What I’m Watching This Week – 8 May 2017

The Markets (as of market close May 5, 2017)

Both the S&P 500 and Nasdaq reached record highs last week as most of the benchmark indexes listed here posted solid gains. Only the Russell 2000 ended last week in negative territory, falling almost a quarter of a point. While the economic news last week was mixed, a strong labor report was apparently enough to offset stagnant price and wage gains in April. While the Fed didn’t see enough economic growth to raise interest rates, the Committee expects the economy to continue to strengthen over time. Prices fell for 10-year Treasuries, pushing yields higher. Overall, equities performed fairly well, despite falling oil prices and the petition of Puerto Rico for federal relief from its $51 billion debt, which would be the largest restructuring of municipal debt in U.S. history.

The price of crude oil (WTI) fell for the third straight week, closing at $46.47 per barrel, down from the prior week’s closing price of $49.19 per barrel. The price of gold (COMEX) also dropped, closing at $1,228.40 by late Friday afternoon, down from the prior week’s price of $1,269.50. The national average retail regular gasoline price decreased to $2.411 per gallon on May 1, 2017, $0.038 less than the prior week’s price but $0.171 more than a year ago.

Market/Index 2016 Close Prior Week As of 5/5 Weekly Change YTD Change
DJIA 19762.60 20940.51 21006.94 0.32% 6.30%
Nasdaq 5383.12 6047.61 6100.76 0.88% 13.33%
S&P 500 2238.83 2384.20 2399.29 0.63% 7.17%
Russell 2000 1357.13 1400.43 1397.00 -0.24% 2.94%
Global Dow 2528.21 2731.15 2754.32 0.85% 8.94%
Fed. Funds target rate 0.50%-0.75% 0.75%-1.00% 0.75%-1.00% 0 bps 25 bps
10-year Treasuries 2.44% 2.28% 2.35% 7 bps -9 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 Headlines

  • The FOMC decided to maintain interest rates at their current level following its meeting last week. The Committee noted that, while the labor market has continued to strengthen and business fixed investment has firmed, household spending rose only modestly in March with consumer prices falling and inflation continuing to run somewhat below the Fed’s 2.0% target rate. However, the Committee views the slowing in economic growth during the first quarter as likely to be transitory and expects that economic activity will expand at a moderate pace, labor market conditions will strengthen, and inflation will stabilize around 2.0%. The FOMC had earlier suggested that interest rates would be increased three times during the year. It may be backing off that timetable, as the actual path of the federal funds rate will depend on the economic outlook based on incoming data.
  • The employment sector picked up the pace in April following a lackluster March as total employment increased by 211,000 for the month (79,000 in March). The unemployment rate ticked down 0.1 percentage point to 4.4%. Job gains occurred in leisure and hospitality, health care and social assistance, financial activities, and mining. Over the year, the unemployment rate has declined by 0.6 percentage point, and the number of unemployed has fallen by 854,000. The labor force participation rate was 62.9%, while the employment-population ratio came in at 60.2%. The average workweek increased by 0.1 hour to 34.4 hours in April. Average hourly earnings for the month rose by $0.07 to $26.19. Over the year, average hourly earnings have risen by $0.65, or 2.5%.
  • Inflation receded in March as consumer spending noticeably slowed. According to the latest report from the Bureau of Labor Statistics, personal consumption expenditures (the value of goods and services purchased by consumers) was essentially stagnant in March compared to February. The PCE price index, which measures the change in prices of goods and services purchased by consumers, decreased 0.2% in March. The core PCE price index, which excludes food and energy prices, fell 0.1% — the weakest showing in over 16 years. Personal income rose for the month, but not appreciably. Wages and salaries posted a weak 0.1% increase.
  • The Census Bureau reported that the goods and services deficit was $43.7 billion in March, down $0.1 billion from $43.8 billion in February, revised. March exports were $191.0 billion, $1.7 billion less than February exports. March imports were $234.7 billion, $1.7 billion less than February imports. Year-to-date, the goods and services deficit increased $9.4 billion, or 7.5%, from the same period in 2016. Exports increased $38.0 billion, or 7.1%. Imports increased $47.5 billion, or 7.1%.
  • Purchasing managers noted a slowdown in manufacturing production in April, according to the latest data from the Markit U.S. Manufacturing PMI™. The final Purchasing Managers’ Index™ registered 52.8 in April, down from 53.3 in March — the slowest improvement in overall business conditions since September 2016 (a reading of 50 or better indicates growth). The Institute for Supply Management’s PMI registered 54.8%, a decrease of 2.4 percentage points from the March reading. Purchasing managers reported a decrease in new orders, employment, and prices. On the plus side of the report, production increased slightly in April over March.
  • Economic activity in the non-manufacturing sector grew in April, according to the Non-Manufacturing ISM® Report On Business®. The non-manufacturing sector includes wholesale trade, utilities, arts and entertainment, mining, retail trade, health care, real estate, and accommodations and food. The Non-Manufacturing Index increased 2.3 percentage points to 57.5% in April compared to March. Business activity increased in April, as did new orders and prices. The Employment Index decreased 0.2 percentage point in April to 51.4%. Overall, the non-manufacturing sector showed renewed strength following a slowdown in March.
  • In the week ended April 29, the advance figure for seasonally adjusted initial claims was 238,000, a decrease of 19,000 from the previous week’s unrevised level of 257,000. The advance seasonally adjusted insured unemployment rate remained at 1.4% for the third consecutive week. The advance number for seasonally adjusted insured unemployment during the week ended April 22 was 1,964,000, a decrease of 23,000 from the previous week’s revised level. This is the lowest level for insured unemployment since April 15, 2000, when it was 1,962,000.

Eye on the Week Ahead

The pace of inflation slowed in March. How inflation trended in April will be revealed through this week’s Consumer Price Index, Producer Price Index, and retail sales report.

Monthly Market Review – April 2017

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

Equities continued their positive trend in April, spurred by favorable corporate earnings reports, proposed federal tax cuts, and positive economic signals overseas. The Nasdaq surpassed 6000 for the first time in its history, while the small-cap Russell 2000 reached a record high by the end of April. Each of the benchmark indexes listed here posted monthly gains, led by Nasdaq, which increased 2.30%, followed by the Global Dow, which gained almost 1.50% month-over-month. The large-cap Dow and S&P 500, while gaining in value, may have lagged a bit following less than favorable GDP and jobs growth. The yield on 10-year Treasuries fell 10 basis points as bond prices increased.

By the close of trading on April 28, the price of crude oil (WTI) was $49.19 per barrel, down from the March 31 price of $50.85 per barrel. The national average retail regular gasoline price was $2.449 per gallon on April 24, 2017, up from the March 27 selling price of $2.315 and $0.287 more than a year ago. The price of gold climbed at the end of April, closing at $1,269.50 on the last trading day of the month, up from its March 31 price of $1,250.60.

Market/Index 2016 Close Prior Month As of April 28 Month Change YTD Change
DJIA 19762.60 20663.22 20940.51 1.34% 5.96%
NASDAQ 5383.12 5911.74 6047.61 2.30% 12.34%
S&P 500 2238.83 2362.72 2384.20 0.91% 6.49%
Russell 2000 1357.13 1385.92 1400.43 1.05% 3.19%
Global Dow 2528.21 2691.45 2731.15 1.48% 8.03%
Fed. Funds 0.50%-0.75% 0.75%-1.00% 0.75%-1.00% 0 bps 25 bps
10-year Treasuries 2.44% 2.38% 2.28% -10 bps -16 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: The employment report for March showed job hirings slowed to 98,000 following gains of 219,000 in February and 216,000 in January, revised. Over the month, employment growth occurred in professional and business services (+56,000) and in mining (+11,000), while retail trade lost jobs (-30,000). The unemployment rate dipped to 4.5% — the lowest rate since April 2007. There were 7.2 million unemployed persons in March (7.5 million in February). The labor participation rate remained at 63.0%. The average workweek was 34.4 hours in March. Average hourly earnings increased by $0.05 to $26.14, following a $0.06 increase in February. Over the last 12 months ended in March, average hourly earnings have risen by $0.68, or 2.7%.
  • FOMC/interest rates:The Federal Open Market Committee did not meet in April, but is scheduled to meet during the first week of May. The minutes from its March meeting revealed all 17 members of the Committee supported the March rate hike and agreed that the economy was at or near full employment. However, inflation remains below the 2.0% target, although several members of the Committee expected that target to be reached during the year. While the FOMC anticipated raising interest rates three times during 2017, some members of the Committee will want to see solid economic growth before voting to increase rates at the next FOMC meeting in May.
  • GDP/budget: Expansion of the U.S. economy slowed over the first three months of 2017. According to the Bureau of Economic Analysis, the first-quarter 2017 gross domestic product grew at an annualized rate of 0.7% compared to the fourth-quarter 2016 GDP, which grew at an annual rate of 2.1%. Growth in the GDP was slowed by an increase in imports, and by weakening consumer, federal, state, and local government spending. Positives include increases in residential and nonresidential (business) investment. An indicator of inflationary trends, the price index for gross domestic purchases increased 2.6% in the fourth quarter, compared to an increase of 2.0% in the fourth quarter. As to the government’s budget, the federal deficit for March was $176.2 billion. Over the first six months of the 2017 fiscal year, the deficit sits at $526.9 billion, which is 15.0% higher than the deficit for the first six months of the 2016 fiscal year.
  • Inflation/consumer spending: Inflation, as measured by personal consumption expenditures, slowed a bit in March. For the 12 months ended in March 2017, the personal consumption expenditures price index expanded at a rate of 1.8%. For the 12 months ended in February, the PCE price index expanded at a rate of 2.1%. For March, personal income increased 0.2% over February. Disposable personal income (after-tax income) increased 0.2%. Personal consumption expenditures (the value of goods and services purchased by consumers) gained less than 0.1% for the month.

The prices companies receive for goods and services fell in March from February, as the Producer Price Index dropped 0.1% for the month. Year-over-year, producer prices have increased 2.3%. Energy prices play a large part in the movement of the PPI, and in March energy prices slipped 2.9%, while food prices increased 0.9%. The PPI less food and energy has risen 1.6% for the year, after recording no change in March from February.

In another sign of waning inflation, consumer prices also retreated in March, slipping 0.3% from February. For the year, consumer prices are up 2.4%. Core prices, which exclude food and energy, dropped 0.1% for the month and have increased 2.0% since March 2016.

  • Housing: The housing sector showed strength in March as home sales, prices, and building permits increased over the prior month. Existing home sales surged in March, climbing 4.4% to a seasonally adjusted annual rate of 5.71 million, up from February’s revised annual rate of 5.47 million. Existing home sales are 5.9% ahead of the sales pace from a year ago, which marks the strongest sales month since February 2007. The median sales price for existing homes rose 3.6% to $236,400. Total housing inventory at the end of March increased 5.8% to 1.83 million existing homes available for sale (6.6% lower than a year ago). Sales of newly constructed homes also increased in March, according to the Census Bureau’s report. Sales of new single-family homes expanded 5.8% in March to an annual rate of 621,000 — up from February’s rate of 587,000. The median sales price of new houses sold in March was $315,100, while the average sales price was $388,200. The seasonally adjusted estimate of new houses for sale at the end of March was 268,000. This represents a supply of 5.2 months at the current sales rate, which is up from 266,000 homes available (supply of 5.4 months) in February.
  • Manufacturing: Manufacturing slowed in March, according to the Federal Reserve. Manufacturing output fell 0.4% in March, led by a large step-down in the production of motor vehicles and parts. Factory output, aside from motor vehicles and parts, moved down 0.2%. Overall, industrial production increased 0.5% due to a jump of 8.6% in the output of utilities — the largest increase in the history of the index — as the demand for heating returned to seasonal norms after being suppressed by unusually warm weather in February. For the first quarter as a whole, industrial production rose at an annual rate of 1.5%. At 104.1% of its 2012 average, total industrial production in March was 1.5% above its year-earlier level. As for durable goods, the Census Bureau shows new orders increased 0.7% in March, a slower growth rate than February’s revised 2.3% increase. Excluding the volatile transportation segment, new durable goods orders fell 0.2%. Orders for core capital goods (excluding defense and transportation) increased 0.2% for the month and 3.0% over the past 12 months.
  • Imports and exports:The advance report on international trade in goods revealed that the trade gap grew by 1.4% in March. The overall trade deficit was $64.8 billion, up from February’s deficit of $63.9 billion. Exports declined $2.2 billion to $125.5 billion. Imports were $190.3 billion in March, down $1.4 billion from February’s total. The prices for U.S. imports of goods dropped 0.2% in March, led by a 3.6% drop in petroleum prices. U.S. export prices rose 0.2% for the month, after advancing a revised 0.4% in February. Export prices haven’t recorded a monthly decline since the index fell 0.8% in August 2016.
  • International markets:In France, the rise of Emmanuel Macron, a former investment banker, as the heavy favorite to win the May 7 presidential race sent stocks and the euro higher, as the eurozone continues to gain its economic footing following the financial crisis of 2008. Long-term government bond prices continued to fall in China, sending bond yields to their highest levels in 20 months, following a sell-off of Chinese stocks. On a positive note, Greece reached a budget surplus that’s eight times higher than the 0.5% primary target set by its creditors. This bodes well for continued bailout support for the financially embattled country.
  • Consumer sentiment:Consumer confidence in the economy slid back in April. The Conference Board Consumer Confidence Index® for April fell to 120.3 from March’s 123.1. While consumers expressed confidence in the job market, there was a decline in those who saw their income rising in the future. The Surveys of Consumers of the University of Michigan Index of Consumer Sentiment climbed to 98.0 in April. The March index was 96.9. Consumers expressed optimism about current economic conditions, as the Current Conditions Index increased 2.0 percentage points over March’s reading.

Eye on the Month Ahead

The FOMC did not meet in April, so the Committee will have plenty of economic data to consider when it next meets during the first week of May. Job creation slowed some in March, and April’s figures don’t come out until May 5. The FOMC may opt to leave interest rates alone until June’s meeting, to see if the labor market picks up the pace.

What I’m Watching This Week – 1 May 2017

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

Tech-heavy Nasdaq reached 6000 for the first time in its history last Tuesday. The small-cap Russell 2000, which surged for much of 2016 but fell back earlier this year, rebounded over the past few weeks, attaining a record high of 1419.43 by midweek. Better-than-expected quarterly corporate earnings reports, a sign of sustained strength for many large companies, have pushed stocks higher. Each of the benchmark indexes listed here posted notable gains last week, led by the Global Dow, which rose over 2.50%, followed by Nasdaq’s 2.32% climb. Long-term bond yields increased on news of proposed tax cuts.

The price of crude oil (WTI) fell for the second straight week, closing at $49.19 per barrel, down from the prior week’s closing price of $49.62 per barrel. The price of gold (COMEX) also dropped, closing at $1,269.50 by late Friday afternoon, down from the prior week’s price of $1,286.40. The national average retail regular gasoline price increased for the fourth week in a row to $2.449 per gallon on April 24, 2017, $0.013 higher than the prior week’s price and $0.287 more than a year ago.

Market/Index 2016 Close Prior Week As of 4/28 Weekly Change YTD Change
DJIA 19762.60 20547.76 20940.51 1.91% 5.96%
Nasdaq 5383.12 5910.52 6047.61 2.32% 12.34%
S&P 500 2238.83 2348.69 2384.20 1.51% 6.49%
Russell 2000 1357.13 1379.85 1400.43 1.49% 3.19%
Global Dow 2528.21 2661.88 2731.15 2.60% 8.03%
Fed. Funds target rate 0.50%-0.75% 0.75%-1.00% 0.75%-1.00% 0 bps 25 bps
10-year Treasuries 2.44% 2.24% 2.28% 4 bps -16 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 Headlines

  • The initial estimate for the first-quarter gross domestic product showed economic growth slowed compared to the fourth quarter. The GDP increased at an annual rate of 0.7% in the first quarter. In the fourth quarter of 2016, the GDP increased at an annual rate of 2.1%. While the first estimate is based on source data that is incomplete or subject to further revision, this quarter’s growth rate is the slowest in three years. Weakened consumer spending cut into economic growth in the first quarter. Consumer spending increased a mere 0.3%, which is the worst showing since the end of 2009. Consumers spent less on high-cost items such as cars, and home heating during a mild winter. Conversely, residential investment grew at a 13.7% pace and nonresidential (business) investment, which has been sluggish, climbed 9.4%. Rising inflation may be cutting into consumers’ paychecks, prompting them to hold off on buying nonessential big-ticket items.
  • New home sales continued to surge in March, according to the latest figures from the Census Bureau. Sales of new single-family homes in March were 5.8% higher than the revised February sales figures. The sales rate is 15.6% above the March 2016 estimate. The median sales price of new houses sold in March 2017 was $315,100. The average sales price was $388,200. The seasonally-adjusted estimate of new houses for sale at the end of March was 268,000. This represents a supply of 5.2 months at the current sales rate.
  • New orders for manufactured durable goods in March increased $1.6 billion, or 0.7%, to $238.7 billion, according to the Census Bureau. This increase, up three consecutive months, followed a 2.3% February increase. Excluding transportation, new orders decreased 0.2% — the first decline in six months. Excluding defense, new orders increased 0.1%. Transportation equipment, also up three consecutive months, drove the increase, climbing $2.0 billion, or 2.4%, to $83.3 billion. On the other hand, orders for automobiles and machinery slowed. Shipments of manufactured durable goods in March, up four of the last five months, increased $0.6 billion, or 0.2%, to $239.8 billion. Unfilled orders for manufactured durable goods in March, up two consecutive months, increased $2.5 billion, or 0.2%, to $1,119.0 billion. Inventories of manufactured durable goods in March, up four of the last five months, increased $0.5 billion, or 0.1%, to $385.7 billion.
  • The international trade deficit was $64.8 billion, an increase of $0.9 billion in March from the prior month. Exports of goods were $125.5 billion, $2.2 billion less than February exports. Imports were $190.3 billion, $1.4 billion less than the previous month.
  • Consumer confidence in the economy took a step back in April following an increase in March. The Conference Board Consumer Confidence Index® registered 120.3 in April, down from 124.9 in March. The Present Situation Index decreased from 143.9 to 140.6 and the Expectations Index declined from 112.3 last month to 106.7. The Index of Consumer Sentiment from the University of Michigan inched up in April to 98.0 from 96.9 in March. Consumers were bullish about current economic conditions and expectations for further economic growth.
  • In the week ended April 22, the advance figure for seasonally adjusted initial claims was 257,000, an increase of 14,000 from the previous week’s revised level of 243,000. The advance seasonally adjusted insured unemployment rate remained at 1.4% for the second consecutive week. The advance number for seasonally adjusted insured unemployment during the week ended April 15 was 1,988,000, an increase of 10,000 from the prior week’s revised level of 1,978,000.

Eye on the Week Ahead

The all-important employment figures for April are out at the end of the week. March saw new hires for the month drop to under 100,000 for the first time in a long time. However, the unemployment rate fell to 4.5% while average hourly earnings continue to rise — all of which points to an expanding economy.

What I’m Watching This Week – 24 April 2017

The Markets (as of market close April 21, 2017)

Better-than-expected earnings reports for the first quarter helped push stocks higher last week. Each of the benchmark indexes listed here posted gains, some for the first time in several weeks. The small-cap Russell 2000, which had fallen below its end-of-year closing value, jumped 2.57% for the week and is now over 1.50% ahead of last year’s closing value. Gains in the industrial sector were reflected in an almost 1.0% advance in the S&P 500, while the Nasdaq increased nearly 2.0% for the week. On the other hand, energy companies didn’t fare as well, as oil fell below $50 per barrel.

The price of crude oil (WTI) fell last week, closing at $49.62 per barrel, down from the prior week’s closing price of $52.91 per barrel. The price of gold (COMEX) also dropped, closing at $1,286.40 by late Friday afternoon, down from the prior week’s price of $1,290.10. The national average retail regular gasoline price increased to $2.436 per gallon on April 17, 2017, $0.012 higher than the prior week’s price and $0.299 more than a year ago.

Market/Index 2016 Close Prior Week As of 4/21 Weekly Change YTD Change
DJIA 19762.60 20453.25 20547.76 0.46% 3.97%
Nasdaq 5383.12 5805.15 5910.52 1.82% 9.80%
S&P 500 2238.83 2328.95 2348.69 0.85% 4.91%
Russell 2000 1357.13 1345.24 1379.85 2.57% 1.67%
Global Dow 2528.21 2649.04 2661.88 0.48% 5.29%
Fed. Funds target rate 0.50%-0.75% 0.75%-1.00% 0.75%-1.00% 0 bps 25 bps
10-year Treasuries 2.44% 2.23% 2.24% 1 bps -20 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 Headlines

  • March storms may have played a role in holding back the start of new home construction, according to the latest report from the Census Bureau. Privately owned housing starts in March were at an annual rate of 1,215,000 — 6.8% below the revised February estimate, but 9.2% above the rate for March 2016. On the plus side, building permits were 3.6% above the February rate and 17.0% ahead of March 2016. While the start of new home construction slowed, housing completions maintained a steady pace, with the number of completions 3.2% above February and 13.4% over last March.
  • Sales of existing homes followed a dismal February with a robust March. According to the National Association of Realtors®, existing home sales jumped 4.4% for the month over February — the strongest month since February 2007. March’s pace is 5.9% above March 2016. The median existing-home price for all housing types in March was $236,400, up 6.8% from March 2016 ($221,400). March’s price increase marks the 61st consecutive month of year-over-year gains. Total housing inventory at the end of March increased 5.8% to 1.83 million existing homes available for sale, but is still 6.6% lower than a year ago (1.96 million) and has fallen year-over-year for 22 straight months. Unsold inventory is at a 3.8-month supply at the current sales pace (unchanged from February).
  • According to the Federal Reserve’s report, industrial production increased 0.5% in March over February, primarily bolstered by a jump of 8.6% in the output of utilities — the largest in the history of the index. Unusually warm weather in February gave way to colder conditions, resulting in a spike in demand for heating in March. Manufacturing output fell 0.4% in March, led by a large step-down in the production of motor vehicles and parts; factory output aside from motor vehicles and parts moved down 0.2%. The production at mines edged up 0.1%. For the first quarter as a whole, industrial production rose at an annual rate of 1.5%.
  • In the week ended April 15, the advance figure for seasonally adjusted initial claims was 244,000, an increase of 10,000 from the previous week’s unrevised level of 234,000. The advance seasonally adjusted insured unemployment rate fell to 1.4%. The advance number for seasonally adjusted insured unemployment during the week ended April 8 was 1,979,000, a decrease of 49,000 from the prior week’s unrevised level of 2,028,000. This is the lowest level for insured unemployment since April 15, 2000.

Eye on the Week Ahead

Initial estimates for the first-quarter GDP are out at the end of the week. Final figures for the fourth quarter revealed that the economy increased at an annual rate of 2.1%. A first-quarter rate at or below 2.0% may sway the Fed to hold interest rates at their current levels when the Committee next meets during the first week of May.

What I’m Watching This Week – 17 April 2017

The Markets (as of market close April 14, 2017)

With the United States and many global markets closed for Good Friday, stocks ended the short trading week lower. Trading volumes were low for much of the week, as investors may be concerned with rising tensions overseas in Syria and North Korea, and the continuation of strained diplomatic relations with Russia. Of the indexes listed here, only the Dow’s losses were under 1.0%. On the other hand, the Russell 2000 and Nasdaq suffered the largest dips, falling 1.42% and 1.24% respectively.

The price of crude oil (WTI) increased last week, closing at $52.91 per barrel, up from the prior week’s closing price of $52.29 per barrel. The price of gold (COMEX) continued to climb, closing at $1,290.10 by late Friday afternoon, up from the prior week’s price of $1,256.10. The national average retail regular gasoline price increased to $2.360 per gallon on April 3, 2017, $0.045 higher than the prior week’s price and $0.277 more than a year ago.

Market/Index 2016 Close Prior Week As of 4/14 Weekly Change YTD Change
DJIA 19762.60 20656.10 20453.25 -0.98% 3.49%
Nasdaq 5383.12 5877.81 5805.15 -1.24% 7.84%
S&P 500 2238.83 2355.54 2328.95 -1.13% 4.03%
Russell 2000 1357.13 1364.56 1345.24 -1.42% -0.88%
Global Dow 2528.21 2678.27 2649.04 -1.09% 4.78%
Fed. Funds target rate 0.50%-0.75% 0.75%-1.00% 0.75%-1.00% 0 bps 25 bps
10-year Treasuries 2.44% 2.38% 2.23% -15 bps -21 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 Headlines

  • Inflation, which had been trending upward, took a somewhat unexpected reversal of course in March as the Consumer Price Index fell 0.3% from the prior month. Over the last 12 months, the CPI rose 2.4% compared to a 2.7% gain for the 12 months ended in February. The March decline was the first monthly decrease since February 2016. A decline in gasoline prices was the largest factor contributing to the drop in prices. But even excluding food and energy (core prices), the CPI fell 0.1% for the month and is up 2.0% over last 12 months compared to a gain of 2.2% for the 12 months ended in February. Core prices haven’t fallen since January 2010.
  • The Producer Price Index fell 0.1% in March following increases of 0.3% in February and 0.6% in January. The index rose 2.3% for the 12 months ended March 2017, the largest increase since moving up 2.4% for the 12 months ended March 2012. For the 10th straight month, prices less foods, energy, and trade services edged up 0.1%, and have climbed 1.7% for the 12 months ended in March 2017.
  • Retail sales decreased 0.2% in March, falling for the second straight month. February’s sales were revised to a 0.3% decrease, which represents the largest two-month fall in retail sales since January and February of 2015.
  • Job openings increased in February while the number of new hires dropped — an indication that employers may be having a hard time filling positions. According to the latest Job Openings and Labor Turnover Summary, there were 5.743 million job openings in February compared to 5.625 million job openings in January. The number of hires fell, moving from 5.424 million hires in January to 5.341 million hires in February. Total separations (quits, layoffs, and discharges) also dropped in February, which saw 5.071 million separations compared to 5.247 million the prior month. Job openings increased in health care and social assistance, accommodation and food services, and finance and insurance. Hires increased in retail trade and mining and logging, but decreased in federal government. Over the 12 months ended in February, hires totaled 63.0 million and separations totaled 60.6 million, yielding a net employment gain of 2.4 million.
  • Driven by lower fuel prices, U.S. import prices declined 0.2% in March, according to the Bureau of Labor Statistics. Over the past 12 months ended in March, import prices have advanced 4.2%. The price index for import fuel declined 3.8% in March, the largest one-month drop since the index fell 6.8% in February 2016. In contrast to fuel prices, nonfuel import prices increased in March, rising 0.2% following a 0.4% increase in February. The price index for nonfuel imports advanced 1.0% over the past 12 months, the largest 12-month advance since the index increased 1.3% in April 2012. Export prices increased 0.2% for the month, after advancing 0.3% in February. U.S. export prices also increased over the past year, rising 3.6% for the year ended in March. That matched the 12-month advance recorded in December 2011 and was the largest 12-month increase since the index rose 4.8% in November 2011.
  • The government deficit fell in March to $176.2 billion, down from February’s $192.0 billion. Year-to-date, the deficit sits at $526.9 billion, which is $67.5 billion more than the deficit over the same period last year.
  • In the week ended April 8, the advance figure for seasonally adjusted initial claims for unemployment was 234,000, a decrease of 1,000 from the previous week’s revised level. The previous week’s level was revised up by 1,000 to 235,000. The advance seasonally adjusted insured unemployment rate remained at 1.5%. The advance number for seasonally adjusted insured unemployment during the week ended April 1 was 2,028,000, a decrease of 7,000 from the previous week’s revised level.

Eye on the Week Ahead

The housing sector has been volatile, with existing home sales lagging while sales of new homes have surged. Equities look to recover following last week’s dip.

Quarterly Market Review: January-March 2017

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

Riding the momentum following the presidential election, stocks surged for much of the first quarter of 2017. Buoyed by the anticipation of tax cuts and policies favorable to domestic businesses, the benchmark indexes listed here reached historic highs throughout the quarter. At the end of January, the Dow reached the magic 20000 mark for the first time, while the tech-heavy Nasdaq gained almost 4.50% for the month. The trend continued in February, as stocks posted solid monthly gains. The Dow closed the month with a run of 12 consecutive daily closings that reached all-time highs. The S&P 500 also achieved a milestone — 50 consecutive trading sessions without a daily swing of more than 1.0%. At the close of trading in February, each of the benchmark indexes listed here posted year-to-date gains, led by the Nasdaq, which was up over 8.0%.

March began with a bang but ended with a whimper. The Dow closed the first week of the month at over 21000, while the Nasdaq gained over 9.0% year-to-date. However, energy stocks slipped as the price of oil began to fall. Entering mid-March, investors exercised caution pending the potential Fed interest rate hike and the push for a new health-care law. Following its mid-March meeting, the Fed raised interest rates 25 basis points, while the move to replace the ACA with a new health-care law failed for lack of congressional support.

For the quarter, each of the indexes listed here posted impressive gains over their fourth-quarter closing values. The Nasdaq climbed the most, posting quarterly gains of close to 10.0%, followed by the Global Dow and the S&P 500, which achieved its largest quarterly gain in almost two years. Long-term bond prices increased in the first quarter with the yield on 10-year Treasuries falling 6 basis points. Gold prices also climbed during the first three months of the year, closing the quarter at $1,251.60 — about 8.5% higher than its price at the end of the fourth quarter.

Market/Index
2016 Close
As of March 31
Month Change
Quarter Change
YTD Change
DJIA
19762.60
20663.22
-0.72%
4.56%
4.56%
NASDAQ
5383.12
5911.74
1.48%
9.82%
9.82%
S&P 500
2238.83
2362.72
-0.04%
5.53%
5.53%
Russell 2000
1357.13
1385.92
-0.05%
2.12%
2.12%
Global Dow
2528.21
2691.45
1.36%
6.46%
6.46%
Fed. Funds
0.50%-0.75%
0.75%-1.00%
25 bps
25 bps
25 bps
10-year Treasuries
2.44%
2.38%
-1 bps
-6 bps
-6 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.

Monthly Economic News

  • Employment: February’s employment report showed continued strengthening in the labor sector with 235,000 new jobs added in the month, on the heels of 238,000 new jobs added in January. Job gains occurred in construction, private educational services, manufacturing, health care, and mining. The unemployment rate dipped to 4.7% — down from 4.9% a year earlier. There were 7.5 million unemployed persons in February. The labor participation rate inched up 0.1 percentage point to 63.0%. The average workweek was unchanged at 34.4 hours in February. Average hourly earnings increased by $0.06 to $26.09, following a $0.05 increase in January. Over the last 12 months ended in February, average hourly earnings have risen by $0.71, or 2.8%.
  • FOMC/interest rates: Following its meeting in March, the Federal Open Market Committee raised the target range for the federal funds rate by 25 basis points to 0.75%-1.00%. This is the first interest rate change for 2017, although the FOMC projects that it will increase rates two more times this year. The Committee expects that economic activity will expand at a moderate pace, labor market conditions will strengthen somewhat further, and inflation will stabilize around 2% over the medium term. FOMC Chair Janet Yellen supported the current rate hike, cautioning that without gradual rate increases inflation could escalate, requiring the Committee to raise rates rapidly which, in turn, could risk disrupting financial markets and push the economy into recession.
  • Oil: The price of crude oil (WTI) closed March at $50.85 per barrel, after spending much of the month hovering around $48.00 per barrel. The national average retail regular gasoline price was $2.314 per gallon on February 27, 2017, $0.018 higher than the January 30 price and $0.531 more than a year ago.
  • GDP/budget: Expansion of the U.S. economy slowed over the final three months of 2016. According to the Bureau of Economic Analysis, the fourth-quarter 2016 gross domestic product grew at an annualized rate of 2.1% compared to the third-quarter GDP, which grew at an annual rate of 3.5%. Growth in the GDP was slowed by downturns in exports, federal government spending, and business investment. A positive from the report is the rise in consumer spending, which increased 3.5% over the prior quarter. An indicator of inflationary trends, the price index for gross domestic purchases increased 2.0% in the fourth quarter, compared to an increase of 1.5% in the third quarter.
  • As to the government’s budget, the federal deficit for February was $192 billion. Over the first 5 months of the fiscal year, the deficit sits at $385 billion, which is 0.7% below the same period of time last year.
  • Inflation/consumer spending: Inflation, as measured by personal consumption expenditures, reached the Fed’s 2.0% annual target in February. For the 12 months ended in February 2017, personal consumption expenditures expanded at a rate of 2.1%. Core PCE (excluding energy and food) increased 1.8%. For February, PCE climbed 0.1%, while core PCE rose 0.2%, following a 0.3% monthly increase in January. Personal income (pre-tax earnings) rose 0.4% for the month, and disposable personal income (income less taxes) enjoyed a 0.3% increase over January. For the 2016 calendar year, personal income increased 3.6% from the 2015 annual level, compared with an increase of 4.4% in 2015. Disposable personal income increased 3.9% in 2016, compared with an increase of 3.8% in 2015. In 2016, PCE increased 3.9% compared with an increase of 3.5% in 2015.
  • The prices companies receive for goods and services trended higher in February as the Producer Price Index climbed 0.3% for the month. Year-over-year, producer prices have increased 2.2%. Energy prices have played a large part in the upward movement of the PPI, climbing 0.6% in February. The PPI less food and energy has risen 1.5% for the year, after climbing 0.3% in February.
  • Consumer prices also increased marginally in February, climbing 0.1%. However, consumer prices are up 2.7% for the year, a mark that is not only well above the Fed’s 2.0% target for inflation, but stands as the highest rate of growth in almost five years. Even the core rate, which excludes energy, is holding steady at 2.2% since February 2016.
  • Housing: The housing sector proved to be a mixed bag in February as the sales pace of existing homes slowed while new home sales increased. Higher home prices and a lack of available homes for sale are the main reasons for the drop in the sales of existing homes, which fell 3.7% to a seasonally adjusted annual rate of 5.48 million, down from January’s revised annual rate of 5.69 million, according to the National Association of Realtors®. However, February’s sales pace is still 5.4% above a year ago. The median sales price for existing homes was $228,400 — up 7.7% from January. Total housing inventory at the end of February increased 4.2% to 1.75 million existing homes available for sale, but is 6.4% lower than a year ago (1.87 million) and has declined year-over-year for 21 straight months. Conversely, the Census Bureau’s latest report reveals a spike in new home sales. Sales of new single-family homes increased 6.1% in February to an annual rate of 592,000 — up from January’s rate of 558,000. The median sales price of new houses sold in February was $296,200, while the average sales price was $390,400. The seasonally adjusted estimate of new houses for sale at the end of February was 266,000. This represents a supply of 5.4 months at the current sales rate, which is up from 262,000 homes available (supply of 5.4 months) in January.
  • Manufacturing: One of the reasons the Fed raised interest rates in March is the increase in manufacturing production. The Federal Reserve’s monthly index of industrial production (which includes factories, mines, and utilities) remained at the same level in February as the prior month, held down by another weak month for utilities. Unseasonably warm weather prompted utility production to fall 5.7% in February following a 5.8% drop in January. However, manufacturing production increased 0.5% month-over-month, which is the largest increase in monthly volumes since July 2015. At 104.7% of its 2012 average, total industrial production in February was 0.3% above its level of a year earlier. Capacity utilization for the industrial sector declined 0.1 percentage point in February to 75.4%. As for durable goods, the latest report from the Census Bureau shows new orders increased 1.7% in February from the prior month. Excluding the volatile transportation segment, new durable goods orders gained a lackluster 0.4%. Orders for core capital goods (excluding defense and transportation) dropped 0.1% for the month, but are up 2.7% over February 2016.
  • Imports and exports:The advance report on international trade in goods revealed that the trade gap narrowed by 5.9% in February. The overall trade deficit was $64.8 billion in February, down $4.1 billion from January. Exports declined 0.1% to $126.8 billion, $0.1 billion less than January exports. Imports fell 2.1% to $191.6 billion, $4.2 billion less than January imports. The prices for U.S. imports of goods advanced 0.2% in February, led by higher nonfuel import prices, which more than offset lower fuel prices. U.S. export prices rose 0.3% in February, after advancing 0.2% in January. Export prices haven’t recorded a monthly decline since the index fell 0.8% in August 2016.
  • International markets: A relatively positive stream of eurozone economic data helped international stocks post gains for February. Both manufacturing and service sectors accelerated during the month, while eurozone job creation reached a 10-year high. In Great Britain, Prime Minister May continued to push forward with Brexit amid pushback from Parliament and protestors. Nevertheless, the UK delivered written notice to the president of the European Union, formally beginning the process of leaving the EU. This action now opens a two-year window for Britain to negotiate the terms of its exit. One of the potentially contentious issues that will be addressed is whether, and how much, Britain will pay to leave the bloc. In Japan, retail sales increased 1.0% for the month, although the fourth-quarter GDP growth slowed from the previous quarter.
  • Consumer sentiment:The Conference Board Consumer Confidence Index® for February rose 3.2 points to 114.8. Consumers expressed confidence in the job market, which increased expectations for the economy in general. The Surveys of Consumers of the University of Michigan Index of Consumer Sentiment dipped from a 10-year high of 98.5 in January to 96.3 in February. Nevertheless, consumers continued to express optimism about current economic conditions, as the Current Conditions Index has been trending upward since December 2016.

Eye on the Month Ahead

The first quarter of 2017 proved to be a banner three months for equities. The FOMC next meets during the first week of May, when it will consider another interest rate hike. If employment remains strong and consumer prices trend higher, the Fed may raise the target range rate to 1.25% following their next meeting, with at least one more rate increase likely before the end of the year.

What I’m Watching This Week – 10 April 2017

The Markets (as of market close April 7, 2017)

Stocks gave back the prior week’s gains as each of the indexes listed here lost value by last Friday’s market close. The small-cap Russell 2000, which had gained over 2.0% the prior week, fell over 1.5% and is once again in danger of falling below its year-end closing value. Energy stocks rallied midweek, riding the increase in oil prices. However, that surge wasn’t enough to keep the large-cap Dow from falling back a bit. The labor report, while positive, came in well below expectations, which may have dampened investor enthusiasm by the close of the markets last Friday.

The price of crude oil (WTI) increased last week, closing at $52.29 per barrel, up from the prior week’s closing price of $50.85 per barrel. The price of gold (COMEX) continued to climb, closing at $1,256.10 by late Friday afternoon, up from the prior week’s price of $1,250.60. The national average retail regular gasoline price increased to $2.360 per gallon on April 3, 2017, $0.045 higher than the prior week’s price and $0.277 more than a year ago.

Market/Index 2016 Close Prior Week As of 4/7 Weekly Change YTD Change
DJIA 19762.60 20663.22 20656.10 -0.03% 4.52%
Nasdaq 5383.12 5911.74 5877.81 -0.57% 9.19%
S&P 500 2238.83 2362.72 2355.54 -0.30% 5.21%
Russell 2000 1357.13 1385.92 1364.56 -1.54% 0.55%
Global Dow 2528.21 2691.45 2678.27 -0.49% 5.94%
Fed. Funds target rate 0.50%-0.75% 0.75%-1.00% 0.75%-1.00% 0 bps 25 bps
10-year Treasuries 2.44% 2.38% 2.38% 0 bps -6 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 Headlines

  • The employment sector continued to strengthen in March, although job growth slowed compared to the first two months of the quarter. According to the report from the Bureau of Labor Statistics, total employment edged up by 98,000 in March. By comparison, there were 219,000 new jobs added in February and 216,000 new jobs added in January. The unemployment rate declined 0.2 percentage point to 4.5%. The number of unemployed persons dropped 326,000 to 7.2 million. Over the past 12 months, the number of long-term unemployed was down by 526,000. At 63.0%, the labor participation rate was unchanged from the prior month. The employment-to-population ratio was 60.1% — 0.1 percentage point more than February. Over the month, employment growth occurred in professional and business services (+56,000) and in mining (+11,000), while retail trade lost jobs (-30,000). The average workweek in March was 34.3 hours, and the average hourly earnings increased $0.05 to $26.14 following a $0.07 increase in February.
  • The manufacturing sector expanded in March, but at a slower pace than February. According to the latest Manufacturing ISM® Report On Business®, the March purchasing managers’ index came in at 57.2%, down slightly from the February reading of 57.7%. A reading of 50% or better indicates expansion. The Markit U.S. Manufacturing PMI™ fell to 53.3 in March compared to 54.2 in February. Both the ISM® and Markit reports showed new orders and manufacturing output slowed in March.
  • Economic activity in the non-manufacturing sector also grew in March, according to the latest Non-Manufacturing ISM® Report On Business®. The non-manufacturing index registered 55.2%, which is 2.4 percentage points lower than the February reading of 57.6%. Business activity and new orders increased in March, but not at the level of expansion in February. Growth in prices and employment also slowed in March compared to the prior month. While respondents were generally positive about the overall economy and business conditions, they expressed a degree of uncertainty about future government policies on health care, trade and immigration, and the potential impact on business.
  • The final report on international trade in goods and services for February revealed the goods and services deficit was $43.6 billion for the month, down $4.6 billion from $48.2 billion in January, revised. February exports were $192.9 billion, $0.4 billion more than January exports. February imports were $236.4 billion, $4.3 billion less than January imports. Year-to-date, the goods and services deficit increased $2.8 billion, or 3.1%, from the same period in 2016. Exports increased $25.8 billion, or 7.2%. Imports increased $28.6 billion, or 6.4%. Year-to-date, the largest U.S. trade deficit in goods is with China at $61.9 billion, followed by the European Union at $25.4 billion.
  • In the week ended April 1, the advance figure for seasonally adjusted initial claims for unemployment was 234,000, a decrease of 25,000 from the previous week’s revised level. The previous week’s level was revised up by 1,000 from 258,000 to 259,000. The advance seasonally adjusted insured unemployment rate remained at 1.5%. The advance number for seasonally adjusted insured unemployment during the week ended March 25 was 2,028,000, a decrease of 24,000 from the previous week’s unrevised level of 2,052,000. The four-week moving average was 2,023,000, a decrease of 7,750 from the previous week’s unrevised average of 2,030,750. This is the lowest level for this average since June 17, 2000, when it was 2,016,750.

Eye on the Week Ahead

The week focuses on inflationary indicators as the latest information on consumer prices, producer prices, and retail sales becomes available for March. Also, investors will be watching for first-quarter corporate earnings reports, which should begin coming out this week.