices less food and energy also dropped 0.1% in August from July, and are up 2.9% over the last 12 months.
• Housing: New home sales rose 3.5% in August after falling 1.7% in July. Sales are up 12.7% over the August 2017 estimate. New home prices fell in August. The median sales price of new houses sold in August was $320,200 ($328,700 in July). The August average sales price was $388,400 ($389,000 in July). Inventory rose to an estimated 6.1-month supply, slightly behind July’s 6.2 months. Sales of existing homes didn’t expand in August, but they didn’t slow down either, as they maintained their pace set in July. Year-over-year, existing home sales are down 1.5%. The August median price for existing homes was $264,800, down from $269,600 in July. Nevertheless, prices are up 4.6% from August 2017. Total housing inventory for existing homes for sale in August remained unchanged from July, representing a 4.3-month supply at the current sales pace.

• Manufacturing: Industrial production advanced 0.4% in August, its third consecutive monthly increase. For the year, industrial production has advanced 4.9%. Manufacturing output increased 0.2% following a 0.3% increase in July. The output of utilities moved up 1.2% on the heels of a marginal 0.1% bump in July. The index for mining gained 0.7%. New orders for long-lasting durable goods, up two of the past three months, grew a robust 4.5% in August, following a 1.2% July decrease. Shipments jumped 0.8% and unfilled orders increased 0.9%, while inventories decreased 0.4%.

• Imports and exports: The advance report on international trade in goods revealed that the trade gap expanded in August by $3.8 billion, or nearly 5.0%, over July. The deficit for August was $75.8 billion compared with July’s deficit of $72.2 billion. August exports of goods fell 1.6%, while imports increased 0.7%. Prices for imported goods fell 0.6% in August after dropping 0.1% in July. Export prices decreased 0.1% for the month. Over the last 12 months ended in August, import prices are up 3.7%, while export prices have advanced 3.6%.

• International markets: Some global stocks have enjoyed a strong run of late. Japanese stocks have approached highs not seen since the early 1990s. Germany, France, and the United Kingdom all saw gains in their respective stock benchmarks. While stocks have flourished, tensions have risen between the United Kingdom and the European Union as they continue to hash out a Brexit deal. Throughout the past several months, the ever-escalating trade battle between the United States and China has weighed on investors around the globe. Toward the end of the month, Chinese stock benchmarks gained strength, possibly signaling investor apathy toward the potential impact of the trade war with the United States.

• Consumer confidence: Consumer confidence, as measured by The Conference Board Consumer Confidence Index®, soared in September, nearing an 18-year high. Consumer confidence in present economic conditions grew, as did consumer expectations for continued economic growth.

Eye on the Month Ahead

The summer months proved full of volatility for stocks, as investors were inundated with negative rhetoric between the United States and several of its trade partners. The last quarter of the year is expected to bring much of the same. The Federal Open Market Committee meets twice more, in early November and mid-December, with the likelihood of at least one more interest rate increase on tap. The economy enjoyed robust growth during the second quarter, according to the gross domestic product. Will growth approach 4.0% in the last quarter of the year? If consumer spending continues to expand as it did during the summer months, economic expansion could equal or surpass third-quarter growth rate.

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 September 28, 2018)

Rising interest rates and ramped-up trade wars put a damper on stocks last week. While not unanticipated, the Fed raised the federal funds target rate 25 basis points and intimated that another hike is likely for December. On the trade front, the United States imposed tariffs of 10% on $200 billion worth of Chinese goods, prompting the Chinese government to threaten tariffs on $60 billion of U.S. imports. As was the case the prior week, the benchmark indexes listed here ended last week with mixed returns. The tech-heavy Nasdaq posted solid gains while the remaining indexes suffered losses, led by the Dow and Global Dow, each of which fell more than 1.0%.

The price of crude oil (WTI) continued to surge, closing at $73.53 per barrel by late Friday, up from the prior week’s closing price of $70.71 per barrel. The price of gold (COMEX) fell, closing at $1,195.20 by early Friday evening, down from the prior week’s price of $1,203.30. The national average retail regular gasoline price was $2.844 per gallon on September 24, 2018, $0.003 higher than the prior week’s price and $0.261 more than a year ago.

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

• For the third time this year, the Fed raised interest rates while projecting another rate hike in December. Last week, the Federal Open Market Committee increased the target range for the federal funds rate 25 basis points to 2.00%-2.25%, marking its highest level since April 2008. In support of its decision, the Committee highlighted ongoing strengthening in the economy, labor, household spending, and business fixed investment. The Committee expects that further gradual increases in the target range for the federal funds rate will be consistent with sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2% objective. Of particular interest is the fact that the Committee apparently doesn’t see its policy as “accommodative,” language that had been included in several past statements. This change in language could mean the Committee views the current interest rate policy as closing in on the level estimated to sustain full employment and the Fed’s 2.0% inflation target, instead of stimulating the economy.
• The third and final estimate of the second-quarter gross domestic product came in at a strong 4.2% annualized rate of growth — its fastest pace in almost four years. The GDP grew at an annualized rate of 2.2% in the first quarter. Driving growth in the GDP for the second quarter was increased consumer spending (which accounts for about 75% of economic output), exports, and federal and state government spending.
• Consumer income and spending continue to surge, while prices for goods and services remain stagnant, according to the latest report from the Bureau of Economic Analysis. In August, both pre-tax and after-tax consumer income rose 0.3% — the same increase seen in July. After climbing 0.4% in July, consumer spending advanced 0.3% in August. On the other hand, inflation at the consumer level was weak, as prices for goods and services inched ahead 0.1% while core prices (excluding food and energy) showed no increase compared to July.
• Sales of new homes picked up the pace in August after lagging for several months. Sales increased by 3.5% over their July rate. Helping spur the market was increasing inventory and falling prices. The estimate of new homes for sale at the end of August was 318,000, representing a supply of 6.1 months. The median sales price fell to $320,200 in August, down from July’s median price of $328,100. August’s average sales price was $388,400, off slightly from the $389,000 average price in July.
• New orders for durable goods expanded at a rate of 4.5% in August. The increase was largely driven by a huge jump in the sale of civilian aircraft. Excluding aircraft, new orders for nondefense capital goods actually slipped 0.5%. Excluding transportation, durable goods orders increased only 0.1% in August over July.
• The international trade in goods deficit expanded in August by 5.3% over July. Exports of goods dropped $2.3 billion, or 1.6%, for the month. Imports increased 0.7%, or $1.5 billion, more in August than July. We may be seeing the effects of the tariff wars curtailing export trade and pushing imports higher.
• In the week ended September 22, the advance figure for seasonally adjusted initial claims for unemployment insurance was 214,000, an increase of 12,000 from the previous week’s level, which was revised up by 1,000. According to the Department of Labor, the advance rate for insured unemployment claims remained at 1.2% for the week ended September 15. The advance number of those receiving unemployment insurance benefits during the week ended September 15 was 1,661,000, an increase of 16,000 from the prior week’s level. This is the lowest level for insured unemployment since November 10, 1973, when it was 1,673,000.

Eye on the Week Ahead

September’s employment figures come out this week. Wage growth was prominent in August but may not be quite as strong in September.

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 September 21, 2018)

Performance of the benchmark indexes listed here was a mixed bag last week. Large caps of the Dow and S&P 500 outperformed the tech stocks of the Nasdaq and the small caps of the Russell 2000. Maybe investors are becoming immune to the ongoing trade battle between the United States and China, as threats of an additional $200 million in U.S. tariffs on Chinese imports didn’t seem to push investors away from stocks. The yield on 10-year Treasuries reached a four-month high last Thursday, ultimately closing at 3.06% by Friday afternoon, as prices for long-term bonds plummeted.

The price of crude oil (WTI) reached a two-month high last week, finally settling at $70.71 per barrel by late Friday, up from the prior week’s closing price of $68.98 per barrel. The price of gold (COMEX) rose for the first time in several weeks, reaching $1,203.30 by early Friday evening, up from the prior week’s price of $1,198.30. The national average retail regular gasoline price fell to $2.841 per gallon on September 17, 2018, $0.008 higher than the prior week’s price and $0.207 more than a year ago.

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 housing market remained stagnant in August, although it is showing signs of gaining momentum. Existing home sales, which had declined four straight months, did not change in August from July. Sales are down 1.5% from a year ago. Sales picked up in the Northeast and Midwest while remaining down in the South and West. The median price for existing homes in August was $264,800, up 4.6% from August 2017 ($253,100). Inventory for existing homes remained unchanged in August from the prior month, sitting at 1.92 million existing homes available for sale.
• Although applications for building permits fell in August, housing starts and completions notably increased. According to the latest report from the Census Bureau, building permits for privately owned housing units dropped 5.7% and permits for single-family homes decreased 6.1% in August from July. On the other hand, housing starts for all housing types jumped 9.2% above July’s figures, while the start of construction for single-family homes climbed 1.9% for the month. In what should add to new home inventory, housing completions rose 2.5% from July, led by an 11.6% increase in single-family home completions.
• In the week ended September 15, the advance figure for seasonally adjusted initial claims for unemployment insurance was 201,000, a decrease of 3,000 from the previous week’s level. This is the lowest level for initial claims since November 15, 1969, when it was 197,000. According to the Department of Labor, the advance rate for insured unemployment claims remained at 1.2% for the week ended September 8. The advance number of those receiving unemployment insurance benefits during the week ended September 8 was 1,645,000, a decrease of 55,000 from the prior week’s level, which was revised up by 4,000. This is the lowest level for insured unemployment since August 4, 1973, when it was 1,633,000.

Eye on the Week Ahead

This week will be full of important economic reports, highlighted by the final figures for the second-quarter gross domestic product. The Federal Open Market Committee meets this week, which is likely to result in an interest rate hike.

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 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.

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.

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 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.

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.

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