What I’m Watching This Week – 4 June 2018

The Markets (as of market close June 1, 2018)

Last Friday’s strong jobs report provided the impetus for a strong finish to the week, as the indexes were able to recoup some of their early week losses. The small-cap Russell 2000 and the tech-heavy Nasdaq led the way, posting solid weekly gains. On the other hand, the large-cap Dow declined, as did the Global Dow. The broader S&P 500 managed to close last week ahead by about 0.50%. The week was full of mixed news for investors, starting with the potential for tariff wars between the United States and some of its long-standing trade partners. Investor uneasiness was also attributable to political drama in Italy and, to a lesser degree, Spain. In Italy, after much political wrangling, a coalition government took control, naming a political novice, Giuseppe Conte, as prime minister. Spain also ushered in a new government after removing Prime Minister Mariano Rajoy and replacing him with Pedro Sanchez.

The price of crude oil (WTI) fell again last week, closing at $65.72 per barrel, down from the prior week’s closing price of $67.50 per barrel. The price of gold (COMEX) fell to $1,298.00 by early Friday evening, down from the prior week’s price of $1,306.50. The national average retail regular gasoline price increased to $2.962 per gallon on May 28, 2018, $0.039 higher than the prior week’s price and $0.556 more than a year ago.

Market/Index 2017 Close Prior Week As of 6/1 Weekly Change YTD Change
DJIA 24719.22 24753.09 24635.21 -0.48% -0.34%
Nasdaq 6903.39 7433.85 7554.33 1.62% 9.43%
S&P 500 2673.61 2721.33 2734.62 0.49% 2.28%
Russell 2000 1535.51 1626.93 1647.98 1.29% 7.32%
Global Dow 3085.41 3047.11 3025.69 -0.70% -1.94%
Fed. Funds target rate 1.25%-1.50% 1.50%-1.75% 1.50%-1.75% 0 bps 25 bps
10-year Treasuries 2.41% 2.92% 2.90% -2 bps 49 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

  • May proved to be a big hiring month with 223,000 new jobs added, while the unemployment rate edged down 0.1 percentage point to 3.8%. The total number of unemployed dropped from 6.34 million in April to 6.07 million in May. Over the year, the unemployment rate was down by 0.5 percentage point, and the number of unemployed persons declined by 772,000. Notable job gains occurred in retail trade (31,000), health care (29,000), construction (25,000), professional and technical services (23,000), transportation and warehousing (19,000), and manufacturing (18,000). The average workweek remained at 34.5 hours. Average hourly earnings grew by $0.08 to $26.92. Over the year, average hourly earnings have increased by $0.71, or 2.7%.
  • Gross domestic product increased at an annual rate of 2.2% in the first quarter of 2018, according to the second estimate released by the Bureau of Economic Analysis. In the fourth quarter of 2017, GDP increased at an annual rate of 2.9%. The deceleration in the first-quarter GDP reflected decreases in personal consumption expenditures; exports; federal, state, and local government spending; and residential fixed investment. Gross domestic income increased 2.8% in the first quarter, compared with an increase of 1.0% in the fourth quarter.
  • Consumers’ income and spending increased in April. Personal (pre-tax) income increased by 0.3% and disposable (after-tax) personal income climbed 0.4% in April. Personal consumption expenditures jumped 0.6% for the month. Much of the increase in consumer spending is attributable to rising gas prices, as core PCE (less food and energy) increased by only 0.2%. Consumer prices nudged up 0.2% in April and are up 2.0% over the last 12 months. Core prices have risen 1.8% for the year.
  • According to the IHS Markit final U.S. Manufacturing Purchasing Managers’ Index™ (PMI™) report, the manufacturing sector followed its April surge with sharp increases in new orders, new business, and output in May. The rate of growth for new orders was the second-fastest since September 2014 (after April 2018).
  • The May 2018 Manufacturing ISM® Report On Business® was in line with the Markit results. Manufacturing expanded in May over April, as did new orders, production, employment, prices, and deliveries. As expected with greater demand, inventories fell a bit.
  • The international trade deficit was $68.2 billion in April, down $0.4 billion from $68.6 billion in March. Exports of goods for April were $139.6 billion, $0.7 billion less than March exports. Imports of goods for April were $207.8 billion, $1.1 billion less than March imports.
  • The Conference Board Consumer Confidence Index® increased in May, following a modest decline in April. Consumers’ assessment of current conditions improved in May. Consumers were modestly more positive about the short-term economic outlook last month.
  • In the week ended May 26, there were 221,000 initial claims for unemployment insurance, a decrease of 13,000 from the previous week’s level. The advance insured unemployment rate remained at 1.2%. The advance number of those receiving unemployment insurance benefits during the week ended May 19 was 1,726,000, a decrease of 16,000 from the prior week’s level, which was revised up by 1,000.

Eye on the Week Ahead

Market volatility is expected to continue as investors monitor ongoing geopolitical developments. Apparently, the summit with North Korea is back on for June 12 — at least for now. Otherwise, this week is relatively slow with respect to economic reports.

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Monthly Market Review – May 2018

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

Despite a sell-off on the last day of the month, equities held enough of their gains to post mostly positive month-over-month returns. The Trump administration imposed tariffs on steel and aluminum imports on Canada, Mexico, and the European Union. And, just before scheduled trade talks with China were to resume, President Trump announced that he would proceed with tariffs on Chinese imports and limit Chinese investment in U.S. tech companies. Investors feared retaliation from impacted countries could lead to an all-out trade war. Early in the month, signs of rising inflation sent large caps down, while small caps and tech stocks climbed. However, stocks recovered following the Fed’s decision to maintain the current interest rate range. Throughout the month, stocks rallied, then slipped back, amid trade war fears, a few mediocre corporate earnings reports, and fear of rising price inflation.

Nevertheless, each of the indexes listed here posted monthly gains, with the exception of the Global Dow. The large caps of the Dow and S&P 500 closed the month of May in the black, with the S&P 500 outperforming the Dow by more than a full percentage point. The Nasdaq and the Russell 2000 led the way for the month, each gaining more than 5.0% over their April closing values. Those two indexes have also performed the best since the start of 2018. The Dow and the Global Dow, on the other hand, are still trying to catch up to their 2017 closing values.

By the close of trading on May 31, the price of crude oil (WTI) was $67.10 per barrel, down from the price of $68.57 per barrel on April 30. The national average retail regular gasoline price was $2.962 per gallon on May 28, up from the April 30 selling price of $2.846 and $0.556 more than a year ago. The price of gold decreased by the end of May, closing at $1,302.70 on the last trading day of the month, down from its price of $1,316.10 at the end of April.

Market/Index 2017 Close Prior Month As of May 31 Month Change YTD Change
DJIA 24719.22 24163.15 24415.84 1.05% -1.23%
NASDAQ 6903.39 7066.27 7442.12 5.32% 7.80%
S&P 500 2673.61 2648.05 2705.27 2.16% 1.18%
Russell 2000 1535.51 1541.88 1633.61 5.95% 6.39%
Global Dow 3085.41 3061.73 3001.96 -1.95% -2.70%
Fed. Funds 1.25%-1.50% 1.50%-1.75% 1.50%-1.75% 0 bps 25 bps
10-year Treasuries 2.41% 2.95% 2.86% -9 bps 45 bps

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

Last Month’s Economic News

  • Employment: Total employment rose by 164,000 in April after adding 103,000 new jobs in March. April’s figures are down slightly from the average monthly gain of 191,000 over the prior 12 months. Notable employment gains occurred in professional and business services (54,000), manufacturing (24,000), and health care (24,000). The unemployment rate slipped to 3.9%, with roughly 6.3 million eligible workers unemployed. The labor participation rate was little changed at 62.9% (62.8% in March). The employment-population ratio held at 60.4% in April (60.3% in March). The average workweek was unchanged at 34.5 hours for the month. Average hourly earnings increased by $0.04 to $26.84. Over the last 12 months, average hourly earnings have risen $0.67, or 2.6%.
  • FOMC/interest rates: The Federal Open Market Committee maintained the federal funds target rate range at 1.50%-1.75% following its meeting in early May. Inflation is running at or near the Committee’s target of 2.0%, the labor market has continued to strengthen, and economic activity has been rising at a moderate rate. However, according to the Committee, household spending has moderated. As to the timing and size of future interest rate adjustments, the Committee did not specifically indicate when the next rate hike would happen, but most experts suggest a likely rate increase could occur following the Committee’s next meeting in June.
  • GDP/budget: The second estimate of the first-quarter gross domestic product showed the economy expanded at an annual rate of 2.2%, according to the Bureau of Economic Analysis. The fourth-quarter GDP grew at an annualized rate of 2.9%. According to the report, after-tax corporate profits climbed at a rate of 5.9% after increasing 1.7% in the fourth quarter — likely due to new legislative corporate tax cuts. Consumer spending rose 1.0% 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 2.6% in the first quarter. The government budget had a surplus of $214.26 billion in April, largely due to annual income tax payments. The monthly deficit was $208.74 billion in March. The fiscal 2018 deficit (which began in October 2017) is $385.44 billion — up by about $41 billion, or 12%, from the deficit over the same period last year.
  • Inflation/consumer spending: A surge in gas prices pushed consumer spending higher in April. Personal consumption expenditures jumped 0.6% for the month, the largest increase in 5 months. Consumer income climbed 0.3%, while disposable (after-tax) income increased 0.4% in April. Consumer prices inched up 0.2% last month, matching March’s gain. Over the last 12 months, consumer prices rose 2,0%, and core prices (less food and energy) climbed 1.8%.
  • The Consumer Price Index rose 0.2% in April after falling 0.1% in March. Over the last 12 months ended in April, consumer prices are up 2.5%. Core prices, which exclude food and energy, are up 2.1% for the year.
  • Prices at the wholesale level expanded slightly in April. The Producer Price Index showed the prices companies receive for goods and services jumped 0.1% in April after climbing 0.3% in March. Year-over-year, producer prices have increased 2.6%. Prices less food and energy increased 0.2% for the month and are up 2.3% over the last 12 months.
  • Housing: Residential sales are having a difficult time gaining traction, primarily due to a lack of inventory. Total existing-home sales fell 2.5% for April following a 1.1% gain in March. Year-over-year, existing home sales are down 1.4%. The April median price for existing homes was $257,900, which is 5.3% higher than the April 2017 price of $245,000. While inventory for all types of existing homes for sale rose 9.8% in April, it is 6.3% lower than a year ago. New home sales also fell in April, down 1.5% from their March total. The median sales price of new houses sold in April was $312,400 ($337,200 in March). The average sales price was $407,300 ($369,900 in March). Inventory increased from a supply representing 5.4 months — up slightly from the March rate of 5.3 months.
  • Manufacturing: Industrial production edged up 0.7% in April, the same increase as in March. This marks the third consecutive monthly increase in industrial production. Manufacturing output rose 0.5% for the month, after not moving in March. Total industrial production has increased 3.5% over the last 12 months. The indexes for mining and utilities moved up 1.1% and 1.9%, respectively. Capacity utilization for the industrial sector moved up 0.4 percentage point in April. New orders for manufactured durable goods fell 1.7% in April following a 2.7% jump in March. For the year, new durable goods orders are up 9.6%.
  • Imports and exports: The advance report on international trade in goods revealed that the trade gap decreased by $0.4 billion in April from March. The deficit for April was $68.2 billion (the March deficit was $68.6 billion). April exports of goods fell $0.7 billion, while imports decreased $1.1 billion. For the month, total imports ($207.8 billion) far exceeded exports ($139.6 billion). Import prices increased 0.3% in April after falling 0.2% in March. For the year, import prices have increased 3.3%. Prices for exports advanced 0.6% in April and are up 3.8% for the year.
  • International markets: Geopolitics influenced the world economy and financial markets in April. Cancellation of a proposed summit between the United States and North Korea, coupled with trade uncertainties between the United States and the European Union, Canada, Mexico, and China created uneasiness with investors. Both China and the United States declared increased tariffs on their respective imports only to see a truce called to allow for negotiations between the world’s two largest economies. However, just before the start of settlement talks, the United States made a surprise announcement to move forward with tariffs against China, possibly putting trade negotiations in jeopardy. Despite the trade issues, China’s economy grew at an annualized rate of 6.8% in the first quarter. Political affairs in Italy and Spain contributed to falling equity values in Europe. Government upheaval had an impact on short-term bonds in Italy, where a massive sell-off sent prices tumbling and yields soaring. Convictions of high-level government officials in Spain prompted calls for a no-confidence vote in the present government.
  • Consumer confidence: Consumer confidence, as measured by The Conference Board Consumer Confidence Index®, expanded in May following a modest decline in April. According to the report, consumers were more bullish in their views of present economic conditions and prospects for short-term economic growth.

Eye on the Month Ahead

There’s a good chance the Fed could raise interest rates in June, which could impact the economy in general and stocks in particular. The Trump administration’s foreign trade policy of imposing or increasing tariffs on foreign imports seems to be influencing investors more than favorable economic reports. Market volatility is likely to continue in June.

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What I’m Watching This Week – 29 May 2018

The Markets (as of market close May 25, 2018)

Domestic indexes rose last week despite sinking energy stocks and ongoing geopolitical uncertainties. Oil prices plunged, pulling energy shares down following indications that OPEC was planning to increase production. President Trump’s cancellation of the summit with North Korea coincided with a sharp drop in stocks earlier in the week. Uncertainty over the course of trade negotiations between the United States and China may have added to a lukewarm response to equities from investors. In any case, the large caps of the S&P 500 and the Dow posted marginal gains. The Nasdaq recorded the largest weekly gains, while continuing to lead the year-to-date tally.

The price of crude oil (WTI) fell for the first time in several weeks, closing at $67.50 per barrel, down from the prior week’s closing price of $71.40 per barrel. The price of gold (COMEX) increased to $1,306.50 by early Friday evening, up from the prior week’s price of $1,292.50. The national average retail regular gasoline price increased to $2.923 per gallon on May 21, 2018, $0.050 higher than the prior week’s price and $0.524 more than a year ago.

Market/Index 2017 Close Prior Week As of 5/25 Weekly Change YTD Change
DJIA 24719.22 24715.09 24753.09 0.15% 0.14%
Nasdaq 6903.39 7354.34 7433.85 1.08% 7.68%
S&P 500 2673.61 2712.97 2721.33 0.31% 1.78%
Russell 2000 1535.51 1626.63 1626.93 0.02% 5.95%
Global Dow 3085.41 3086.05 3047.11 -1.26% -1.24%
Fed. Funds target rate 1.25%-1.50% 1.50%-1.75% 1.50%-1.75% 0 bps 25 bps
10-year Treasuries 2.41% 3.05% 2.92% -13 bps 51 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

  • New home sales fell 1.5% in April from a downwardly revised March total. Inventory of available new homes for sale increased slightly from 5.3 months to 5.4 months. The median sales price of new houses sold in April 2018 was $312,400 ($335,400 in March). The average sales price was $407,300 ($366,000 in March).
  • Sales of existing homes, like new home sales, fell in April. Total existing-home sales of all residential types fell 2.5% for the month and are 1.4% below their pace a year ago. A lack of available listings continues to hinder existing home sales. Total housing inventory at the end of April increased 9.8% to 1.80 million existing homes available for sale but is still 6.3% lower than a year ago (1.92 million) and has fallen year-over-year for 35 consecutive months. Unsold inventory is at a 4.0-month supply at the current sales pace (4.2 months a year ago). The median existing-home price for all housing types in April was $257,900 ($250,400 in March), up 5.3% from April 2017 ($245,000).
  • Orders for manufactured durable goods fell 1.7% in April following a 2.7% jump in March. But excluding transportation, which drove the April decrease, new orders increased 0.9% last month. Transportation equipment hindered shipments of durable goods, which decreased 0.1% in April. On the plus side, inventories (0.3%) and unfilled orders (0.5%) each posted gains last month.
  • In the week ended May 19, there were 234,000 initial claims for unemployment insurance, an increase of 11,000 from the previous week’s level, which was revised up by 1,000. The advance insured unemployment rate remained at 1.2%. The advance number of those receiving unemployment insurance benefits during the week ended May 12 was 1,741,000, an increase of 29,000 from the prior week’s level, which was revised up by 5,000.

Eye on the Week Ahead

The final week of May brings with it the second release of the first-quarter gross domestic product, which grew at an annualized rate of 2.3% following the initial report in April. The personal income and outlays report for April should show continued gains in consumer income and spending, but only marginal increase in prices. The week closes with the May employment figures. Job growth has been steady, but not so much for wages.

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What I’m Watching This Week – 21 May 2018

The Markets (as of market close May 18, 2018)

Small and mid-caps outperformed large caps during moderate trading last week. Both the Dow and S&P 500 closed the week down around 0.5%, while the Nasdaq fell a bit more. The small caps of the Russell 2000 posted notable weekly gains and edged closer to the Nasdaq in year-to-date performance. While investors may have moved away from stocks last week, they didn’t necessarily put their money in long-term bonds, as prices fell and yields climbed higher. The yield on the 10-year Treasury note reached 3.12% last Thursday — a seven-year high.

The price of crude oil (WTI) rose again last week, closing at $71.40 per barrel, up from the prior week’s closing price of $70.58 per barrel. The price of gold (COMEX) fell to $1,292.50 by early Friday evening, down from the prior week’s price of $1,319.50. The national average retail regular gasoline price increased to $2.873 per gallon on May 14, 2018, $0.028 higher than the prior week’s price and $0.501 more than a year ago.

Market/Index 2017 Close Prior Week As of 5/18 Weekly Change YTD Change
DJIA 24719.22 24831.17 24715.09 -0.47% -0.02%
Nasdaq 6903.39 7402.88 7354.34 -0.66% 6.53%
S&P 500 2673.61 2727.72 2712.97 -0.54% 1.47%
Russell 2000 1535.51 1606.79 1626.63 1.23% 5.93%
Global Dow 3085.41 3108.41 3086.05 -0.72% 0.02%
Fed. Funds target rate 1.25%-1.50% 1.50%-1.75% 1.50%-1.75% 0 bps 25 bps
10-year Treasuries 2.41% 2.96% 3.05% 9 bps 64 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

  • Retail sales of consumer goods and services increased 0.3% in April, and are up 4.7% over the past 12 months. April’s gain follows a 0.8% price jump in March. For April, gasoline station sales were up 0.8% and have advanced 11.7% over the year. Nonstore (internet) sales climbed 0.6% in April and are up 9.6% over the past 12 months. Clothing store sales enjoyed notable increases — 1.4% for the month and 4.1% for the year.
  • The number of building permits and housing starts fell in April from March, but housing completions increased. Building permits issued for privately owned housing units (all housing types) were 1.8% lower in April, but are 7.7% ahead of their April 2017 rate. Single-family permits actually increased by 0.9% for the month. Housing starts in April were 3.7% below their March rate, although single-family starts were 0.1% ahead of March. While April’s housing completions were 2.8% above their March rate, single-family completions in April fell 4.0% below their March level, which won’t help the already strained inventory of new homes for sale.
  • Industrial production rose 0.7% in April, according to the Federal Reserve report. This marks the third consecutive monthly increase. Over the last 12 months, industrial production has increased 3.5%. In April, manufacturing increased 0.5%, mining gained 1.1%, and utilities climbed 1.9%. Capacity utilization for the industrial sector climbed 0.4 percentage point in April. Through the early part of 2018, manufacturing looks to be a positive contributor to this year’s economic growth.
  • In the week ended May 12, there were 222,000 initial claims for unemployment insurance, an increase of 11,000 from the previous week’s level. The advance insured unemployment rate once again fell 0.1 percentage point to 1.2%. The advance number of those receiving unemployment insurance benefits during the week ended May 5 was 1,707,000, a decrease of 87,000 from the prior week’s level, which was revised up by 4,000. This is the lowest level for insured unemployment since December 1, 1973, when it was 1,692,000.

Eye on the Week Ahead

The housing market rebounded in March as both new and existing home sales experienced positive growth over the prior month. The residential sales figures for April are out this week and will certainly be impacted by scant inventory. March also was a good month for durable goods, as new orders increased by 2.6%. April’s information should prove similarly positive.

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What I’m Watching This Week – 14 May 2018

The Markets (as of market close May 11, 2018)

Boosted by higher oil shares and rebounding tech stocks, the benchmark indexes listed here advanced markedly for the first time in several weeks. Gains were enough to push each of the indexes into the black year-to-date, led by the Nasdaq and the Russell 2000. By last week’s end, each of the indexes posted gains exceeding 2.0%. Not since the week ended April 13 have the indexes listed here posted gains exceeding 1.0%. Investors also may have taken comfort in the presumption that inflation isn’t heading skyward based on the modest increase in the Consumer Price Index. Soft prices may preclude, at least temporarily, the Federal Reserve from increasing interest rates.

The price of crude oil (WTI) continued to surge last week closing at $70.58 per barrel, up from the prior week’s closing price of $68.26 per barrel. The price of gold (COMEX) jumped to $1,319.50 by early Friday evening, up from the prior week’s price of $1,316.70. The national average retail regular gasoline price decreased to $2.845 per gallon on May 7, 2018, $0.001 lower than the prior week’s price but $0.473 more than a year ago.

Market/Index 2017 Close Prior Week As of 5/11 Weekly Change YTD Change
DJIA 24719.22 24262.51 24831.17 2.34% 0.45%
Nasdaq 6903.39 7209.62 7402.88 2.68% 7.24%
S&P 500 2673.61 2663.42 2727.72 2.41% 2.02%
Russell 2000 1535.51 1565.60 1606.79 2.63% 4.64%
Global Dow 3085.41 3044.54 3108.41 2.10% 0.75%
Fed. Funds target rate 1.25%-1.50% 1.50%-1.75% 1.50%-1.75% 0 bps 25 bps
10-year Treasuries 2.41% 2.95% 2.96% 1 bps 55 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

  • The Consumer Price Index increased 0.2% in April after falling 0.1% in March. Over the last 12 months, the CPI has risen 2.5%. Gasoline prices (3.0%) led the price increase in energy (1.4%), which essentially carried the overall CPI. The index less food and energy (core prices) rose 0.1% for the month, and 2.1% for the 12 months ended in April. Of particular note, over the past 12 months, prices for energy (7.9%), gasoline (13.4%), and fuel oil (22.6%) have increased substantially.
  • Producer prices moved very little in April, up a scant 0.1% over March, when prices jumped 0.3%. In fact, the bump in prices is attributable to a 0.1% rise in the prices producers got for services — prices for goods were unchanged in April. Not unexpectedly, steel and aluminum prices increased over the month. Producer prices are up 2.6% for the 12 months ended in April.
  • The number of job openings increased by nearly 500,000 in March over February. Hires dropped slightly while total separations increased marginally. Of note, the gap between job openings and hires is 1.125 million, indicating that employers are having a hard time filling positions.
  • The federal government enjoyed the largest April budgetary surplus on record, bolstered by large individual tax deposits. For April, total government receipts were $510.45 billion, while government outlays were $296.12 billion, netting a monthly budget surplus of $214.26 billion. Through the first seven months of the fiscal year, the budget surplus sits at $385.44 billion. Over the same period last year, the federal budget surplus was $344.43 billion — a difference of about $41 billion.
  • S. import prices increased 0.3% in April following a 0.2% decline in March. Prices for U.S. imports rose 3.3% between April 2017 and April 2018. Fuel and petroleum prices notably increased, adding to the overall cost of imports. Prices for U.S. exports rose 0.6% in April, after increasing 0.3% in March. U.S. export prices increased 3.8% over the past year, the largest 12-month increase since a 4.8% rise for the year ended November 2011. Prices for agricultural exports fell 1.2% in April after recording a 3.2% rise in March. China’s shutdown of U.S. soybean imports may have impacted the drop in agricultural export prices.
  • In the week ended May 5, there were 211,000 initial claims for unemployment insurance, unchanged from the previous week’s level. The advance insured unemployment rate rose to 1.3%. The advance number of those receiving unemployment insurance benefits during the week ended April 28 was 1,790,000, an increase of 30,000 from the prior week’s level, which was revised up by 4,000.

Eye on the Week Ahead

If the recent purchasing managers’ survey responses are any indication, this week’s Federal Reserve report on industrial production should be encouraging. The latest figures on new residential construction for April are also out this week. Building permits and housing starts were strong in March, but bad weather throughout the country slowed housing completions. April’s report should show a more favorable rate of new home completions.

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What I’m Watching This Week – 7 May 2018

The Markets (as of market close May 4, 2018)

Despite a closing rally last Friday, large caps closed the week down from the prior week. The tech-heavy Nasdaq and the small caps of the Russell 2000 fared better, up 1.26% and 0.60%, respectively. The jobs report sent mixed messages to investors, with the lowest unemployment rate in several years being offset by minuscule wage growth. Mixed corporate earnings reports coupled with the Fed’s decision to maintain interest rates raised the question of whether economic growth is slowing. Meanwhile, the rhetoric following trade talks between the United States and China seemed positive. Actions may speak louder than words, however, as China shut off all imports of U.S. soybeans in apparent retaliation for U.S. tariffs.

The price of crude oil (WTI) continues tracking higher. Last week’s closing price of $69.81 per barrel was up from the prior week’s closing price of $68.26 per barrel. The price of gold (COMEX) fell to $1,316.70 by early Friday evening, down from the prior week’s price of $1,337.60. The national average retail regular gasoline price increased to $2.846 per gallon on April 30, 2018, $0.048 higher than the prior week’s price and $0.435 more than a year ago.

Market/Index 2017 Close Prior Week As of 5/4 Weekly Change YTD Change
DJIA 24719.22 24311.19 24262.51 -0.20% -1.85%
Nasdaq 6903.39 7119.80 7209.62 1.26% 4.44%
S&P 500 2673.61 2669.91 2663.42 -0.24% -0.38%
Russell 2000 1535.51 1556.24 1565.60 0.60% 1.96%
Global Dow 3085.41 3075.04 3044.54 -0.99% -1.32%
Fed. Funds target rate 1.25%-1.50% 1.50%-1.75% 1.50%-1.75% 0 bps 25 bps
10-year Treasuries 2.41% 2.95% 2.95% 0 bps 54 bps

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

Last Week’s Economic Headlines

  • While noting that the labor market has continued to strengthen and that economic activity has been rising at a moderate rate, the Federal Open Market Committee nevertheless decided to maintain the federal target rate range at 1.50% to 1.75%, essentially due to moderated household spending. The Committee expects that economic conditions will evolve in a manner that will warrant further gradual increases in the federal funds rate. After indicating that the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data, there is nothing in the Committee’s statement to indicate whether rates would be increased following its next meeting in June.
  • There were 164,000 new jobs added in April, according to the latest employment figures from the Bureau of Labor Statistics. But the big news is that the unemployment rate dropped to 3.9% — the lowest it’s been since December 2000. Wages didn’t gain much, increasing a scant 0.1% last month. Over the past 12 months, wages have increased 2.6%, which equates to a mere $0.67 — certainly not a sign of building inflationary pressures. The average workweek was unchanged at 34.5 hours.
  • According to the latest report from the Bureau of Economic Analysis, consumer income and spending increased in March. Consumer income rose 0.3% for the month, the same increase as February. Consumer spending rose 0.4% following no gain in February. The personal consumption expenditures price index didn’t change from February. However, both the PCE price index and the core (excluding food and energy) price index are up 2.0% and 1.9%, respectively, over the last 12 months — right at the target inflation rate sought by the Federal Open Market Committee.
  • According to the Bureau of Economic Analysis, the international trade in goods and services deficit was $49.0 billion in March, down $8.8 billion from February. March exports were $208.5 billion, $4.2 billion more than February exports. March imports were $257.5 billion, $4.6 billion less than February imports. Year-to-date, the goods, and services deficit increased $25.5 billion, or 18.5%, from the same period in 2017. Exports increased $39.2 billion, or 6.8%. Imports increased $64.7 billion, or 9.1%.
  • Manufacturing conditions continued to improve in April, as evidenced by the IHS Markit final U.S. Manufacturing Purchasing Managers’ Index™, which registered its highest level since September 2014. The production of goods accelerated and new orders grew while exceeding the pace of output. Purchasing manager respondents suggested that greater global demand for raw materials and recently introduced tariffs were key factors in increasing costs of production. This, in turn, led to average prices rising at the quickest pace since June 2011.
  • While the Markit PMI™ report was very positive, the Manufacturing ISM® Report On Business® was not so glowing — at least at first blush. The survey saw the April PMI® decrease 2.0 percentage points from March. New orders, production, employment, and inventories all regressed, while supplier deliveries and prices increased. While the numbers may indicate a slowdown in manufacturing, the respondents were quite encouraged with manufacturing overall. For instance, the Backlog of Orders Index reached its highest reading since May 2004. Production and employment continue to expand but have been restrained by labor and skill shortages. The Prices Index is at its highest level since April 2011.
  • The latest Non-Manufacturing ISM® Report On Business® revealed business activity slowed in that sector during April. Employment and supplier deliveries held down the rate of growth for non-manufacturing industries. New orders and prices increased in April over March. According to the report, “respondents have expressed concern regarding the uncertainty about tariffs and the effect on the cost of goods. Overall, the respondents remain positive about business conditions and the economy.”
  • In the week ended April 28, there were 211,000 initial claims for unemployment insurance, an increase of 2,000 from the previous week’s level. The advance insured unemployment rate fell to 1.2%. The advance number of those receiving unemployment insurance benefits during the week ended April 21 was 1,756,000, a decrease of 77,000 from the prior week’s level, which was revised down by 4,000. This is the lowest level for insured unemployment since December 8, 1973, when it was 1,717,000.

Eye on the Week Ahead

The first noteworthy economic reports for April are out this week, including the Consumer Price Index and the Producer Price Index. The latest import and export prices for April could begin to show the impact, if any, of the recent trade policies adopted by the United States.

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Monthly Market Review – April 2018

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.

Market/Index 2017 Close Prior Month As of April 30 Month Change YTD Change
DJIA 24719.22 24103.11 24163.15 0.25% -2.25%
NASDAQ 6903.39 7063.44 7066.27 0.04% 2.36%
S&P 500 2673.61 2640.87 2648.05 0.27% -0.96%
Russell 2000 1535.51 1529.43 1541.88 0.81% 0.41%
Global Dow 3085.41 3026.70 3061.73 1.16% -0.77%
Fed. Funds 1.25%-1.50% 1.50%-1.75% 1.50%-1.75% 0 bps 25 bps
10-year Treasuries 2.41% 2.73% 2.95% 22 bps 54 bps

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

Last Month’s Economic News

  • Employment: Total employment rose by 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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