Author: dredheadz

The Markets (as of market close April 30, 2018)

April was marked by the impending tariff war between the United States and China. Tensions between the world’s two largest economies certainly affected stocks both home and abroad. Escalating strife in Syria posed an additional reason for investors to be concerned. However, surging energy stocks lifted the market as crude oil prices approached $70 per barrel for the first time in almost three years. Talks between North and South Korea also helped ease investor tensions. By the close of April, the dollar reached its highest level since January, while yields on 10-year Treasuries approached 3.0% for the first time since 2014 — signs that the world views U.S. economic growth as on the rise.

With all of the upheaval during the month — both positive and negative — it’s no wonder that equities essentially closed April about where they began the month. Each of the benchmark indexes listed here posted meager positive monthly gains over their March closing values. The Global Dow enjoyed the best month, as the only index listed here to post a gain of over 1.0%. The Russell 2000 gained a little less than 1.0%, while the large caps of the Dow and S&P 500 crept up about 0.25%, respectively. The Nasdaq posted the smallest gain; however, it leads the year-to-date race by a telling margin.

By the close of trading on April 30, the price of crude oil (WTI) was $68.57 per barrel, up from the price of $64.91 per barrel on March 29. The national average retail regular gasoline price was $2.798 per gallon on April 23, down from the March 26 selling price of $2.648 but $0.199 more than a year ago. The price of gold decreased by the end of April, closing at $1,316.10 on the last trading day of the month, down from its price of $1,329.60 at the end of March.

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 103,000 in March following February’s upwardly revised total of 326,000 new jobs. Employment gains occurred in healthcare, mining, and manufacturing. The unemployment rate remained at 4.1%, with roughly 6.6 million eligible workers unemployed. Over the year, the number of long-term unemployed was reduced by 338,000. The labor participation rate was little changed at 62.9%. The employment-population ratio held at 60.4% in March. The average workweek was unchanged at 34.5 hours for the month. Average hourly earnings increased by $0.08 to $26.82. Over the last 12 months, average hourly earnings have risen $0.71, or 2.7%.
• FOMC/interest rates: The Federal Open Market Committee did not meet in April. Its next scheduled meeting is during the first week of May.
• GDP/budget: The initial estimate of the first-quarter gross domestic product showed expansion at an annual rate of 2.3%, according to the Bureau of Economic Analysis. The fourth-quarter GDP grew at an annualized rate of 2.9%. Consumer spending rose 1.1% in the first quarter after advancing 4.0% in the fourth quarter. Spending on durable goods, which had increased 13.7% in the fourth quarter, dropped 3.3% in the first quarter. The government deficit was $208.74 billion in March, compared to February’s deficit of $215.25 billion. The fiscal 2018 deficit (which began in October 2017) is $599.71 billion — an increase of $72.85 billion, or 13.8%, above the deficit over the same period last year.
• Inflation/consumer spending: Inflationary pressures continued to show upward momentum in March. The personal consumption expenditures (PCE) price index (a measure of what consumers pay for goods and services) ticked up 0.4% in March following a February gain of 0.2%. The core PCE price index (excluding energy and food) also jumped ahead 0.2% in March. Both personal (pre-tax) income and disposable personal (after-tax) income climbed 0.3%, respectively, over the prior month. Personal consumption expenditures (the value of the goods and services purchased by consumers) climbed 0.4% in March.
• The Consumer Price Index dropped 0.1% in March after climbing 0.2% in February. Over the last 12 months ended in March, consumer prices are up 2.4%. Core prices, which exclude food and energy, are up 2.1% for the year.
• Prices at the wholesale level expanded in March. The Producer Price Index showed the prices companies receive for goods and services jumped 0.3% in March. Year-over-year, producer prices have increased 2.7%. Prices less food and energy increased 0.3% for the month and are up 2.9% over the last 12 months.
• Housing: Home sales improved in March. Total existing-home sales climbed 1.1% for the month following a 3.0% gain in February. However, year-over-year, existing home sales are down 1.2%. The March median price for existing homes was $250,400, which is 5.8% higher than the March 2017 price of $236,600. Inventory of existing homes for sale rose 5.7%, representing a 3.6-month supply. New home sales rebounded in March following a dip in February. The Census Bureau’s latest report reveals sales of new single-family homes increased 4.0% in March. The median sales price of new houses sold in March was $337,200 ($326,800 in February). The average sales price was $369,900 ($376,700 in February). There were 301,000 houses for sale at the end of March, which represents a supply of 5.2 months at the current sales rate.
• Manufacturing: Industrial production edged up 0.5% in March after increasing 1.0% in February. Manufacturing output rose 0.1% for the month, after climbing 1.5% in February. Total industrial production was 4.3% higher in March than it was a year earlier. Capacity utilization for the industrial sector moved up 0.3 percentage point in March following a 0.7 percentage point increase in February. New orders for manufactured durable goods climbed 2.6% in March following a 3.5% jump in February. For the year, new durable goods orders are up 8.7%.
• Imports and exports: The advance report on international trade in goods revealed that the trade gap decreased by $7.8 billion in March from February. The deficit for March was $68.0 billion, with exports of goods climbing 2.5%, while imports decreased 2.1% in March compared to February. For the month, total imports ($208.1 billion) far exceeded exports ($140.1 billion). Import prices were flat in March after increasing 0.3% in February. For the year, import prices have increased 3.6%. Prices for exports advanced 0.3% in March and are up 3.4% for the year.
• International markets: Trade tensions between the United States and China continue to loom entering May, although both sides are working behind the scenes to reach a compromise over their mutual tariff threats. However, some experts see the spat between the two economic giants as having a direct impact on global economic growth. The European Central Bank left its monetary policy in place, leaving lending rates at their March 2016 levels. European corporate earnings reports for the first quarter were mixed. Data from the United Kingdom’s Office of National Statistics showed the British economy expanded a disappointing 0.1% in the first quarter of 2018. The Bank of Japan maintained its short-term interest rates at -0.1% while continuing the bank’s commitment to maintain the current monetary base until the core consumer price index reaches an inflation target of 2.0%.
• Consumer confidence: Consumer confidence, as measured by The Conference Board Consumer Confidence Index®, increased in April following a decrease in March. The index sits at 128.7, up from 127.0 in March. According to the report, consumer sentiment improved relative to the current economy, while expectations for future economic growth also improved.

Eye on the Month Ahead

May could see more market volatility as the political climate, both home and abroad, drives investor behavior. The month starts off with the Federal Open Market Committee meeting. Another interest rate hike could add to investor uneasiness, although such a move by the Committee would be a sign of continued economic strengthening.

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

An avalanche of corporate earnings reports impacted the market last week. Unfortunately, there were enough lackluster corporate earnings statements to prompt investors to exercise caution, resulting in a relatively flat week for equities. The Dow fell the most — over 0.5% — while the S&P 500 essentially broke even. The remaining indexes listed here lost some value by last week’s end. As it stands, only the Nasdaq and the Russell 2000 are ahead of their year-end values, while the Dow has lost over 1.5% as of last Friday. On the other hand, long-term bond yields soared as prices fell (bond prices and yields move in opposite directions). By midweek, the yield on 10-year Treasuries surpassed 3.0% for the first time in several years, ultimately falling back to where yields began the week.

The price of crude oil (WTI) climbed again last week, closing at $68.26 per barrel early Friday evening, up from the prior week’s closing price of $67.39 per barrel. The price of gold (COMEX) fell to $1,337.60 by early Friday evening, down from the prior week’s price of $1,348.60. The national average retail regular gasoline price increased to $2.798 per gallon on April 23, 2018, $0.051 higher than the prior week’s price and $0.349 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 first, or “advance,” estimate of the gross domestic product for the first quarter of 2018 showed economic growth at an annual rate of 2.3%. The fourth-quarter GDP increased at an annualized rate of 2.9%. Business and service spending helped drive the GDP in the first quarter. The price index for gross domestic purchases increased 2.8% in the first quarter, compared with an increase of 2.5% in the fourth quarter. The personal consumption price index increased 2.7%, the same increase as in the fourth quarter. Excluding food and energy prices, the PCE price index increased 2.5%, compared with an increase of 1.9% in the fourth quarter. Personal income increased $182.1 billion in the first quarter, compared with an increase of $186.4 billion in the fourth quarter. Disposable (after-tax) personal income increased $222.1 billion, or 6.2%, in the first quarter, compared with an increase of $136.3 billion, or 3.8%, in the fourth quarter. Personal saving was $462.1 billion in the first quarter, compared with $379.8 billion in the fourth quarter.
• While not at the pace set last year, sales of existing homes grew for the second consecutive month in March. Total existing home sales rose 1.1% over February, but are 1.2% below their sales pace of a year ago. While interest in existing home purchases remains solid, weak inventories and increasing prices may be keeping some potential buyers out of the market. Total housing inventory climbed 5.7% last month, but is 7.2% lower than March 2017. Unsold inventory is at a 3.6-month supply at the current sales pace. The median existing-home price for all housing types in March was $250,400, up 5.8% from March 2017. Single-family home sales rose only 0.6% in March — a pace that’s 1.0% below last year. The median existing price for single family home sales was $252,100 in March, up 5.9% from March 2017.
• New home sales also improved in March, jumping up by 4.0% over February’s revised rate. Sales of new homes are 8.8% ahead of their March 2017 pace. The median sales price of new houses sold in March 2018 was $337,200. The average sales price was $369,900. There’s a 5.2-month inventory of new homes available for sale in March, which is down slightly from the 5.4-month supply in February.
• New orders for manufactured durable goods in March increased $6.4 billion, or 2.6%, following a 3.5% gain in February. Transportation equipment drove the March gain, as orders for durable goods excluding transportation showed no increase from February. Shipments of durable goods climbed 0.3% in March, while unfilled orders rose 0.8%. Inventories of manufactured durable goods in March, up 20 of the last 21 months, increased $0.3 billion, or 0.1%.
• The international trade deficit was $68.0 billion in March, down $7.8 billion from February. Exports of goods for March were $140.1 billion, $3.4 billion more than February exports. Imports of goods for March were $208.1 billion, $4.4 billion less than February imports.
• Confidence in the economy picked up in April after falling in March. According to The Conference Board Consumer Confidence Index®, consumer confidence increased for present and future economic conditions.
• In the week ended April 21, there were 209,000 initial claims for unemployment insurance, a decrease of 24,000 from the previous week’s level, which was revised up by 1,000. This is the lowest level for initial claims since December 6, 1969, when it was 202,000. The advance insured unemployment rate remained at 1.3%. The advance number of those receiving unemployment insurance benefits during the week ended April 14 was 1,837,000, a decrease of 29,000 from the prior week’s level, which was revised up by 3,000.

Eye on the Week Ahead

Several potential market-moving reports are out this week. The release of the latest report on consumer income and spending is out, which is an inflation indicator relied upon by the Federal Open Market Committee. Speaking of which, the FOMC also meets this week. The Committee raised the federal funds target rate following its last meeting in March, and hinted at more rate hikes by the end of the year. The week closes with the employment report for April.

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

Favorable first-quarter earnings reports helped push stocks higher for the second consecutive week. Led by the small caps of the Russell 2000, each of the benchmark indexes listed here posted gains by the end of last week. The energy sector continued to post strong returns, boosted by rising crude oil prices, which are approaching $70 per barrel. Treasury yields climbed as prices fell following a sell-off of Treasury bonds.

The price of crude oil (WTI) climbed again last week, closing at $68.26 per barrel early Friday evening, up from the prior week’s closing price of $67.39 per barrel. The price of gold (COMEX) fell to $1,337.60 by early Friday evening, down from the prior week’s price of $1,348.60. The national average retail regular gasoline price increased to $2.747 per gallon on April 16, 2018, $0.053 higher than the prior week’s price and $0.311 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

• Sales at the retail level grew 0.6% in March from the previous month, and 4.5% above March 2017. Motor vehicle and parts dealers saw a monthly sales increase by 2.0%, while health and personal care sales advanced 1.4% in March over February. Nonstore (internet) retail sales increased 0.8% for the month and are up 9.7% over March 2017.
• New residential construction enjoyed a favorable March as building permits and housing starts surged. Residential building permits were 2.5% above February’s rate and are 7.5% ahead of March 2017. Privately owned housing starts in March were 1.9% above February’s estimate and 10.9% above the rate a year ago. Housing completions for all types of residential construction slowed in March, falling 5.1% below the prior month. Most of the March strength in the report is attributable to multifamily construction — single-family permits (-5.5%), starts (-3.7%), and completions (-4.7%) each fell off from February. Demand for housing continues to be solid, however, a dearth of labor coupled with escalating materials costs may be hampering new construction.
• Industrial production rose 0.5% in March after increasing 1.0% in February. The output of consumer goods advanced 0.5% in March. After having climbed 1.5% in February, manufacturing production edged up 0.1% in March. Mining output rose 1.0%, mostly as a result of gains in oil and gas extraction and in support activities for mining. Total industrial production was 4.3% higher in March than it was a year earlier. Capacity utilization for the industrial sector moved up 0.3 percentage point in March.
• In the week ended April 14, there were 232,000 initial claims for unemployment insurance, a decrease of 1,000 from the previous week’s level. The advance insured unemployment rate remained at 1.3%. The advance number of those receiving unemployment insurance benefits during the week ended April 7 was 1,863,000, a decrease of 15,000 from the prior week’s level, which was revised up by 7,000.

Eye on the Week Ahead

Several important economic reports are out this week. Information on new and existing home sales in March is revealed. Last month, existing home sales fared better than sales of new homes. The first look at the gross domestic product for the first quarter comes at week’s end. The fourth-quarter GDP grew at a rate of 2.9%.

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

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

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

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

Last Week’s Economic Headlines

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

Eye on the Week Ahead

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

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

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

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

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

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

Last Week’s Economic Headlines

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

Eye on the Week Ahead

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

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

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

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

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

Last Week’s Economic Headlines

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

Eye on the Week Ahead

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

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The Markets (as of market close March 23, 2018)

Volatility is the catchword when describing the market lately. Investors had better buckle up for a bumpy ride from here on, at least according to indications from the Chicago Board Options Exchange (Cboe) Volatility Index®, which attempts to provide a forward-looking expectation of price fluctuation in the S&P 500 based on stock option trading. The Cboe Volatility Index® soared from 15.80 on March 16 to 24.87 last Friday. Last week’s market performance was one of the worst in years, with the S&P 500 suffering its biggest drop since the beginning of 2016. The tech-heavy Nasdaq exceeded the losses suffered by the large-cap index, falling over 6.50%. The prospect of escalating trade tensions is also weighing on investors as indicated by last Thursday’s sell-off following the Trump administration’s call for tariffs on Chinese imports.

The price of crude oil (WTI) surged last week, closing at $65.74 per barrel early Friday evening, ahead of the prior week’s closing price of $62.25 per barrel. The price of gold (COMEX) also climbed to $1,352.90 by early Friday evening, rising from the prior week’s price of $1,313.90. The national average retail regular gasoline price increased to $2.598 per gallon on March 19, 2018, $0.039 higher than the prior week’s price and $0.277 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

• Citing continued strengthening of the labor market and moderate rising of economic activity, the Federal Open Market Committee decided to increase the target range for the federal funds rate 25 basis points to 1.50% to 1.75%. The Committee raised the target range despite inflation that continues to run below the Fed’s target rate of 2.0%. Two more rate hikes remain likely during the remainder of 2018.
• Sales of existing homes picked up the pace in February following two consecutive monthly declines. Existing home sales grew 3.0% for the month, and are now 1.1% above a year ago. The median existing-home price expanded for the 72nd straight month in February, increasing to $241,700, which is up 5.9% from February 2017 ($228,200). Helping drive sales was an increase in existing home inventory, which rose 4.6% (still 8.1% lower than a year ago). There is a 3.4-month supply of unsold inventory at the current sales pace, compared to a 3.8-month supply in January. Despite surging prices and low inventories, the uptick in sales of existing homes is likely attributable to a healthy economy.
• New home sales slipped in February, down 0.6% from their January pace. Nevertheless, sales are still 0.5% ahead of their February 2017 estimate. The median sales price of new houses sold in February 2018 was $326,800. The average sales price was $376,700. Inventory of new homes for sale represents a supply of about 5.9 months at the current sales rate.
• The manufacturing sector bounced back in February as new orders for durable goods increased by 3.1% for the month, compared to January’s 3.5% drop. Excluding transportation, which led the increase (up 7.1%), new orders increased 1.2%. Shipments, inventories, and unfilled orders also increased in February. New orders are up 8.9% year-over-year, while core capital goods (excluding defense and transportation) are up an impressive 8.0% over last year.
• In the week ended March 17, there were 229,000 initial claims for unemployment insurance, an increase of 3,000 from the previous week’s level. The advance insured unemployment rate remained at 1.3% for the week ended March 10. The advance number of those receiving unemployment insurance benefits during the week ended March 10 was 1,828,000, a decrease of 57,000 from the prior week’s level, which was revised up by 6,000. This is the lowest level for insured unemployment since December 29, 1973, when it was 1,805,000.

Eye on the Week Ahead

The third and final release for the fourth-quarter gross domestic product is available this week. The annualized rate of growth is expected to remain about 2.5% for the quarter. Also worth noting this week is the international trade in goods report for February. The trade deficit continues to widen, as the cost of imports regularly outpace exports.

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The Markets (as of market close March 16, 2018)

Market volatility has been fueled by investor concerns of accelerating inflation. However, last week’s Consumer Price Index, retail sales, and Producer Price Index reports showed inflationary trends in February were subdued. Nevertheless, stocks posted weekly losses, possibly resulting from investor fears that the administration’s trade policy could drive up costs for domestic manufacturers. Each of the indexes listed here lost value by last week’s end, led by the large caps of the Dow and S&P 500, followed closely by the Nasdaq, which dropped a little over 1.0%. The small caps of the Russell 2000 and the Global Dow outperformed larger shares. Treasury yields receded as bond prices advanced, possibly reflecting the weak inflation data previously referenced.

The price of crude oil (WTI) rose slightly last week, closing at $62.25 per barrel early Friday evening, ahead of the prior week’s closing price of $62.12 per barrel. The price of gold (COMEX) dipped to $1,313.90 by early Friday evening, down from the prior week’s price of $1,324.00. The national average retail regular gasoline price decreased to $2.559 per gallon on March 12, 2018, $0.001 less than the prior week’s price and $0.236 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 prices consumers paid for goods and services increased 0.2% in February after rising 0.5% in January. Over the last 12 months, consumer prices have risen 2.2%. Consumer prices less food and energy rose 1.8% over the past year. Price pressures over the first two months of the year have yet to appear, contrary to some opinions that inflation is on the rise. The February price increase is primarily attributable to a 0.3% advance in services — prices for goods dipped 0.1%.
• The prices producers received for goods and services advanced 0.2% in February, and are up 2.8% from February 2017. Producer prices rose 0.4% in January. Prices less food and energy also increased 0.2% for the month and 2.5% for the year.
• Sales at the retail level fell in February for the third consecutive month, as consumers held off buying automobiles and other big-ticket items. A big tax cut, high consumer confidence in the economy, and a flourishing job market haven’t been enough to send consumers on a spending spree. Retail sales fell 0.1% in February following January’s revised dip of 0.1%. Not since 2012 have retail sales fallen three consecutive months.
• The federal government deficit expanded to $215.25 billion in February, following a $49 billion surplus the previous month. Government receipts were $155.62 billion, while government outlays totaled $370.87 billion. Through the first five months of the 2018 fiscal year, the deficit sits at $390.97 billion compared to $350.62 billion over the same period last year — an increase of 11.5%.
• Building permits and housing starts both dipped in February. Permits for all types of privately owned housing units fell 5.7% below the January rate. Single-family building permits slipped only 0.6%. Privately owned housing starts came in 7.0% below the January level, although single-family starts were up 2.9%. A positive from the report came from housing completions, which were 7.8% ahead of January’s figures. Single-family housing completions in February were 3.0% above the January rate.
• According to the Federal Reserve’s report, industrial production rose 1.1% in February following a decline of 0.3% in January. Manufacturing production increased 1.3%, its largest gain since October. Mining output jumped 4.3%, mostly reflecting strong gains in oil and gas extraction. The index for utilities fell 4.7%, as warmer-than-normal temperatures last month reduced the demand for heating. Capacity utilization for the industrial sector climbed 0.7 percentage point in February to 78.1%, its highest reading since January 2015.
• Prices paid by the United States for imports continue to advance at a faster pace than the prices for goods sold by U.S. manufacturers to foreign countries. The price index for U.S. imports rose 0.4% in February, the seventh consecutive monthly increase, after advancing 0.8% in January. The last time the index declined on a monthly basis was a 0.2% drop in July 2017. Import prices advanced 3.5% for the 12-month period ended in February, matching the 12-month rise in November. Those were the largest annual increases since the index rose 3.6% for the 12-month period ended April 2017. Export prices increased 0.2% in February after rising 0.8% in January. The last time the index declined on a monthly basis was a 0.1% decrease in June 2017. The price index for U.S. exports increased 3.3% over the past 12 months.
• The labor sector remained steady, according to the Job Openings and Labor Turnover summary. January saw the number of job openings increase to 6.3 million, over 600,000 more than December. Overall, the number of hires remained relatively the same in January, as did total separations. Job openings increased in professional and business services, transportation, warehousing, and utilities. There were 1.8 million layoffs and discharges in January, with increases in health care and social assistance. Over the 12 months ended in January, hires totaled 65.4 million and separations totaled 63.2 million, yielding a net employment gain of 2.1 million.
• In the week ended March 10, there were 226,000 initial claims for unemployment insurance, a decrease of 4,000 from the previous week’s level, which was revised down by 1,000. The advance insured unemployment rate remained at 1.3% for the week ended March 3. The advance number of those receiving unemployment insurance benefits during the week ended March 3 was 1,879,000, an increase of 4,000 from the prior week’s level, which was revised up by 5,000.

Eye on the Week Ahead

Of particular interest to investors, the Federal Open Market Committee meets next week, after which it is expected to increase interest rates based on favorable economic conditions and strengthening in the labor sector. Inflationary pressures, which have been subdued, should not factor into the Committee’s decision

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The Markets (as of market close March 9, 2018)

Last week’s jobs report appears to have quelled investor fears, at least for the time being. Each of the indexes listed here posted impressive weekly gains, led by the tech-heavy Nasdaq and the small-cap Russell 2000, each of which gained over 4.0%. While the February employment figures saw over 300,000 new jobs added, meager wage growth didn’t support accelerating inflation. Last week’s rebound also pushed the major indexes ahead of their 2017 year-end values.

The price of crude oil (WTI) rose last week, closing at $62.12 per barrel early Friday evening, ahead of the prior week’s closing price of $61.45 per barrel. The price of gold (COMEX) climbed to $1,324.00 by early Friday evening, up from the prior week’s price of $1,323.70. The national average retail regular gasoline price increased to $2.560 per gallon on March 5, 2018, $0.012 greater than the prior week’s price and $0.219 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

• February saw 313,000 new jobs added, according to the latest employment report from the Bureau of Labor Statistics. Notable job gains occurred in construction (61,000), retail trade (50,000), professional and business services (50,000), and manufacturing (31,000). The unemployment rate remained at 4.1% for the fifth consecutive month. The average workweek for all employees rose by 0.1 hour to 34.5 hours in February. Average hourly earnings for all employees rose by $0.04 to $26.75, following a $0.07 gain in January. Over the year, average hourly earnings have increased by $0.68, or 2.6%. Overall, the number of significant new jobs added is a positive, while wages increased by only 0.1% for the month. The year-over-year gain slowed in February (2.6%) compared to January (2.9%), which was the largest gain since 2009. This should be positive news for investors who shunned the market for fear of rising inflation and interest rates.
• The non-manufacturing (services) sector of the economy expanded in February, but at a slightly slower pace than the previous month, according to the latest report from the Institute for Supply Management. Supply managers indicated that manufacturing business activity, and new orders expanded, while employment and prices decreased last month. According to the report, the majority of respondents remain positive about business conditions and the economy.
• A report that could bolster President Trump’s trade policy of increasing tariffs on imports, January’s goods and services trade deficit expanded sharply to $56.6 billion, up $2.7 billion from the $53.9 billion December revised deficit. In January, exports narrowed by $2.7 billion, while imports remained relatively the same, down less than $0.1 billion from December’s imports. Year-over-year, the goods and services deficit increased $7.9 billion, or 16.2%, from January 2017. Exports increased $9.7 billion, or 5.1%. Imports increased $17.6 billion, or 7.4%.
• In the week ended March 3, there were 231,000 initial claims for unemployment insurance, an increase of 21,000 from the previous week’s level. The advance insured unemployment rate dipped to 1.3% for the week ended February 24. The advance number of those receiving unemployment insurance benefits during the week ended February 24 was 1,870,000, a decrease of 64,000 from the prior week’s level, which was revised up by 3,000.

Eye on the Week Ahead

Fears of rising inflation and interest rates have worried investors over the past several weeks. Important inflationary indicators are out this week with the Consumer Price Index, Producer Price Index, and retail sales report. While consumer spending has been modest, prices for consumer goods and services have been rising in a sure sign of inflationary pressures.

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