Monthly Market Review – August 2019

The Markets (as of market close August 30, 2019)

Despite a closing push, August closed on a weak note for stocks, ending a tumultuous month marked by high volatility. Investors moved away from stocks, fearing that the ongoing U.S.-China trade war would negatively impact domestic and global economies. As a result, gold prices surged and long-term bond yields plummeted as prices rose. Despite the wide market swings, consumers spent more of their income as the job market remained strong.

By the close of trading on the last day of the month, each of the benchmark indexes listed here fell, with the small caps of the Russell 2000 being hit the hardest, followed by the Global Dow, the Nasdaq, the S&P 500, and the Dow, which lost over 1.70% from its July closing value. Year-to-date, each of the indexes remain ahead of their respective 2018 closing prices. However, compared to their values at the end of August 2018, the Dow and the S&P 500 are up 1.70% and 0.86%, respectively, while the Nasdaq (-1.80%), the Russell 2000 (-14.10%), and the Global Dow (-4.00%) have lost value.

By the close of trading on August 30, the price of crude oil (WTI) was $55.16 per barrel, down from the July 31 price of $57.88 per barrel. The national average retail regular gasoline price was $2.574 per gallon on August 26, down from the July 29 selling price of $2.715 and $0.253 less than a year ago. The price of gold rose by the end of August, climbing to $1,529.20 by close of business on the 30th, up from its $1,426.10 price at the end of July.

Market/Index 2018 Close Prior Month As of August 30 Month Change YTD Change
DJIA 23327.46 26864.27 26403.28 -1.72% 13.19%
NASDAQ 6635.28 8175.42 7962.88 -2.60% 20.01%
S&P 500 2506.85 2980.38 2926.46 -1.81% 16.74%
Russell 2000 1348.56 1574.60 1494.84 -5.07% 10.85%
Global Dow 2736.74 3059.35 2953.12 -3.47% 7.91%
Fed. Funds 2.25%-2.50% 2.00%-2.25% 2.00%-2.25% 0 bps -25 bps
10-year Treasuries 2.68% 2.02% 1.50% -52 bps -118 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.

Latest Economic Reports

  • Employment: Total employment increased by 164,000 in July after adding 193,000 (revised) new jobs in June. The average monthly job gain so far in 2019 is roughly 164,000 per month (223,000 in 2018). Notable employment increases for June occurred in professional and business services (31,000), health care (30,000), and social assistance (20,000). The unemployment rate remained at 3.7% in July. The number of unemployed persons increased slightly to 6.1 million in July (6.0 million in June). The labor participation rate was 63.0% (62.9% in June) and the employment-population ratio was 60.7% (60.6% in June). The average workweek decreased 0.1 hour to 34.3 hours for July. Average hourly earnings increased by $0.08 to $27.98. Over the last 12 months ended in July, average hourly earnings have risen 3.2%.
  • FOMC/interest rates: The Federal Open Market Committee did not meet in August, after lowering interest rates by 25 basis points following its latest meeting in July. The Committee next meets in September. Due to mixed economic factors, it is unclear whether rates will remain as they are, or be reduced further.
  • GDP/budget: Economic growth appears to have slowed in the second quarter, according to the second estimate of the gross domestic product. The second quarter grew at an annualized rate of 2.0%. The first quarter saw an annualized growth of 3.1%. Consumer prices and spending increased in the second quarter, rising 2.2% and 4.7%, respectively. Pulling the GDP down in the second quarter were negative contributions from fixed business investment (equipment, software, structures, etc.) and exports. The federal budget deficit was $119.7 billion in July ($76.9 billion in July 2018). Through the first ten months of the fiscal year, the government deficit sits at $866.8 billion. Over the same period for fiscal year 2018, the deficit was $684.0 billion.
  • Inflation/consumer spending: Inflationary pressures remain weak as consumer prices rose 0.2% in August and are up 1.4% over the last 12 months ended in July. Consumer prices excluding food and energy increased 0.2% in July and 1.6% since July 2018. In July, consumer spending rose 0.6% (0.3% in June). Personal income and disposable (after-tax) personal income climbed 0.1% and 0.3%, respectively, in July.
  • The Consumer Price Index increased 0.3% in July following a 0.1% hop in June. Over the 12 months ended in July, the CPI rose 1.8%. Energy prices jumped 1.3% on the month with gasoline up 2.5%. Prices less food and energy rose 0.3% in July — the same increase as in June. Core prices (less food and energy) are up 2.2% over the last 12 months.
  • According to the Producer Price Index, the prices companies received for goods and services rose 0.2% in July after increasing 0.1% in June and 0.1% in May. The index increased 1.7% for the 12 months ended in July. The price index less foods, energy, and trade services fell 0.1% in July after registering no change the prior month. The price index less foods, energy, and trade services increased 1.7% over the last 12 months.
  • Housing: Activity in the housing market can be described as erratic at best. Existing home sales jumped 2.5% in July after falling 1.7% in June. Year-over-year, existing home sales are up 0.6%. Existing home prices fell in July, as the median price for existing homes was $280,800 — off from June’s all-time high of $285,700. Nevertheless, existing home prices were up 4.3% from July 2018. Total housing inventory for existing homes for sale in July decreased to 1.89 million (1.93 million in June), representing a 4.2-month supply at the current sales pace. Sales of new single-family houses plummeted in July after surging the previous month. July’s new home sales fell 12.8%, down from June’s robust total. New home sales are still 4.3% ahead of their July 2018 estimate. The median sales price of new houses sold in July was $312,800 ($310,400 in June). The average sales price was $388,000 ($368,600 in June). Inventory at the end of July was at a supply of 6.4 months (6.3 months in June).
  • Manufacturing: According to the Federal Reserve, industrial production declined 0.2% in July after remaining unchanged in June. Manufacturing output decreased 0.4% in July and has fallen more than 1.5% since December 2018. In July, mining output fell 1.8%, while utilities rose 3.1%. Total industrial production was 0.5% higher in July than it was a year earlier. Orders for durable goods jumped 2.1% in July after increasing 2.0% the prior month. New orders for capital goods used by businesses to produce consumer goods surged 5.0% after rising 1.4% in June. Core capital goods (excluding defense and aircraft) increased 0.4% in July.
  • Imports and exports: Import and export prices rebounded slightly in July from their June totals. Import prices rose 0.2% after falling 1.1% in June. Despite the July increase, import prices have decreased 1.8% over the past 12 months. Import fuel prices rose 1.8% in July after a 7.3% drop in June. Excluding fuel, import prices fell 0.1% for the third consecutive month in July. Export prices jumped ahead 0.2% in July after decreasing 0.9% in June. Export prices have fallen 0.9% for the year ended in July. The latest information on international trade in goods and services, out August 2, is for June and shows that the goods and services deficit was $55.2 billion, down slightly from the revised $55.3 billion deficit in May. June exports were $206.3 billion, $4.4 billion less than May exports. June imports were $261.5 billion, $4.6 billion less than May imports. Year-to-date, the goods and services deficit increased $23.2 billion, or 7.9%. Exports increased $0.5 billion, or less than 0.1%. Imports increased $23.8 billion, or 1.5%. The advance report on international trade in goods (excluding services) revealed the trade deficit declined to $72.3 billion in July, down from $74.2 billion in June. Exports of goods in July were $137.3 billion, $0.9 billion more than June exports, while imports of goods were $209.7 billion, $0.9 billion less than June imports.
  • International markets: British Prime Minister Boris Johnson attempted to shut down Parliament for several weeks as part of his effort to shunt opponents to his plan to push through a “no deal” Brexit on October 31. The move sent global stocks, government bond yields, and the pound reeling. In economic news, the German economy shrank 0.1% in the second quarter but is up 0.4% over the same period last year. Inflationary pressures continue to wane in Japan, as its Consumer Price Index inched up 0.1% in July, and is up only 0.5% year-over-year. In China, economic growth dipped to a 27-year low in the second quarter amid the trade war with the United States. As the rainforest fires raged in his country, Brazilian President Jair Bolsonaro refused to accept $20 million in aid from G7 countries stemming from a personal rift between Bolsonaro and French President Emmanuel Macron.
  • Consumer confidence: Despite a plunging stock market in August, consumers were fairly upbeat in their assessment of the economy. The Conference Board Consumer Confidence Index® declined marginally in August following July’s robust numbers — falling to 135.1 from 135.8. Consumers’ assessment of current business and labor market conditions increased, although consumers’ short-term outlook for income, business, and labor market conditions was not quite so positive.

Eye on the Month Ahead

Stocks took a sizable hit last month, and if the ongoing trade war continues in September, investors will likely face more turmoil. The economy has weathered the storm thus far on the heels of a strong jobs market and robust consumer spending, but that could change as we enter the third quarter.

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What I’m Watching This Week – 3 September 2019

The Markets (as of market close August 30, 2019)

Stocks rebounded last week after China’s Ministry of Commerce indicated that China had no immediate intention to respond to President Trump’s latest threat of an additional round of tariff increases on imports of Chinese goods and services. The result was a surge in stock prices with each of the benchmark indexes listed here posted notable gains, led by the Dow, which eclipsed 3.0% in week-over-week gains. The Nasdaq, the S&P 500, and the Russell 2000 each increased well over 2.0%. Only the Global Dow failed to reach that mark, but came close at almost 1.9%.

Oil prices climbed last week, closing at $55.16 per barrel by late Friday afternoon, up from the prior week’s price of $53.89. The price of gold (COMEX) fell last week for the first time in several weeks, closing at $1,529.20 by late Friday afternoon, down from the prior week’s price of $1,537.20. The national average retail regular gasoline price was $2.574 per gallon on August 26, 2019, $0.024 lower than the prior week’s price and $0.253 less than a year ago.

Market/Index 2018 Close Prior Week As of 8/30 Weekly Change YTD Change
DJIA 23327.46 25628.90 26403.28 3.02% 13.19%
Nasdaq 6635.28 7751.77 7962.88 2.72% 20.01%
S&P 500 2506.85 2847.11 2926.46 2.79% 16.74%
Russell 2000 1348.56 1459.49 1494.84 2.42% 10.85%
Global Dow 2736.74 2898.73 2953.12 1.88% 7.91%
Fed. Funds target rate 2.25%-2.50% 2.00%-2.25% 2.00%-2.25% 0 bps -25 bps
10-year Treasuries 2.68% 1.52% 1.50% -2 bps -118 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 News

  • The economy grew at a rate of 2.0% in the second quarter, according to the second estimate of the gross domestic product. The first estimate projected a 2.1% growth rate. The economy grew at a 3.1% rate in the first quarter of 2019. Gross domestic income (the sum of incomes earned and costs incurred in the production of GDP) increased 2.1% in the second quarter, compared with an increase of 3.2% in the first quarter. The downward revision in the second estimate is primarily attributable to declining exports and lower corporate investment. Consumer spending increased from an initial estimate of 4.4% to a revised 4.7%. Prices for consumer goods and services increased 2.2% in the second quarter compared to a 0.8% bump in the first quarter. Overall, inflation remains stagnant, while a strong labor market is allowing consumers to spend more, somewhat masking weakness in global growth, exports, and domestic manufacturing.
  • Consumer spending rose last month, while prices remained relatively flat. According to the latest figures from the Bureau of Economic Analysis, personal income increased a scant 0.1% in July, but personal consumption expenditures jumped 0.6%. Prices for consumer goods and services inched up 0.2% in July and are up 1.4% over the last 12 months ended in July (well below the Fed’s 2.0% target inflation rate).
  • In a positive note for the manufacturing sector, new orders for long-lasting durable goods advanced 2.1% in July following a 1.8% gain in June. Transportation equipment drove the July increase, jumping 7.0% in July. Excluding transportation, new orders for durable goods actually decreased 0.4%. Shipments dropped 1.1% in July after two consecutive monthly increases, as transportation shipments fell 2.1%. Unfilled orders reversed a negative trend, advancing 0.1% in July following three consecutive monthly decreases. Inventories continue to increase, up 0.4% in July after jumping 0.3% in June. Another positive note from the report is the 5.0% gain in new orders for nondefense capital goods, or equipment used in private industry for producing consumer goods or services.
  • The international trade deficit was $72.3 billion in July, down $1.8 billion from $74.2 billion in June. Exports of goods for July were $137.3 billion, $0.9 billion more than June exports. Imports of goods for July were $209.7 billion, $0.9 billion less than June imports.
  • For the week ended August 24, there were 215,000 claims for unemployment insurance, an increase of 4,000 from the previous week’s level, which was revised up by 2,000. According to the Department of Labor, the advance rate for insured unemployment claims remained at 1.2% for the week ended August 17. The advance number of those receiving unemployment insurance benefits during the week ended August 17 was 1,698,000, an increase of 22,000 from the prior week’s level, which was revised up by 2,000.

Eye on the Week Ahead

Manufacturing activity has been slow over the summer and is not expected to pick up in August, based on purchasing managers’ sentiments. On the other hand, employment has been steady. August’s employment data is out at the end of the week. While the total number of new jobs added last month is expected to be in line with prior months, wage growth is also likely to show minimal advancement.

What I’m Watching This Week – 26 August 2019

The Markets (as of market close August 23, 2019)

Stock gains enjoyed earlier last week were lost by week’s end on ramped-up trade war rhetoric from the White House. Stocks surged earlier in the week on favorable earnings reports from some major retailers and a renewed commitment from the Federal Reserve to act accordingly in heading off a possible recession. Following China’s announcement that it would raise tariffs on U.S. imports, including a 25% tax on American-made autos, President Trump fired back, ordering domestic companies to start looking for an alternative to China. By last Friday, each of the benchmark indexes fell notably, led by the Russell 2000, which dropped over 2.25%, and the Nasdaq, which lost almost 2.00%.

Oil prices fell last week, closing at $53.89 per barrel by late Friday afternoon, down from the prior week’s price of $54.94. The price of gold (COMEX) advanced again last week, closing at $1,537.20 by late Friday afternoon, up from the prior week’s price of $1,523.60. The national average retail regular gasoline price was $2.598 per gallon on August 19, 2019, $0.026 lower than the prior week’s price and $0.223 less than a year ago.

Market/Index 2018 Close Prior Week As of 8/23 Weekly Change YTD Change
DJIA 23327.46 25886.01 25628.90 -0.99% 9.87%
Nasdaq 6635.28 7895.99 7751.77 -1.83% 16.83%
S&P 500 2506.85 2888.68 2847.11 -1.44% 13.57%
Russell 2000 1348.56 1493.64 1459.49 -2.29% 8.23%
Global Dow 2736.74 2916.65 2898.73 -0.61% 5.92%
Fed. Funds target rate 2.25%-2.50% 2.00%-2.25% 2.00%-2.25% 0 bps -25 bps
10-year Treasuries 2.68% 1.53% 1.52% -1 bps -1.16 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 Economic News

  • Sales of existing homes rebounded in July, advancing 2.5% from their June total. Overall, sales of existing homes are up 0.6% from a year ago. The median home price was $280,800 in July, up 4.3% from last July but down from June’s record high of $285,700. Total existing housing inventory fell 1.6% from June, representing a 4.2-month supply of unsold inventory at the current sales pace. According to Freddie Mac, the average commitment rate for a 30-year, conventional, fixed-rate mortgage decreased to 3.77% in July, down from 3.80% in June. The average commitment rate across all of 2018 was 4.54%. Sales of single-family homes increased by 2.7% in July over June.
  • Unlike sales of existing homes, new home sales plummeted in July, according to the Census Bureau. Sales of new single-family homes fell 12.8% in July from June’s pace, but are still 4.3% ahead of last year’s totals. The median sales price of new houses sold in July 2019 was $312,800. The average sales price was $388,000. There were 337,000 new houses for sale at the end of July, which represents a supply of 6.4 months at the current sales rate.
  • For the week ended August 17, there were 209,000 claims for unemployment insurance, a decrease of 12,000 from the previous week’s level, which was revised up by 1,000. According to the Department of Labor, the advance rate for insured unemployment claims remained at 1.2% for the week ended August 10. The advance number of those receiving unemployment insurance benefits during the week ended August 10 was 1,674,000, a decrease of 54,000 from the prior week’s level, which was revised up by 2,000.

Eye on the Week Ahead

The updated gross domestic product report for the second quarter is out this week. The initial release showed the economy advanced at a rate of 2.1%. With more economic information available, this latest iteration may show more second-quarter growth than initially reported. The G7 meetings wrap up this week, which could offer insight into the direction of the ongoing trade war between the United States and China.

What I’m Watching This Week – 19 August 2019

The Markets (as of market close August 16, 2019)

Volatility is the best term to describe stocks last week. Despite a Friday surge, each of the benchmark indexes listed here fell for the third consecutive week. Wednesday proved to be the most tumultuous day, as stocks suffered a major pullback. Long-term bond yields plunged below that of the two-year note. This “inversion” has historical precedence as a warning of an impending recession. That, coupled with ramped-up trade war rhetoric between the United States and China, pushed stocks lower during the week. Year-to-date, the major indexes listed here continue to run ahead of their 2018 year-end closing values, but the margin is narrowing. Still, the tech-heavy Nasdaq is almost 20% ahead of last year’s closing value, followed by the S&P 500, the Dow, the Russell 2000, and the Global Dow, which is still over 6.50% ahead of last year’s closing pace.

Oil prices crept ahead last week, closing at $54.94 per barrel by late Friday afternoon, up from the prior week’s price of $54.27. The price of gold (COMEX) advanced again last week, closing at $1,523.60 by late Friday afternoon, up from the prior week’s price of $1,509.10. The national average retail regular gasoline price was $2.624 per gallon on August 12, 2019, $0.064 lower than the prior week’s price and $0.219 less than a year ago.

Market/Index 2018 Close Prior Week As of 8/16 Weekly Change YTD Change
DJIA 23327.46 26287.44 25886.01 -1.53% 10.97%
Nasdaq 6635.28 7959.14 7895.99 -0.79% 19.00%
S&P 500 2506.85 2918.65 2888.68 -1.03% 15.23%
Russell 2000 1348.56 1513.04 1493.64 -1.28% 10.76%
Global Dow 2736.74 2967.60 2916.65 -1.72% 6.57%
Fed. Funds target rate 2.25%-2.50% 2.00%-2.25% 2.00%-2.25% 0 bps -25 bps
10-year Treasuries 2.68% 1.73% 1.53% -20 bps -1.15 bps

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

Last Week’s Economic News

  • Consumer prices rose 0.3% in July after advancing 0.1% the prior month. Over the last 12 months ended in July, consumer prices have increased 1.8%. The index for all items less food and energy rose 2.2% over the last 12 months. In July, energy prices rose 1.3% with gasoline prices jumping 2.5%. Also gaining price momentum last month were apparel (+0.4%), shelter (+0.3%), transportation services (+0.3%), and medical care services (+0.5%). New vehicles fell (-0.2%), as did utility gas service (-1.8%). Overall, accelerating consumer prices may strengthen the argument against further interest rate cuts.
  • The government deficit was $119.7 billion in July — significantly greater than the July 2018 deficit of $76.9 billion. Year-to-date, the deficit sits at $866.8 billion, about 27% higher than the deficit over the comparable period last year.
  • Global inflation remained stagnant in July. Prices for U.S. imports and exports increased 0.2% in July following declines of 1.1% and 0.6%, respectively, in June. Despite July’s price increase, import prices have declined 1.8% over the past 12 months ended in July. Driving the monthly import price increase was a 1.8% jump in fuel prices. Excluding fuel, import prices edged down 0.1% last month. Agricultural exports rebounded in July, advancing 0.4% after falling 2.5% the prior month. Over the past 12 months ended in July, export prices are down 0.9%.
  • Retail sales increased 0.7% in July from the previous month and are 3.4% ahead of last July’s pace. In July, retailers saw sales increase in electronics and appliance stores, food and beverage stores, gasoline stations, and food services and drinking places. Nonstore (online) retail sales jumped 2.8% last month, and are up 16.0% from July 2018.
  • Industrial production declined 0.2% in July. Manufacturing output decreased 0.4% last month and has fallen more than 1.5% since December 2018. Manufacturing of business equipment fell 0.4% with machinery declining 1.1%. Mining output dropped 1.8%, largely because of an interruption in mining in the Gulf of Mexico due to Hurricane Barry. Utilities rose 3.1%. Total industrial production was 0.5% higher in July than it was a year earlier.
  • Building permits and home completions rose in July, advancing 8.4% and 7.2%, respectively. Housing starts lagged in July, falling 4.0% below their June totals. The ramp-up in home completions may explain the drop in housing starts. However, with the increase in building permits, housing starts should rebound in August.
  • For the week ended August 10, there were 220,000 claims for unemployment insurance, an increase of 9,000 from the previous week’s level, which was revised up by 2,000. According to the Department of Labor, the advance rate for insured unemployment claims remained at 1.2% for the week ended August 3. The advance number of those receiving unemployment insurance benefits during the week ended August 3 was 1,726,000, an increase of 39,000 from the prior week’s level, which was revised up by 3,000.

Eye on the Week Ahead

July’s figures on new and existing home sales are out this week. Sales of new homes picked up significantly in June while existing home sales fell.

What I’m Watching This Week – 12 August 2019

The Markets (as of market close August 9, 2019)

Fearful that the ongoing trade war between the United States and China could slow economic growth at home and abroad, investors have pulled money from stocks and adopted a “wait-and-see” approach. Not only has the trade war impacted the market, but further interest rate cuts by the Federal Reserve that were anticipated earlier this summer, now may not be in the offing. While the benchmark indexes are still well ahead of their 2018 year-end values, they’re only marginally up from where they were this time last year. Compared to a year earlier, the Dow is 3.3% ahead, the S&P 500 is up 3.5%, the Nasdaq is up 2.9%, while the Russell 2000 (-9.0%) and the Global Dow (-3.8%) are behind last year’s pace. Money has poured into long-term bonds driving prices higher and yields lower.

Oil prices fell again last week, closing at $54.27 per barrel by late Friday afternoon, down from the prior week’s price of $55.23. The price of gold (COMEX) continued to climb last week, closing at $1,509.10 by late Friday afternoon, up from the prior week’s price of $1,452.70. The national average retail regular gasoline price was $2.688 per gallon on August 5, 2019, $0.027 lower than the prior week’s price and $0.164 less than a year ago.

Market/Index 2018 Close Prior Week As of 8/9 Weekly Change YTD Change
DJIA 23327.46 26485.01 26287.44 -0.75% 12.69%
Nasdaq 6635.28 8004.07 7959.14 -0.56% 19.95%
S&P 500 2506.85 2932.05 2918.65 -0.46% 16.43%
Russell 2000 1348.56 1533.66 1513.04 -1.34% 12.20%
Global Dow 2736.74 3005.80 2967.60 -1.27% 8.44%
Fed. Funds target rate 2.25%-2.50% 2.00%-2.25% 2.00%-2.25% 0 bps -25 bps
10-year Treasuries 2.68% 1.85% 1.73% -12 bps -95 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 News

  • Prices at the producer level were generally soft in July. The Producer Price Index advanced 0.2% in July after inching up 0.1% in both June and May. Producer prices, less foods, energy, and trade services, fell 0.1% in July — the first such decline since October 2015. Over the 12 months ended in July, the PPI rose 1.7%. Prices for goods increased 0.4%, while prices for services fell 0.1% last month. Driving goods prices higher was a 2.3% increase in energy prices, particularly gasoline prices, which spiked 5.2% in July.
  • The services (non-manufacturing) sector slowed in July, according to the latest report from the Institute for Supply Management®. The non-manufacturing index fell 1.4 percentage points to its lowest reading since August 2016. Within the services sector, business activity, new orders, and prices fell in July from the prior month. Only employment increased last month.
  • According to the Job Openings and Labor Turnover report, on the last business day of June, the job openings level was little changed at 7.3 million. The job openings rate was 4.6% (4.7% in May). Job openings increased in real estate and rental and leasing (38,000), as well as state and local government education (20,000). Total hires (5.7 million) and separations (5.5 million) were little changed in June from the prior month. Over the 12 months ended in June, hires totaled 69.4 million and separations totaled 66.9 million, yielding a net employment gain of 2.5 million.
  • For the week ended August 3, there were 209,000 claims for unemployment insurance, a decrease of 8,000 from the previous week’s level, which was revised up by 2,000. According to the Department of Labor, the advance rate for insured unemployment claims remained at 1.2% for the week ended July 27. The advance number of those receiving unemployment insurance benefits during the week ended July 27 was 1,684,000, a decrease of 15,000 from the prior week’s level.

Eye on the Week Ahead

Important economic reports that are out this week include the Treasury budget, the Consumer Price Index, and industrial production. Compared to last year, the government deficit has been running about 23% higher as we near the end of the fiscal year. Inflation has been stagnant for much of the year as evidenced by the CPI, which is up only 1.6% since June 2018. While manufacturing picked up a bit last month, overall, industrial production has been weak, up only 1.3% from June 2018.

What I’m Watching This Week – 5 August 2019

The Markets (as of market close August 2, 2019)

Not even a strong labor report could save stocks from tumbling last week, likely in response to President Trump’s tweet that he intended to raise tariffs on an additional $300 billion worth of Chinese imports beginning next month. Trading volume spiked last week as did volatility, with the Cboe Volatility Index® hitting its highest level since May. Rising trade tensions between the economic giants sent global stocks reeling while bond prices soared, sending yields plummeting. Each of the benchmark indexes listed here lost at least 2.60% last week, with the Nasdaq falling almost 4.00%.

Oil prices fell last week, closing at $55.23 per barrel by late Friday afternoon, down from the prior week’s price of $56.17. The price of gold (COMEX) spiked last week, closing at $1,452.70 by late Friday afternoon, up from the prior week’s price of $1,418.40. The national average retail regular gasoline price was $2.715 per gallon on July 29, 2019, $0.035 lower than the prior week’s price and $0.131 less than a year ago.

Market/Index 2018 Close Prior Week As of 8/2 Weekly Change YTD Change
DJIA 23327.46 27192.45 26485.01 -2.60% 13.54%
Nasdaq 6635.28 8330.21 8004.07 -3.92% 20.63%
S&P 500 2506.85 3025.86 2932.05 -3.10% 16.96%
Russell 2000 1348.56 1578.97 1533.66 -2.87% 13.73%
Global Dow 2736.74 3104.51 3005.80 -3.18% 9.83%
Fed. Funds target rate 2.25%-2.50% 2.25%-2.50% 2.00%-2.25% -25 bps -25 bps
10-year Treasuries 2.68% 2.00% 1.85% -15 bps -83 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 News

  • For the first time since 2008, the Federal Open Market Committee voted to lower interest rates. Following its July 31 meeting, the FOMC decided to lower the target range for the federal funds rate 25 basis points to 2.00%-2.25%. The Committee vote was not unanimous as 2 of the 10 members voted against a rate reduction. In any case, after noting that economic activity has been rising at a moderate rate, job gains have been solid, household spending has picked up, and the unemployment rate has remained low, the Committee noted that growth of business fixed investment has been soft and inflation is running below the Committee’s 2.00% target. Also of note, the Committee specifically referenced for the first time “global developments for the economic outlook” as a reason for lowering the target range for the federal funds rate.
  • Employment rose by 164,000 jobs in July, and the unemployment rate remained at 3.7%. In 2018, employment gains had averaged 223,000 per month. In July, notable job gains occurred in professional and technical services (31,000), health care (30,000), social assistance (20,000), and financial activities (18,000). There were approximately 6.1 million unemployed in July, 88,000 more than in June. In July, the labor force participation rate was 63.0%, and the employment-population ratio was 60.7%. The average workweek decreased by 0.1 hour to 34.3 hours in July. Average hourly earnings rose by $0.08 to $27.98 last month — the same hourly increase as occurred in June. Over the past 12 months ended in July, average hourly earnings have increased by 3.2%.
  • The trade deficit was $55.2 billion in June, down $0.2 billion from May’s revised deficit. Both imports (-$4.6 billion) and exports (-$4.4 billion) fell from their May respective totals. Year-to-date, the goods, and services deficit increased $23.2 billion, or 7.9%, from the same period in 2018. In June, goods trade deficits were noted with China ($30.2 billion), the European Union ($15.9 billion), Mexico ($9.2 billion), and Japan ($6.2 billion). Trade surpluses were with South and Central America ($4.8 billion), Hong Kong ($2.3 billion), Brazil ($1.3 billion), and the United Kingdom ($0.1 billion).
  • Not unexpectedly, June saw prices for consumer products and services remain stable while consumer spending remained solid. According to the latest report from the Bureau of Economic Analysis, the personal consumption expenditures (PCE) price index, which measures changes in prices of consumer goods and services, inched up 0.1% in June over May. Excluding food and energy, consumer prices rose 0.2% in June. Personal income jumped 0.4% as did after-tax, or disposable, personal income. With a boost in income and low prices for goods and services, consumers spent more. PCE increased 0.3% in June. Much of the increase in consumer spending was attributable to nondurable goods and services. Consumers actually spent less on durable goods (expected to last at least three years).
  • According to Markit’s survey, manufacturing firms continued to see a slowdown in July. The purchasing managers’ index last month fell to its lowest level since September 2009 with exports contracting for the second time in the last three months. Survey respondents noted softer demand for goods and muted business growth.
  • The ISM® purchasing managers’ index also fell in July from a month earlier, dropping from 51.7% to 51.2%. Production, employment, and prices fell last month, but new orders, supplier deliveries, and inventories increased, which is a good start for August.
  • For the week ended July 27, there were 215,000 claims for unemployment insurance, an increase of 8,000 from the previous week’s level, which was revised up by 1,000. According to the Department of Labor, the advance rate for insured unemployment claims remained at 1.2% for the week ended July 20. The advance number of those receiving unemployment insurance benefits during the week ended July 20 was 1,699,000, an increase of 22,000 from the prior week’s level, which was revised up by 1,000.

Eye on the Week Ahead

Following last week’s busy schedule of economic reports, this week does not include a lot of market-moving information. The Job Openings and Labor Turnover Survey (JOLTS) is expected to reveal similar job openings in June as existed in May. Another report of note, the Producer Price Index, saw producer prices increase slightly in June. It would not be surprising if prices showed no change in July.

Monthly Market Review – July 2019

The Markets (as of market close July 31, 2019)

Stocks ran hot and cold in July, influenced by worsening global economic conditions, ongoing trade negotiations with China, and lagging domestic business investment. While the Fed’s decision to reduce short-term interest rates was not unexpected, stocks were sent reeling, closing out the month on a bit of a sour note. Despite analysts and Wall Street predicting the interest rate reduction, some experts questioned the timing, particularly in the event of a deeper economic downturn in the future. Corporate earnings reports in July were generally positive, driving stock prices higher. Low unemployment, increased consumer spending, and moderate wage increases helped insulate domestic investors from an otherwise global economic downturn.

By the close of trading on the last day of the month, only the Global Dow was unable to surpass its June closing value. Otherwise, each of the benchmark indexes listed here posted monthly gains, led by the Nasdaq and the S&P 500. Year-to-date, the tech stocks of the Nasdaq continue to lead the way, climbing over 23% above their 2018 closing mark. In fact, each of the benchmark indexes listed here are well above their end-of-year values. While long-term bond yields inched up in July, for the year, escalating bond prices have kept yields down.

By the close of trading on July 31, the price of crude oil (WTI) was $57.88 per barrel, down from the June 28 price of $58.16 per barrel. The national average retail regular gasoline price was $2.715 per gallon on July 29, up from the June 24 selling price of $2.654 but $0.131 less than a year ago. The price of gold rose by the end of July, climbing to $1,426.10 by close of business on the 31st, up from its $1,413.30 price at the end of June.

Market/Index 2018 Close Prior Month As of July 31 Month Change YTD Change
DJIA 23327.46 26599.96 26864.27 0.99% 15.16%
NASDAQ 6635.28 8006.24 8175.42 2.11% 23.21%
S&P 500 2506.85 2941.76 2980.38 1.31% 18.89%
Russell 2000 1348.56 1566.57 1574.60 0.51% 16.76%
Global Dow 2736.74 3074.41 3059.35 -0.49% 11.79%
Fed. Funds 2.25%-2.50% 2.25%-2.50% 2.00%-2.25% -25 bps -25 bps
10-year Treasuries 2.68% 2.00% 2.02% 2 bps -66 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.

Latest Economic Reports

  • Employment: Total employment increased by 224,000 in June after adding only 72,000 (revised) new jobs in May. The average monthly job gain so far in 2019 is 172,000 per month (223,000 in 2018). Notable employment increases for June occurred in professional and business services (51,000), health care (35,000), and transportation and warehousing (24,000). The unemployment rate inched up by 0.1 percentage point to 3.7% in June. The number of unemployed persons increased slightly to 6.0 million in June (5.9 million in May). The labor participation rate was 62.9% and the employment-population ratio was 60.6% in June. The average workweek was unchanged at 34.4 hours for June. Average hourly earnings increased by $0.06 to $27.90. Over the last 12 months ended in June, average hourly earnings have risen 3.1%.
  • FOMC/interest rates: As expected, the Federal Open Market Committee lowered interest rates by 25 basis points following its latest meeting in July. Lack of price inflation and slowing global economic growth underscored the Committee’s decision to reduce the target range for the federal funds rate to 2.00%-2.25%. The vote to reduce rates was 8-2, with dissenting members opting to leave rates unchanged.
  • GDP/budget: Economic growth appears to have slowed in the second quarter, according to the initial, or “advance,” estimate of the gross domestic product. The second quarter grew at an annualized rate of 2.1%. The first quarter saw an annualized growth of 3.1%. Consumer prices and spending increased in the second quarter, rising 2.3% and 4.3%, respectively. Pulling the GDP down in the second quarter were negative contributions from fixed business investment (equipment, software, structures, etc.) and exports. The federal budget deficit was only $8.5 billion in June ($74.9 billion in June 2018). Through the first nine months of the fiscal year, the government deficit sits at $747.1 billion. Over the same period for fiscal year 2018, the deficit was $607.1 billion.
  • Inflation/consumer spending: Inflationary pressures remain weak as consumer prices rose 0.1% in June and are up 1.4% over the last 12 months ended in June. Consumer prices excluding food and energy increased 0.2% in June and 1.4% since June 2018. In June, consumer spending rose 0.3% (0.5% in May). Personal income and disposable (after-tax) personal income climbed 0.4% in June, respectively.
  • The Consumer Price Index increased 0.1% in June, the same increase as in May after rising 0.3% in April and 0.4% in March. Over the 12 months ended in June, the CPI rose 1.6%. Energy prices held overall consumer prices in check, falling 2.3% in June. Prices less food and energy rose 0.3% in June — the largest monthly increase since January 2018. Core prices (less food and energy) are up 2.1% over the last 12 months. In contrast, over the same period, the energy index has fallen 3.4%.
  • According to the Producer Price Index, the prices companies received for goods and services rose 0.1% in June after increasing 0.1% in May and 0.2% in April. The index increased 1.7% for the 12 months ended in June. Prices for services increased 0.4%, offset by a 0.4% drop in prices for goods. The index less foods, energy, and trade services was unchanged in June after moving up 0.4% in May, and has increased 2.3% over the last 12 months.
  • Housing: Activity in the housing market can be described as erratic at best. Existing home sales fell 1.7% in June after climbing 2.5% in May. Year-over-year, existing home sales are down 2.2%. Existing home prices continue to rise, as the June median price for existing homes was $285,700 — an all-time high. Existing home prices were up 4.3% from June 2018. Total housing inventory for existing homes for sale in June increased to 1.93 million (1.91 million in May), representing a 4.4-month supply at the current sales pace. Sales of new single-family houses rebounded in June, surging a robust 7.0% over May’s revised total. Sales in May fell a whopping 8.2%. New home sales are now 4.5% ahead of their June 2018 estimate. The median sales price of new houses sold in June was $310,400 ($303,500 in May). The average sales price was $368,600 ($371,200 in May). Inventory at the end of June was at a supply of 6.3 months (6.7 months in May).
  • Manufacturing: According to the Federal Reserve, industrial production was unchanged in June after increasing 0.4% in May. For the second quarter as a whole, industrial production declined at an annual rate of 1.2%, its second consecutive quarterly decrease. In June, a nearly 3.0% increase in motor vehicles and parts contributed significantly to the 0.4% gain in manufacturing output. Utilities fell 3.6% as milder-than-usual temperatures in June reduced the demand for air conditioning. Total industrial production was 1.3% higher in June than it was a year earlier. After falling 1.3% in May, durable goods orders jumped 2.0% in June. New orders for capital goods used by businesses to produce consumer goods rose 1.4% in June after plummeting 6.5% the prior month. Core capital goods (excluding defense and aircraft) increased 1.9% last month.
  • Imports and exports: In another sign that global inflationary pressures continue to be weak, import prices fell 0.9% in June after recording no change (revised) in May. This is the first monthly decline since a 1.4% decline in December 2018. Import prices decreased 2.0% over the past 12 months — the largest year-over-year decline since import prices fell 2.2% for the 12-month period ended in August 2016. Import fuel prices declined 6.5% in June following a 2.3% advance the previous month. The June downturn was the first monthly decline in import fuel prices since a 13.3% drop in December 2018. Excluding fuel, import prices fell 0.3% for the second consecutive month in June. Export prices fell 0.7% in June after decreasing 0.2% in May. The June decrease was the largest monthly drop since export prices declined 0.8% last November. Export prices decreased 1.6% for the year ended in June, the largest 12-month decline since prices plummeted 2.4% for the year ended in August 2016. The latest information on international trade in goods and services, out July 3, is for May and shows that the goods and services deficit was $50.5 billion, down from the $51.92 billion deficit in April. May exports were $210.6 billion, $4.2 billion higher than April exports. May imports were $266.2 billion, $8.5 billion more than April imports. Year-to-date, the goods, and services deficit increased $15.7 billion, or 6.4%. Exports increased $5.1 billion, or 0.5%. Imports increased $20.8 billion, or 1.6%. The advance report on international trade in goods (excluding services) revealed the trade deficit to be $74.2 billion in June, down $0.9 billion from May’s deficit. Goods exports in June were $3.7 billion less than the prior month, while imports of goods were $4.6 billion less than May’s imports.
  • International markets: Boris Johnson of the Conservative Party became Britain’s new prime minister, vowing to lead that country out of the European Union even with no Brexit deal in place. Meanwhile, the European Central Bank gave indications it would cut short-term interest rates and restart a program of buying bonds in an attempt to stem the tide of the worsening European economy. In Japan, consumer prices stagnated in June and have risen a scant 0.7% since June 2018 — yet another sign of tepid global inflationary pressures. China’s gross domestic product advanced at an annualized rate of 1.6% for the second quarter and at a 6.2% year-over-year rate. This growth has come despite the trade impasse with the United States.
  • Consumer confidence: After showing signs of concern in June, the Conference Board Consumer Confidence Index® rebounded in July, up to 135.7 from June’s 124.3. The Present Situation Index — based on consumers’ assessment of current business and labor market conditions — increased from 164.3 to 170.9. The Expectations Index — based on consumers’ short-term outlook for income, business and labor market conditions — increased from 97.6 in June to 112.2 in July.

Eye on the Month Ahead

Corporate earnings released in August, coupled with the ongoing trade negotiations between the United States and China, are likely to impact stock values. Interest rates will remain unchanged until at least September when the Federal Open Market Committee next meets.