Category: Investing

What I’m Watching This Week – 7 August 2017

Published on by dredheadz

The Markets (as of market close August 4, 2017)

 Last week ended with a mixed bag of stock market performances. The Dow, influenced by a favorable jobs report and strong corporate quarterly earnings, surged to a new record high. The S&P 500 also ended last week in positive territory. Tech stocks did not fare as well as the large caps, pushing the Nasdaq to its second straight week of negative returns. But the worst performance befell the Russell 2000, which plummeted about 1.20% for the week, after falling nearly 0.50% the prior week. Long-term Treasury yields rose last week as prices dropped.

The price of crude oil (WTI) closed at $49.52 per barrel, down slightly from the prior week’s closing price of $49.79 per barrel. The price of gold (COMEX) closed last week at $1,264.30 by late Friday afternoon, $11.30 below the prior week’s price of $1,275.60. The national average retail regular gasoline price increased to $2.352 per gallon on July 31, 2017, $0.040 higher than the previous week’s price and $0.193 higher than a year ago.

Market/Index 2016 Close Prior Week As of 8/4 Weekly Change YTD Change
DJIA 19762.60 21830.31 22092.81 1.20% 11.79%
Nasdaq 5383.12 6374.68 6351.56 -0.36% 17.99%
S&P 500 2238.83 2472.10 2476.83 0.19% 10.63%
Russell 2000 1357.13 1429.26 1412.32 -1.19% 4.07%
Global Dow 2528.21 2849.54 2870.04 0.72% 13.52%
Fed. Funds target rate 0.50%-0.75% 1.00%-1.25% 1.00%-1.25% 0 bps 50 bps
10-year Treasuries 2.44% 2.29% 2.26% -3 bps -18 bps

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

Last Week’s Economic Headlines

  • Another strong month of growth in the employment sector as there were 209,000 new jobs added in July. This follows the 231,000 new jobs added in June. Employment growth has averaged 184,000 per month thus far this year. Job gains occurred in food services and drinking places, professional and business services, and health care. The unemployment rate for the month was 4.3%, down from 4.4% in June. The average workweek was unchanged at 34.5 hours in July. Average hourly earnings rose by $0.09 to $26.36 in July. Over the year, average hourly earnings have risen by $0.65, or 2.5%.
  • Not unexpectedly, growth in consumer income and spending was essentially nonexistent in June. Pre-tax personal income and after-tax personal income were unchanged in June from May. Consumer spending, as measured by personal consumption expenditures (PCE), increased 0.1% in June. Core personal consumption expenditures (excluding food and energy) also increased 0.1% for the month. For the 12 months ended in June, the PCE was up 1.4%, while the core PCE has gained 1.5%. This report confirms that entering the summer months, inflation is relatively flat and consumers are not seeing an increase in their income. Consumer spending, which accounts for roughly two-thirds of overall economic activity, has also stagnated.
  • The final report on the international trade in goods and services deficit for June showed the total trade deficit to be $43.6 billion, down $2.7 billion from May. June exports were $194.4 billion, $2.4 billion more than May exports. June imports were $238.0 billion, $0.4 billion less than May imports. Year-to-date, the goods, and services deficit increased $26.7 billion, or 10.7%, from the same period in 2016.
  • The purchasing managers’ index is a survey of selected companies relative to manufacturing output, new orders, inventory, employment, and prices. IHS Markit and the Institute for Supply Management (ISM) each put out a monthly index. The results of each survey are not always similar, as is the case for July. Markit’s U.S. Manufacturing Purchasing Managers’ Index™ (PMI™) registered 53.3 in July, up from 52.0 in June, indicating an increase in production. On the other hand, the ISM purchasing managers’ index was 56.3%, down 1.5 percentage points from the June reading of 57.8%. It should be noted that a reading over 50% indicates growth, which means manufacturing expanded in July according to the ISM report, but at a slower pace than June.
  • According to the Institute for Supply Management’s Non-Manufacturing ISM® Report On Business®, the non-manufacturing index slipped 3.5 percentage points in July to 53.9%. This represents continued growth in the non-manufacturing sector, but at a slower rate than in June. Survey respondents thought business activity, new orders, and employment decelerated while prices increased in July from June. The report covers industries such as accommodation and food services; utilities; wholesale and retail trade; real estate, rental, and leasing; health care and social assistance; and finance and insurance.
  • In the week ended July 29, the advance figure for seasonally adjusted initial claims for unemployment insurance was 240,000, a decrease of 5,000 from the previous week’s revised level. The previous week’s level was revised up by 1,000 from 244,000 to 245,000. The advance seasonally adjusted insured unemployment rate remained 1.4%, unchanged from the previous week’s unrevised rate. During the week ended July 22, there were 1,968,000 receiving unemployment insurance benefits, an increase of 3,000 from the previous week’s revised level. The previous week’s level was revised up 1,000 from 1,964,000 to 1,965,000.

Eye on the Week Ahead

Trading should continue to be light as the summer rolls on. Both producer prices and consumer prices showed little upward movement in June. July’s figures are not expected to change that much as reports on the Producer Price Index and the Consumer Price Index are out this week.

 

Monthly Market Review – July 2017

Published on by dredheadz

The Markets (as of market close July 31, 2017)

The last day of July saw each of the indexes listed here post gains over their June closing values. Despite slumping tech stocks at the end of the month, the Nasdaq led the benchmarks for the month, closely followed by the Global Dow, as each index gained over 3.0%. Both the large-cap Dow and S&P 500 posted gains, spurred by charging energy stocks and favorable corporate earnings reports. The small-cap Russell 2000, which has lagged behind the other indexes listed here, gained a little more than half a percent for the month and is up just over 5.0% year-to-date. The overall favorable performance of the market was more noteworthy considering the upheaval in the White House and the failure of Congress to enact health-care legislation. The yield on 10-year Treasuries was little changed from June. Yields increase as bond prices decrease.

By the close of trading on July 31, the price of crude oil (WTI) was $50.18 per barrel, up from the June 30 price of $46.33 per barrel. The national average retail regular gasoline price was $2.312 per gallon on July 24, up from the June 26 selling price of $2.288 but $0.106 more than a year ago. The price of gold increased by the end of July, closing at $1,275.60 on the last trading day of the month, up $34.20 from its June 30 price of $1,241.40.

Market/Index 2016 Close Prior Month As of July 31 Month Change YTD Change
DJIA 19762.60 21349.63 21891.12 2.54% 10.77%
NASDAQ 5383.12 6140.42 6348.12 3.38% 17.93%
S&P 500 2238.83 2423.41 2470.30 1.93% 10.34%
Russell 2000 1357.13 1415.36 1425.14 0.69% 5.01%
Global Dow 2528.21 2769.39 2856.10 3.13% 12.97%
Fed. Funds 0.50%-0.75% 1.00%-1.25% 1.00%-1.25% 0 bps 50 bps
10-year Treasuries 2.44% 2.30% 2.29% -1 bps -15 bps

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

Last Month’s Economic News

  • Employment: In June, job growth expanded while wages showed little upward movement. There were 222,000 new jobs added in June following May’s weak 152,000 total. Employment growth has averaged 180,000 per month through June, in line with the average monthly gain of 187,000 in 2016. Notable employment gains occurred in health care, social assistance, financial activities, professional and business services, and food services. The unemployment rate was 4.4%, representing about 7.0 million unemployed persons. The labor participation rate was essentially unchanged at 62.8%. The average workweek for all employees rose by 0.1 hour to 34.5 hours in June. Average hourly earnings rose by $0.04, or 0.2%, to $26.25. Over the year, average hourly earnings have risen by $0.63, or 2.5%.
  • FOMC/interest rates: Following its meeting in July, the Federal Open Market Committee held the target range for the federal funds rate at 1.00%-1.25%. As it was following the Committee’s meeting in June, inflation has failed to progress as anticipated. Otherwise, employment is solid and both household spending and business investment are up. The Committee gave no clear indication as to what it may do when it next meets in September.
  • GDP/budget: The gross domestic product expanded over the second quarter at an annual rate of 2.6%, according to the advance estimate from the Bureau of Economic Analysis. The first-quarter GDP grew at an annualized rate of 1.2%. Consumer spending and business investment were positives in the report, offset by a deceleration in residential investment and net exports. As to the government’s budget, the federal deficit for June was $90.2 billion, an increase of 2.0% over the May deficit. Through the first nine months of the fiscal year, the deficit sits at $523.1 billion, which is about $124 billion more than the deficit over the same period last year.
  • Inflation/consumer spending: For the past few months, the major indicators are showing that inflation data is weak. Consumer spending, as measured by personal consumption expenditures (PCE), expanded at a rate of 0.1% in June. In contrast, PCE climbed 0.2% in May. Core PCE (excluding energy and food) inched ahead 0.1% for the month. Both personal income (pre-tax earnings) and disposable personal income (income less taxes) were unchanged from the prior month.
  • The prices companies receive for goods and services edged up 0.1% in June from May, according to the Producer Price Index. Year-over-year, producer prices have increased 2.0%. Energy prices fell for the second straight month, dropping 0.5% following a 3.0% decline in May. Prices less food and energy climbed 0.1% in June and 1.9% over the last 12 months.
  • Consumer prices were unchanged in June following a 0.1% decrease in May. For the 12 months ended in June, consumer prices are up 1.6%, a mark that remains below the Fed’s 2.0% target for inflation. Core prices, which exclude food and energy, edged up 0.1% in June, the same increase as May, and are up 1.7% year-over-year.
  • Housing: Scant inventory and rising prices have slowed sales of existing homes, which decreased 1.8% in June and are up only 0.7% from a year ago. The June median price for existing homes was $263,800 — up 6.5% from the price last June. Housing inventory declined 0.5% for the month and is 7.1% lower than a year ago. The Census Bureau’s latest report reveals sales of new single-family homes increased 0.8% in June to an annual rate of 610,000 — up from May’s revised rate of 605,000. The median sales price of new houses sold in June was $310,800. The average sales price was $379,500. The seasonally adjusted estimate of new houses for sale at the end of June was 272,000. This represents a supply of 5.4 months at the current sales rate, which is essentially unchanged from May (5.3 months).
  • Manufacturing: Industrial production expanded by 0.4% in June, according to the Federal Reserve’s monthly index of industrial production (which includes factories, mines, and utilities). This is the fifth consecutive monthly increase. Manufacturing output increased 0.2% in June following a May decrease of 0.4%. Mining output was again strong, posting a gain of 1.6% in June after increasing 1.9% in May. The index for utilities, however, remained unchanged. For the second quarter as a whole, industrial production advanced at an annual rate of 4.7%, primarily as a result of strong increases for mining and utilities. Manufacturing output rose at an annual rate of 1.4%, a slightly slower increase than in the first quarter. Capacity utilization for the industrial sector edged up 0.2 percentage point in June to 76.6%, a rate that is 3.3 percentage points below its long-run average. As for durable goods, June’s report from the Census Bureau shows new orders increased $14.9 billion, or 6.5%, from the prior month. However, excluding the transportation segment, new durable goods orders increased 0.2%. Orders for core capital goods (excluding defense and transportation) dropped 0.1% in June following a revised increase in May of 0.7%. Over the 12 months ended in June, core capital goods orders are up 5.6%.
  • Imports and exports: The advance report on international trade in goods revealed that the trade gap narrowed 3.76% in June. The overall trade deficit was $63.9 billion, down by $2.5 billion from the prior month. The total volume of exports increased $1.8 billion to $128.6 billion. Imports fell $0.7 billion to $192.4 billion. As to the prices for goods purchased and sold in the foreign marketplace, both import and export prices fell in June. Import prices decreased 0.2%; for the second consecutive month, the decline was driven by lower fuel prices, which dropped 2.1%. Prices for U.S. exports fell for a second consecutive month, declining 0.2% following a 0.5% decline in May.
  • International markets: Greece is slowly showing signs of economic progress. Demand has been solid for the country’s first bond issuance in three years, although not significant enough to preclude the need for more debt relief. The euro continued to climb following the European Central Bank’s decision to maintain its current interest rate policy. However, a stronger euro and weaker oil prices have pushed European stocks lower. China’s second-quarter gross domestic product expanded at a rate of 6.9%, fueled by strong industrial production. Saudi Arabia promised to cut its August oil exports, but some OPEC members have not followed the Saudi lead and continue to ramp up drilling and exports.
  • Consumer sentiment: The Conference Board Consumer Confidence Index® for July rose to 121.1 from June’s revised 117.3. Consumers expressed growing confidence in current economic conditions and future economic growth. The Index of Consumer Sentiment from the Surveys of Consumers of the University of Michigan dipped from 95.1 in June to 93.4 in July. While the overall sentiment of consumers waned, they were encouraged by the present economic conditions, although not so optimistic about future economic developments.

Eye on the Month Ahead

Trading typically has been light during the first two months of the summer — a trend that is expected to continue through August. Interest rates will remain unchanged at least until mid-September when the Federal Open Market meets again. The next release of the gross domestic product for the second quarter will be based on more current financial and economic information, which could impact the initial 2.6% growth rate that came out in July’s report.

What I’m Watching This Week – 31 July 2017

Published on by dredheadz

The Markets (as of market close July 28, 2017)

Of the benchmark indexes listed here, only the Dow and the Global Dow posted gains last week. The remaining indexes closed the week modestly lower, despite a rise in energy stocks following Saudi Arabia’s promise to cut back oil production. Technology shares fell, which hampered both the Nasdaq and S&P 500. Quarterly earnings reports from large U.S. companies contributed to the Dow’s gains last week. While the Federal Reserve held interest rates at their current levels, it did reveal its intention to reduce its holdings of mortgage-backed securities and Treasuries relatively soon, which could push long-term interest rates higher.

The price of crude oil (WTI) closed at $49.79 per barrel, up from the prior week’s closing price of $45.60 per barrel. The price of gold (COMEX) closed last week at $1,275.60 by late Friday afternoon, $14.50 ahead of the prior week’s price of $1,261.10. The national average retail regular gasoline price rose to $2.312 per gallon on July 24, 2017, $0.034 higher than the previous week’s price and $0.130 higher than a year ago.

Market/Index 2016 Close Prior Week As of 7/28 Weekly Change YTD Change
DJIA 19762.60 21580.07 21830.31 1.16% 10.46%
Nasdaq 5383.12 6387.75 6374.68 -0.20% 18.42%
S&P 500 2238.83 2472.54 2472.10 -0.02% 10.42%
Russell 2000 1357.13 1435.84 1429.26 -0.46% 5.31%
Global Dow 2528.21 2833.20 2849.54 0.58% 12.71%
Fed. Funds target rate 0.50%-0.75% 1.00%-1.25% 1.00%-1.25% 0 bps 50 bps
10-year Treasuries 2.44% 2.23% 2.29% 6 bps -15 bps

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

Last Week’s Economic Headlines

  • Slowing inflation was the primary reason the Federal Open Market Committee decided to keep the target range for the federal funds rate at its current 1.00%-1.25% range following last week’s meeting. The Committee noted that the labor market has continued to strengthen and household spending and business fixed investment have continued to expand. However, overall inflation has declined, while wage inflation has remained low. The FOMC does not meet again until September.
  • The initial (advance) estimate of the gross domestic product showed the second-quarter economy grew at a healthy annual rate of 2.6%. In the first quarter, the GDP increased 1.2%. The acceleration in GDP growth in the second quarter reflected a smaller decrease in private inventory investment, an acceleration in personal consumption expenditures, and an upturn in federal government spending. These movements were partly offset by a downturn in residential fixed investment and decelerations in exports and in nonresidential fixed investment. Disposable personal income increased $122.1 billion, or 3.5%, in the second quarter, compared with an increase of $176.3 billion, or 5.1%, in the first quarter (revised). It’s important to note that the initial estimate of the GDP is based on source data that is incomplete and subject to revision.
  • Good news for domestic manufacturers as new orders for long-lasting goods increased $14.9 billion, or 6.5%, in June. This increase follows two consecutive monthly decreases. However, the gain in new orders is attributable, in large part, to transportation, particularly aircraft. New orders excluding transportation increased only 0.2%. Shipments of manufactured durable goods in June, down three of the last four months, decreased $0.1 billion to $236.0 billion. This followed a 1.2% May increase. Unfilled orders for manufactured durable goods in June, up three of the last four months, increased $14.2 billion, or 1.3%, to $1,135.6 billion. This followed a 0.1% May decrease. Inventories continued to build, increasing $1.6 billion, or 0.4%.
  • Following a surge in May, sales of existing homes fell 1.8% in June. Despite last month’s decline, June’s sales pace (5.52 million) is 0.7% above a year ago, but is the second lowest of 2017 (February, 5.47 million). The demand for existing housing remains strong, but a dearth of supply and climbing prices have kept interested buyers at bay. Total housing inventory at the end of June declined 0.5% to 1.96 million existing homes available for sale — 7.1% lower than a year ago. Unsold inventory is at a 4.3-month supply at the current sales pace, which is down from 4.6 months a year ago. The median existing-home price for all housing types (single family, condos, townhouses, and co-ops) in June was $263,800, up 6.5% from June 2016 ($247,600). June’s median sales price surpassed May as the new peak after registering the 64th straight month of year-over-year gains.
  • Sales of new single-family homes were only marginally better in June than existing home sales. New single-family home sales were at a seasonally adjusted annual rate of 610,000 — 0.8% above the revised May rate of 605,000 and 9.1% above the June 2016 estimate of 559,000. The median and average sales prices decreased in June from May. The median sales price of new homes sold was $310,800 ($324,300 in May). The average sales price was $379,500 ($381,400 in May). The seasonally adjusted estimate of new houses for sale at the end of June was 272,000, which represents a supply of 5.4 months at the current sales rate.
  • The trade deficit decreased in June. The international trade deficit was $63.9 billion in June, down $2.5 billion from May. Exports of goods for June were $128.6 billion, $1.8 billion more than May exports. Imports of goods for June were $192.4 billion, $0.7 billion less than May imports.
  • The Conference Board Consumer Confidence Index® rose to 121.1 in July, up from 117.3 in June. Surveyed consumers expressed growing optimism in the present state of the economy and the short-term outlook. On the other hand, the University of Michigan’s Surveys of Consumers had consumer sentiment fall from 95.1 in June to 93.4 in July. This is still 3.8% higher than the reading from July 2016. Survey respondents were bullish about current economic conditions, but not so optimistic concerning future prospects for the economy.
  • In the week ended July 22, the advance figure for seasonally adjusted initial claims for unemployment insurance was 244,000, an increase of 10,000 from the previous week’s revised level. The previous week’s level was revised up by 1,000 from 233,000 to 234,000. The advance seasonally adjusted insured unemployment rate remained 1.4%, unchanged from the previous week’s unrevised rate. During the week ended July 15, there were 1,964,000 receiving unemployment insurance benefits, a decrease of 13,000 from the previous week’s unrevised level.

Eye on the Week Ahead

Two important economic reports are out this week: personal income and outlays and the employment situation. The FOMC relies on the price index of the personal income and outlays report as an indicator of inflationary trends. On the employment front, June’s report was mixed — as new hires increased, while wage growth was marginal at best. July’s employment report is not expected to change much.