Author: dredheadz

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.

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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The Markets (as of market close August 24, 2018)

Despite a week that included yet more tariff trepidations and negative headlines on the political front, investors celebrated last Friday as several indexes hit new highs. The S&P 500 reached its first record since January, and cemented the current bull run as the longest in history. The Nasdaq and Russell 2000 also broke records, rising by 1.66% and 1.93%, respectively. Stock investors seemed to be reassured by Fed Chairman Jerome Powell’s optimistic comments during Friday’s conference of central bankers in Jackson Hole, Wyoming.

The price of crude oil (WTI) fell again last week, closing at $65.91 per barrel, down from the prior week’s closing price of $67.78 per barrel. The price of gold (COMEX) rose to $1,212.10 by early Friday evening, up from the prior week’s price of $1,191.20. The national average retail regular gasoline price fell to $2.821 per gallon on August 20, 2018, $0.022 lower than the prior week’s price but $0.461 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 National Association of Realtors^®reported that existing home sales fell for the fourth straight month in July to their slowest pace in over two years. Total existing-home sales dropped 0.7% to a seasonally adjusted annual rate of 5.34 million in July, from 5.38 million in June. Sales are now 1.5% below a year ago and have fallen on an annual basis for five consecutive months. NAR chief economist Lawrence Yun attributed the decline to potential buyers being priced out of the market or postponing their searches until more affordable options hit the market. July’s median existing-home price of $269,600 was 4.5% higher than it was a year ago.
• The U.S. Census Bureau and Department of Housing and Urban Development reported that sales of new single-family homes also dropped in July, falling 1.7% below the June rate. However, year over year, the rate of new home sales grew by nearly 13%. The median sales price was $328,700 in July, up from $322,900 a year prior.
• New orders for durable goods decreased 1.7% in July to $246.9 billion, according to the U.S. Census Bureau’s advance report on manufacturers’ shipments, inventories, and orders. Although the decrease follows a 0.7% increase in June, new orders have declined in three of the last four months. Transportation equipment, which also fell in three of the last four months, drove the decline. Excluding transportation, new orders increased 0.2%. After two consecutive months of increases, shipments also declined in July, falling by half a billion dollars (0.2%).
• In the week ended August 18, the advance figure for seasonally adjusted initial claims for unemployment insurance was 210,000, a decrease of 2,000 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 11. The advance number of those receiving unemployment insurance benefits during the week ended August 11 was 1,727,000, a decrease of 2,000 from the prior week’s level, which was revised up by 8,000.

Eye on the Week Ahead

The latest report on the second-quarter gross domestic product is out this week. The initial report, based on incomplete source data, showed the economy grew at an annualized rate of 4.1%. However, with more complete data available, this report may not be quite as positive, although it is expected to be very favorable nonetheless

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The Markets (as of market close August 17, 2018)

The large caps of the Dow and S&P 500 got a boost from a tentative agreement between the United States and China to settle their trade dispute by November. Strong corporate earnings reports also helped push stocks higher, particularly for the Dow, which rose close to 1.50% by last week’s end. The Nasdaq dipped more than a quarter of a percent while the Russell 2000 climbed higher. Long-term bond yields sank as increasing demand pushed prices higher (bond yields and prices move in opposite directions).

The price of crude oil (WTI) fell again last week, closing at $65.91 per barrel, down from the prior week’s closing price of $67.78 per barrel. The price of gold (COMEX) also dropped last week, closing at $1,191.20 by early Friday evening, down from the prior week’s price of $1,219.30. The national average retail regular gasoline price fell to $2.843 per gallon on August 13, 2018, $0.009 lower than the prior week’s price but $0.459 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

• Prices for U.S. imports recorded no change in July after edging down 0.1% in June. Higher fuel prices were offset by falling nonfuel prices. U.S. export prices decreased 0.5% in July following a 0.2% increase in June. The July decline was driven by a drop in agricultural export prices.
• In July, retail sales increased 0.5% from June, and are up 6.4% over July 2017. For July, several businesses saw sales enjoy noteworthy increases, including food and beverage stores (0.6%); motor vehicle and parts dealers (1.1%); furniture and home furnishing stores (2.1%); electronics and appliance stores (1.8%); and building material and garden equipment (1.8%). Gasoline stations sales climbed 1.8% for the month and are up 22.2% over the year. Internet sales increased 1.2% in July and are up 8.7% since last July.
• According to the Federal Reserve, industrial production edged up 0.1% in July after rising at an average pace of 0.5% over the previous five months. 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%. Overall, total industrial production was 4.2% higher in July than it was a year earlier.
• The number of building permits and housing starts increased in July, while housing completions lagged. According to the Census Bureau, building permits rose 1.5% above their June rate and are 4.2% greater than the July 2017 rate. Housing starts also expanded by 0.9% for the month. However, starts are still 1.4% below their rate last July. New home inventory won’t get much of a boost as housing completions fell 1.7% from June. Completions are 0.8% below their July 2017 pace.
• In the week ended August 11, there were 212,000 initial claims for unemployment insurance, a decrease of 2,000 from the previous week’s level, which was revised up by 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 August 4 was 1,721,000, a decrease of 39,000 from the prior week’s level, which was revised up by 5,000.

Eye on the Week Ahead

The latest information on the housing sector is available this week with reports on sales of existing and new homes in July. Housing prices have been rising and inventory is advancing at a snail’s pace making for a very slow-moving housing market.

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The Markets (as of market close August 10, 2018)

Despite the continued strength shown in corporate earnings reports, investors reeled in their enthusiasm last week, sending the large caps of both the S&P 500 and the Dow plummeting. Ongoing tensions between China, Russia, and now Turkey seem to have dampened investors’ confidence. Following new sanctions levied against Russia by the United States, Russian Prime Minister Medvedev threatened that Russia will consider U.S. sanctions a declaration of economic war. Meanwhile, U.S. threats against Turkey for refusing to release an American pastor added to Turkey’s economic crisis as the lira fell 14% against the dollar. And China has warned of a protracted trade war if the United States continues to add tariffs on Chinese goods.

All of which has affected the benchmark indexes listed here. In addition to the faltering Dow and S&P 500, the Global Dow fell almost 1.0% for the week and is down 1.28% compared to its year-end value. The tech-heavy Nasdaq held its own, while the small caps of the Russell 2000 climbed 0.80% and are ahead of last year’s closing value by almost 10%.

The price of crude oil (WTI) fell again last week, closing at $67.78 per barrel, down from the prior week’s closing price of $68.68 per barrel. The price of gold (COMEX) also dropped last week, closing at $1,219.30 by early Friday evening, down from the prior week’s price of $1,221.90. The national average retail regular gasoline price climbed to $2.852 per gallon on August 6, 2018, $0.006 higher than the prior week’s price and $0.474 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

• Driven by rising housing and vehicle prices, the Consumer Price Index rose 0.2% in July following a 0.1% increase in June. Housing prices rose 0.3%, accounting for nearly 60% of the CPI monthly increase. Transportation also increased 0.3% for the month and 7.3% over the last 12 months. From last July, the CPI has risen 2.9%. The index less food and energy also expanded by 0.2% in July — the same as in May and June. The index less food and energy rose 2.4% for the 12 months ended July; this was the largest 12-month increase since the period ended September 2008.
• Prices at the producer level were unchanged in July after advancing 0.3% in June. Over the 12 months ended in July, producer prices have increased 3.3%. Producer prices for goods increased 0.1% in July, which was offset by a 0.1% decrease in prices for services. Prices less foods, energy, and trade services moved up 0.3% in July, the same as in June. For the 12 months ended in July, prices less foods, energy, and trade services climbed 2.8%.
• The 2018 federal budget deficit continues to expand, outpacing last year’s deficit. The July deficit was $76.9 billion — about $2 billion ahead of June’s deficit. For the year, the deficit sits at about $684 billion, or more than 17% ahead of the budget deficit over the same period last year.
• According to the Job Openings and Labor Turnover Summary, the total number of job openings ticked up to 6.7 million at the end of June — little changed from May’s total. Some sectors that saw an increase in job openings include education and health services, construction, manufacturing, wholesale and retail trade, finance and insurance, real estate and rental and leasing, and leisure and hospitality. Job openings fell in transportation, warehousing, utilities, and information. The total number of hires fell by less than 100,000 in June, while total separations increased by less than 100,000. Over the 12 months ended in June, hires totaled 66.6 million and separations totaled 64.1 million, yielding a net employment gain of 2.5 million.
• In the week ended August 4, there were 213,000 initial claims for unemployment insurance, a decrease of 6,000 from the previous week’s level, which was revised up by 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 28 was 1,755,000, an increase of 29,000 from the prior week’s level, which was revised up by 2,000.

Eye on the Week Ahead

This week investors will continue to focus on world events as they impact the U.S. economy. The July report on import and export prices may show the impact of the ongoing trade wars.

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

Favorable economic indicators and encouraging corporate earnings reports helped propel stocks forward in July. Market growth has come despite trade wars between the United States and other trade partners, particularly China. Earlier in the month, the world’s two largest economies imposed tariffs of $34 billion on each other’s goods. Toward the end of July, there was hope of reopening negotiations between the United States and China in an attempt to diffuse the ongoing trade war. Domestically, the U.S. economy appears to be thriving. Over 210,000 new jobs were added in June, although wages have grown by only 2.7% over the last 12 months. Nevertheless, consumers are making more and spending more, while inflationary pressures on prices for goods and services remain in check.

Despite some periods of volatility, July proved to be a very good month for the benchmark indexes listed here. Led by the Dow, large caps, small caps, and tech stocks gained value over their respective June closing prices. Year-to-date, the Nasdaq is ahead by over 11.0%, followed by the Russell 2000, the S&P 500, the Dow, and the Global Dow, which is only 0.20% above its 2017 year-end value.

By the close of trading on July 31, the price of crude oil (WTI) was $68.43 per barrel, down from the June 29 price of $74.25 per barrel. The national average retail regular gasoline price was $2.772 per gallon on July 30, down from the June 25 selling price of $2.833 but $0.305 more than a year ago. The price of gold decreased by the end of July, closing at $1,232.90 on the last trading day of the month, down from its price of $1,254.20 at the end of June.

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 213,000 in June after adding 244,000 (revised) new jobs in May. The average monthly gain over the last three months is 211,000. Total employment has grown by 2.4 million over the last 12 months ended in June. Notable employment gains for the month occurred in professional and business services (50,000), manufacturing (36,000), and health care (25,000). Retail trade, which had posted notable job gains in May, lost 22,000 jobs in June. The unemployment rate rose to 4.0% from 3.8%. The number of unemployed persons increased by 499,000 to 6.6 million. A year earlier, the jobless rate was 4.3% and the number of unemployed persons was 7.0 million. The labor participation rate edged up 0.2 percentage point over the month to 62.9%. 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 $0.05 to $26.98. Over the last 12 months, average hourly earnings have risen $0.72, or 2.7%.
• FOMC/interest rates: The Federal Open Market Committee does not conclude its next meeting until August 1. It is possible that interest rates will remain the same following this meeting. However, unless economic circumstances change dramatically over the next several months, it is likely that rates will be increased twice more before the end of 2018.
• GDP/budget: The second-quarter gross domestic product showed the economy expanded at an annual rate of 4.1%, 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 4.0%. Net exports expanded by 9.3%. This is the first, or advance, estimate for the second quarter GDP. The next estimates, in August and September, will include more complete economic data. With only three months remaining in the fiscal year, the government budget deficit sits at $607.1 billion through June 30. Over the same period last year, the budget deficit was $523.1 billion — a difference of about 16%.
• Inflation/consumer spending: Consumer spending, as measured by personal consumption expenditures, jumped 0.4% in June after climbing 0.5% (revised) in May. Core consumer prices, a tracker of inflationary trends, increased 0.1% in June. Core prices have increased 1.9% over the last 12 months.
• The Consumer Price Index rose 0.1% in June after increasing 0.2% in May. Over the last 12 months ended in June, consumer prices are up 2.9% — the largest 12-month increase since the period ended February 2012. Core prices, which exclude food and energy, climbed 0.2% for the month, and are up 2.3% for the year.
• The Producer Price Index showed the prices companies receive for goods and services climbed 0.3% following a 0.5% jump in May. Producer prices have increased 3.4% over the 12 months ended in June, which is the largest 12-month increase since climbing 3.7% in November 2011. Prices less food and energy increased 0.3% for June and are up 2.7% over the last 12 months. Prices for services moved up 0.4% in June.
• Housing: Sales of existing homes continued to slow in June. Total existing-home sales fell 0.6% for the month after dropping 0.4% in May. Year-over-year, existing home sales are down 2.2%. The June median price for existing homes was $276,900, which is 5.2% higher than the June 2017 price of $263,300. Inventory for all types of existing homes for sale rose 4.3% in June — 0.5% above a year ago. New home sales regressed in June after climbing 6.7% in May. The median sales price of new houses sold in June was $302,100 ($313,000 in May). The average sales price was $363,300 ($368,500 in May). Inventory rose slightly in June to 5.7 months, up from the 5.2-month supply in May.
• Manufacturing: Industrial production advanced 0.6% in June after edging down 0.1% 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 increased 0.8% following a 0.7% drop in May. The index for mining rose 1.2%, its fifth consecutive month of growth. The output of utilities fell 1.5%. Capacity utilization, which estimates the potential for sustainable output for total industrial production, rose 0.3 percentage point for the month and is up 1.5% over the last 12 months. New orders for manufactured durable goods climbed 1.0% in June following a 0.3% drop in May.
• Imports and exports: The advance report on international trade in goods revealed that the trade gap expanded by $3.6 billion in June, or 5.5%, over May. The deficit for June was $68.3 billion (the May deficit was $64.8 billion). June exports of goods fell 1.5%, while imports increased 0.6%. On a seasonally adjusted basis, June’s total imports ($210,263 billion) far exceeded exports ($141,931 billion). Prices for imported goods fell 0.4% in June, while export prices rose 0.3%. Over the last twelve months ended in June, import prices are up 4.3%, while export prices have advanced 5.3%. Overall, increasing tariffs don’t appear to be a factor in prices, at least for June.
• International markets: European stocks got a boost from favorable corporate earnings reports and positive rhetoric emanating from a meeting between President Trump and European Commission President Juncker aimed at reducing reciprocal tariffs between the governing bodies. Japan and the European Union agreed to a free-trade pact that is targeted at reducing tariffs on Japanese automobiles and parts and European foods imported by Japan. The Chinese yuan has lost value compared to the dollar. Speculation is that the Chinese government is allowing its currency to weaken, lowering the cost of Chinese exports around the world, which may help offset the effect of U.S. tariffs on Chinese imports. Nevertheless, economic growth in China has slowed as a result of the tariff war with the United States.
• Consumer confidence: Consumer confidence, as measured by The Conference Board Consumer Confidence Index®, gained some positive traction after dipping in June. According to the report, consumers’ confidence in the present economic conditions improved, but expectations for future growth were tempered.

Eye on the Month Ahead

The economy continues to show signs of strengthening despite trade wars, rising interest rates, and a stagnant real estate market. The labor market is expected to maintain its strong pace, while industrial production has been steady. Overall, August should see ongoing economic strengthening.

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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.

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.

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.

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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.

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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