What I’m Watching This Week – 9 July 2018

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

A positive labor report may have been enough to offset investor concerns about the tit-for-tat tariff war between the United States and its trade partners as stocks posted positive returns by last week’s end. Trading volumes were relatively light, as expected, during the holiday-shortened week. As has been the case for much of the year, the tech-heavy Nasdaq and the small caps of the Russell 2000 enjoyed the largest weekly gains, followed by the large caps of the S&P 500, the Global Dow, and the Dow.

The price of crude oil (WTI) dipped last week, closing at $73.92 per barrel, down from the prior week’s closing price of $74.25 per barrel. The price of gold (COMEX) rose slightly to $1,255.90 by early Friday evening, ahead of the prior week’s price of $1,254.20. The national average retail regular gasoline price climbed to $2.844 per gallon on July 2, 2018, $0.011 higher than the prior week’s price and $0.584 higher than a year ago.

Market/Index 2017 Close Prior Week As of 7/6 Weekly Change YTD Change
DJIA 24719.22 24271.41 24456.48 0.76% -1.06%
Nasdaq 6903.39 7510.30 7688.39 2.37% 11.37%
S&P 500 2673.61 2718.37 2759.82 1.52% 3.22%
Russell 2000 1535.51 1643.07 1694.05 3.10% 10.32%
Global Dow 3085.41 2979.52 3007.63 0.94% -2.52%
Fed. Funds target rate 1.25%-1.50% 1.75%-2.00% 1.75%-2.00% 0 bps 50 bps
10-year Treasuries 2.41% 2.86% 2.82% -4 bps 41 bps

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

Last Week’s Economic Headlines

  • Employment increased by 213,000 in June, while the unemployment rate rose 0.2 percentage point to 4.0%, as more people were looking to enter the job market. Labor growth occurred in professional and business services, manufacturing, and healthcare, while retail trade lost jobs. The number of unemployed persons increased by 499,000 to 6.6 million. Still, a year earlier, the jobless rate was 4.3%, and the number of unemployed persons was 7.0 million. The average workweek for all employees was unchanged at 34.5 hours in June. Average hourly earnings for all employees rose by $0.05 to $26.98. Over the year, average hourly earnings have increased by $0.72, or 2.7%.
  • The final figures for May are in and the trade deficit for goods and services was $43.1 billion, down $3.0 billion from April’s deficit. Imports increased marginally (0.4%), while exports expanded by 1.9% over April. Year-to-date, the goods, and services deficit increased $17.9 billion, or 7.9%, from the same period in 2017. Exports increased $84.5 billion, or 8.8%. Imports increased $102.4 billion, or 8.6%. This report does not reflect the impact, if any, of the trade tariffs imposed in June and July between the United States and many of its trade partners.
  • Depending on which survey you read, economic activity in the manufacturing sector may have expanded in June. According to the survey from the Institute for Supply Management®, overall manufacturing increased over May. While new orders, employment, and prices fell slightly, production, inventories, and supplier deliveries increased over their May figures.
  • On the other hand, the IHS Markit final U.S. Manufacturing Purchasing Managers’ Index™ for June showed the overall rate of growth in the manufacturing sector dipped to its lowest rate in four months. According to survey respondents, the effects of tariffs were widely cited as contributing to another sharp rise in input prices. New orders fell, with new business from abroad contracting for the first time since July 2017.
  • According to the latest Non-Manufacturing ISM® Report On Business®, economic activity advanced in the non-manufacturing (services) sector in June over May. Business activity and new orders increased, while employment and prices decreased. According to the report, 17 non-manufacturing industries reported growth for the month.
  • In the week ended June 30, there were 231,000 initial claims for unemployment insurance, an increase of 3,000 from the previous week’s level, which was revised up 1,000. The advance insured unemployment rate remained at 1.2%. The advance number of those receiving unemployment insurance benefits during the week ended June 23 was 1,739,000, an increase of 32,000 from the prior week’s level, which was revised up by 2,000.

Eye on the Week Ahead

The latest information on inflationary trends is available next week. June reports on both consumer and producer prices are expected to show continuing upward movement, which could provide the Fed with the impetus to raise interest rates in August.

To view the What I’m Watching This Week Portfolio, please click here. (Free Membership is required) https://www.barchart.com/my/featured-portfolios

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Quarterly Market Review: April – June 2018

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

The second quarter of the year can be called a lot of things, but boring isn’t one of them. The potential for a trade war between the United States and China heated up in April as China responded to the threat of U.S. tariffs on Chinese imports by warning of the same magnitude of tariffs on American exports. Favorable corporate earnings reports helped calm some of the global economic angst investors may have felt. The indexes listed here ended the month ahead of their March closing values — but only barely. The Global Dow (1.16%) and the Russell 2000 (0.81%) posted the largest monthly gains, followed by marginal upticks in the S&P 500 (0.27%), the Dow (0.25%), and the Nasdaq (0.04%).

Despite expanding trade tensions between the United States, China, Canada, Mexico, and the European Union, equities enjoyed a better month in May, riding surging energy stocks. For most of the month, oil prices hit multi-year highs before falling at the end of May. Robust first-quarter earnings reports also helped push stock markets higher. In fact, each of the indexes listed here posted strong end-of-month gains. The small caps of the Russell 2000 (5.95%) and the tech-heavy Nasdaq (5.32%) enjoyed the largest gains, followed by the S&P 500 (2.16%) and the Dow (1.05%). Of the indexes in this report, only the Global Dow lost value, falling 1.95% by the end of May.

A strong jobs report kicked off the month of June on a mostly positive note. Stocks closed the first full week of June higher, led by the large caps of the S&P 500 and the Dow. However, by the middle of the month, investors were hit with China’s threat of increased tariffs on U.S. exports, while Canada pledged to impose retaliatory penalties as well. By the end of the month, the Dow and Global Dow lost some value, while the remaining indexes listed here posted marginal gains.

Overall, the second quarter saw the tech-heavy Nasdaq gain over 6.0%, only to be bested by small caps of the Russell 2000, which grew by almost 7.5%. The S&P 500 also closed the quarter ahead of its first-quarter closing values. The Dow didn’t fare as well, finishing the quarter up by less than 1.0%. Prices for 10-year Treasuries rose by the end of the quarter, pulling yields down by 13 basis points. Crude oil prices closed the quarter at about $74.25 per barrel by the end of June, almost $10 per barrel higher than prices at the close of the first quarter. Gold closed the quarter at roughly $1,254.20, noticeably lower than its $1,329.60 price at the end of March. Regular gasoline, which was $2.648 per gallon on March 26, climbed to $2.833 on the 25th of June.

Market/Index 2017 Close As of June 29 Month Change Quarter Change YTD Change
DJIA 24719.22 24271.41 -0.59% 0.70% -1.81%
NASDAQ 6903.39 7510.30 0.92% 6.33% 8.79%
S&P 500 2673.61 2718.37 0.48% 2.93% 1.67%
Russell 2000 1535.51 1643.07 0.58% 7.43% 7.00%
Global Dow 3085.41 2979.52 -0.75% -1.56% -3.43%
Fed. Funds 1.25%-1.50% 1.75%-2.00% 25 bps 25 bps 50 bps
10-year Treasuries 2.41% 2.86% 0 bps 13 bps 45 bps

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

Last Month’s Economic News

  • Employment: Total employment rose by 223,000 in May after adding 164,000 new jobs in April. The average monthly gain over the prior 12 months is 191,000. Notable employment gains occurred in professional and technical services (23,000), retail trade (31,000), and health care (29,000). The unemployment rate slipped to 3.8%. The number of unemployed persons declined to 6.1 million. Over the year, the unemployment rate was down by 0.5 percentage point, and the number of unemployed persons declined by 772,000. The labor participation rate was little changed at 62.7% (62.9% in April). The employment-population ratio held at 60.4%. The average workweek was unchanged at 34.5 hours for the month. Average hourly earnings increased by $0.08 to $26.92. Over the last 12 months, average hourly earnings have risen $0.71, or 2.7%.
  • FOMC/interest rates: The Federal Open Market Committee raised the federal funds target range rate for the second time this year, bumping the range up by 25 basis points following the Committee’s June meeting. The target range now sits at 1.75%-2.00%. The Committee cited continued strengthening in the labor market and increased household spending as justifications for the rate hike. Also of note, the Committee forecasts the median funds rate at 2.4% by year’s end instead of 2.1% as forecasted in March. This means two more rate hikes could be in the offing before the end of the year.
  • GDP/budget: The third and final estimate of the first-quarter gross domestic product showed the economy expanded at an annual rate of 2.0%, according to the Bureau of Economic Analysis. The fourth-quarter GDP grew at an annualized rate of 2.9%. According to the report, consumer spending was rather subdued, expanding at a rate of only 0.9%. Corporate profits increased $39.5 billion in the first quarter, in contrast to a decrease of $1.1 billion in the fourth quarter. Fewer exports and more imports during the quarter contributed to slower economic growth. Spending on durable goods, which had increased 13.7% in the fourth quarter, dropped 2.1% in the first quarter. Gross domestic income rose 3.6% in the first quarter — far surpassing the 1.0% growth rate in the fourth quarter. The government budget deficit was $146.8 billion in May following a surplus of $214.3 billion in April. For fiscal 2018 through May, the federal deficit sits at $532.2 billion — up by $99.4 billion, or about 23%, from the deficit over the same period last year.
  • Inflation/consumer spending: Consumer spending, as measured by personal consumption expenditures, jumped 0.2% in May, after increasing 0.5% in April. Core consumer spending (excluding food and energy) also rose 0.2% in May. Core consumer prices, a tracker of inflationary trends, increased 0.2% in May. But of more importance, core prices have increased 2.0% over the last 12 months — an annual rate that could prompt more interest rate increases during the remainder of 2018.
  • The Consumer Price Index rose 0.2% in May, the same increase as in April. Over the last 12 months ended in May, consumer prices are up 2.8%. Core prices, which exclude food and energy, also climbed 0.2% for the month, and are up 2.2% for the year.
  • Prices at the wholesale level expanded noticeably in May. The Producer Price Index showed the prices companies receive for goods and services jumped 0.5% after climbing 0.1% in April. Year-over-year, producer prices have increased 3.1%. Prices less food and energy increased 0.3% for May and are up 2.4% over the last 12 months.
  • Housing: Sales of existing homes continued to slow in May. Total existing-home sales fell 0.4% for May following a 2.5% drop in April. Year-over-year, existing home sales are down 3.0%. The May median price for existing homes was $264,800, which is 4.9% higher than the May 2017 price of $252,500. While inventory for all types of existing homes for sale rose 2.8% in May, it is 6.1% lower than a year ago. New home sales, on the other hand, climbed 6.7% in May after falling 1.5% in April. Falling home prices surely led to the spike in new home sales. The median sales price of new houses sold in May was $313,000 ($318,500 in April). The average sales price was $368,500 ($394,600 in April). Inventory fell slightly to 5.2 months, down from the 5.5-month supply in April.
  • Manufacturing: Industrial production edged down 0.1% in May after increasing 0.9% in April. Nevertheless, total industrial production is 3.5% higher in May than it was a year earlier. Manufacturing production fell 0.7% in May, largely because truck assemblies were disrupted by a major fire at a parts supplier. Excluding motor vehicles and parts, factory output moved down 0.2%. The index for mining rose 1.8%, its fourth consecutive month of growth; the output of utilities moved up 1.1%. New orders for manufactured durable goods climbed 0.6% in May following two consecutive monthly decreases.
  • Imports and exports: The advance report on international trade in goods revealed that the trade gap decreased by $2.5 billion in May from April. The deficit for May was $64.8 billion (the April deficit was $67.3 billion). May exports of goods jumped 2.1%, while imports increased 0.2%. On a seasonally adjusted basis, May’s total imports ($208,405 billion) far exceeded exports ($143,560 billion). Both import and export prices are starting to move higher. Import and export prices are starting to move higher; both increased 0.6% in May after climbing 0.3% and 0.6%, respectively, in April. Over the last 12 months, import prices have increased 4.3% and export prices are up 4.9%.
  • International markets: Investors, both at home and abroad, may be concerned that the escalating trade dispute between the United States and several other important trade partners may stunt global economic growth. Despite the negative trade rhetoric, China’s economy expanded at a rate of 6.8% in the first quarter, much to the surprise of some investors and economic analysts. On the other hand, potential trade tariffs may have impacted Europe’s largest economy. Germany’s gross domestic product stalled in the first quarter, growing at a subdued rate of 1.2% after expanding 2.5% in the fourth quarter. Overall, the eurozone GDP also decelerated to a growth rate of 1.7% in the first quarter, down from the 2.7% rate of growth in the fourth quarter.
  • Consumer confidence: Consumer confidence, as measured by The Conference Board Consumer Confidence Index®, dipped 2.4% in June following an increase in May. According to the report, consumers’ confidence in the present economic conditions remained relatively the same as in May, but expectations for future growth were tempered. This reading may be reflective of the imposition of tariffs and the ongoing trade war.

Eye on the Month Ahead

Moving to the second quarter of the year, the economy in general and the market, in particular, will likely react based on the ongoing global economic trade wars. Fewer imports could lead to more domestic sales, which could add to job growth. However, prices could also increase at a rate ahead of wage growth.

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What I’m Watching This Week – 2 July 2018

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

The benchmark indexes listed here continued to trend downward, losing value for the second week in a row. The Russell 2000 and the Nasdaq, both of which had been the leading performers for much of the year, suffered the biggest weekly losses, followed by the S&P 500, the Dow, and the Global Dow. While energy shares performed well on the heels of oil prices reaching a four-year high, overall fears of worsening trade relations between the United States and several of its trade partners pulled investors away from stocks.

The price of crude oil (WTI) surged last week, closing at $74.25 per barrel, up from the prior week’s closing price of $69.32 per barrel. The price of gold (COMEX) fell to $1,254.20 by early Friday evening, down from the prior week’s price of $1,271.70. The national average retail regular gasoline price fell to $2.833 per gallon on June 25, 2018, $0.046 lower than the prior week’s price but $0.545 higher than a year ago.

Market/Index 2017 Close Prior Week As of 6/29 Weekly Change YTD Change
DJIA 24719.22 24580.89 24271.41 -1.26% -1.81%
Nasdaq 6903.39 7692.82 7510.30 -2.37% 8.79%
S&P 500 2673.61 2754.88 2718.37 -1.33% 1.67%
Russell 2000 1535.51 1685.58 1643.07 -2.52% 7.00%
Global Dow 3085.41 3007.73 2979.52 -0.94% -3.43%
Fed. Funds target rate 1.25%-1.50% 1.75%-2.00% 1.75%-2.00% 0 bps 50 bps
10-year Treasuries 2.41% 2.89% 2.86% -3 bps 45 bps

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

Last Week’s Economic Headlines

  • The third and final estimate of the first-quarter gross domestic product showed the economy expanded at a rate of 2.0%. Fourth-quarter growth was 2.9%. Gross domestic income (the net sum of income earned in the production of GDP) increased 3.6% in the first quarter, compared with a 1.0% bump in the fourth quarter. In the first quarter, consumer spending grew at the relatively low rate of 0.9%, while business spending rose 7.5%.
  • Both pre-tax and after-tax consumer income increased by 0.4% in May. Overall, consumer spending climbed 0.2% in the month, while core expenditures (excluding food and energy) also accelerated at 0.2%. Prices for consumer goods and services, overall and excluding food and energy, also increased 0.2%. Of note, consumer prices are up 2.3%, and core prices, an inflation indicator of importance to the Federal Open Market Committee, is up 2.0% over the past 12 months — right at the target inflation rate set by the Committee. Look for more interest rate increases intended to keep the reins on inflation.
  • New home sales soared in May, up 6.7% over April’s figures and 14.1% ahead of the May 2017 estimate. Weakening sales prices may have helped boost sales in May. The median sales price of new houses sold in May 2018 was $313,000 ($318,500 in April). The average sales price was $368,500 ($394,600 in April). The seasonally adjusted estimate of new houses for sale at the end of May was 299,000. This represents a supply of 5.2 months at the current sales rate.
  • New orders for durable goods fell 0.6% in May following a 1.0% drop in April. Excluding transportation, new orders decreased 0.3%. Shipments were down 0.1% after increasing nine consecutive months. Unfilled orders rose 0.5% in May after advancing 0.6% in April. Lastly, inventories increased 0.3% — the same increase as in April.
  • Despite tariffs and trade wars, exports surged 2.1% in May, pulling down the trade deficit from $67.3 billion in April to $64.8 billion in May. Imports of goods for May were $208.4 billion, $0.4 billion (or 0.2%) more than April imports.
  • In the week ended June 23, there were 227,000 initial claims for unemployment insurance, an increase of 9,000 from the previous week’s level. The advance insured unemployment rate remained at 1.2%. The advance number of those receiving unemployment insurance benefits during the week ended June 16 was 1,705,000, a decrease of 21,000 from the prior week’s level, which was revised up by 3,000.

Eye on the Week Ahead

Trading is usually subdued during the holiday-shortened week. Nevertheless, the following week could start off with a bang based on Friday’s employment data for June.

What I’m Watching This Week – 25 June 2018

The Markets (as of market close June 22, 2018)

The benchmark indexes listed here closed flat to lower last week amid fears that trade penalties will hurt domestic companies’ exports. Only the Russell 2000 closed the week ahead of its prior week’s value. The Dow was hit particularly hard as investors fled stocks of companies that could suffer due to the impending trade wars. President Trump may be targeting an additional $200 billion of Chinese imports and European-made automobiles for higher tariffs. A smaller-than-expected increase in production from OPEC sent oil prices up at the end of last week, pushing the price of some energy stocks higher.

The price of crude oil (WTI) surged last week, closing at $69.32 per barrel, up from the prior week’s closing price of $64.38 per barrel. The price of gold (COMEX) fell to $1,271.70 by early Friday evening, down from the prior week’s price of $1,282.00. The national average retail regular gasoline price fell to $2.879 per gallon on June 18, 2018, $0.032 lower than the prior week’s price but $0.561 higher than a year ago.

Market/Index 2017 Close Prior Week As of 6/22 Weekly Change YTD Change
DJIA 24719.22 25090.48 24580.89 -2.03% -0.56%
Nasdaq 6903.39 7746.38 7692.82 -0.69% 11.44%
S&P 500 2673.61 2779.66 2754.88 -0.89% 3.04%
Russell 2000 1535.51 1683.91 1685.58 0.10% 9.77%
Global Dow 3085.41 3044.16 3007.73 -1.20% -2.52%
Fed. Funds target rate 1.25%-1.50% 1.75%-2.00% 1.75%-2.00% 0 bps 50 bps
10-year Treasuries 2.41% 2.92% 2.89% -3 bps 48 bps

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

Last Week’s Economic Headlines

  • The May report on new residential construction was a mixed bag of good and not-so-good news. On the plus side, housing starts (5.0%) and housing completions (1.9%) each expanded over their April totals. That should get more homes on the market, which should increase inventory. On the other hand, building permits were down 4.6% in May from the prior month, which doesn’t necessarily bode well for future construction.
  • Existing home sales, which had been a strong segment of the housing sector earlier in the year, have fallen back for the second consecutive month. May’s sales of existing homes decreased 0.4% from April’s totals, and are now 3.0% lower than a year ago. The median existing-home price for all housing types in May was $264,800, an all-time high and up 4.9% from May 2017 ($252,500). May’s price increase marks the 75th straight month of year-over-year gains. Inventory of existing homes for sale rose 2.8% in May, yielding a 4.1-month supply at the current sales pace. While inventory is expanding somewhat, it’s still well below (6.1%) the number of homes available for sale this time last year.
  • In the week ended June 16, there were 218,000 initial claims for unemployment insurance, a decrease of 3,000 from the previous week’s level, which was revised up by 3,000. The advance insured unemployment rate remained at 1.2%. The advance number of those receiving unemployment insurance benefits during the week ended June 9 was 1,723,000, an increase of 22,000 from the prior week’s level, which was revised up by 4,000.

Eye on the Week Ahead

The last week of June brings with it some notable economic reports, led by the final estimate of the first-quarter gross domestic product. The report on personal income will show whether wage inflation is mirroring consumer price increases.

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What I’m Watching This Week – 18 June 2018

The Markets (as of market close June 15, 2018)

Market gains achieved earlier in the week were given back by last Friday as investors appeared to react to China’s retaliatory tariffs on American exports. The deteriorating relationship between the United States and China escalated last week as the Trump administration revealed plans to impose tariffs of 25% on a significant number of Chinese imports. In response, China targeted U.S. exports, including cars and crude oil, for similar tariffs. By the end of the week, the Dow fell the most, suffering through its largest one-week loss since March. Other than the Global Dow, the remaining indexes listed here posted gains, with the Nasdaq climbing over 1.30%. The S&P 500 was virtually unchanged, and the Russell 2000 gained over 0.50%.

The price of crude oil (WTI) dipped again last week, closing at $64.38 per barrel, down from the prior week’s closing price of $65.56 per barrel. The price of gold (COMEX) fell to $1,282.00 by early Friday evening, down from the prior week’s price of $1,303.50. The national average retail regular gasoline price fell to $2.911 per gallon on June 11, 2018, $0.029 lower than the prior week’s price but $0.545 higher than a year ago.

Market/Index 2017 Close Prior Week As of 6/15 Weekly Change YTD Change
DJIA 24719.22 25316.53 25090.48 -0.89% 1.50%
Nasdaq 6903.39 7645.51 7746.38 1.32% 12.21%
S&P 500 2673.61 2779.03 2779.66 0.02% 3.97%
Russell 2000 1535.51 1672.49 1683.91 0.68% 9.66%
Global Dow 3085.41 3060.76 3044.16 -0.54% -1.34%
Fed. Funds target rate 1.25%-1.50% 1.50%-1.75% 1.75%-2.00% 25 bps 50 bps
10-year Treasuries 2.41% 2.93% 2.92% -1 bps 51 bps

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

Last Week’s Economic Headlines

  • The Federal Open Market Committee decided to raise the target range for the federal funds rate 25 basis points to 1.75%-2.00%. The Committee noted that the labor market has continued to strengthen and that economic activity has been rising at a solid rate. Growth of household spending has picked up, while business fixed investment has continued to grow strongly. On a 12-month basis, both overall inflation and inflation for items other than food and energy have moved close to 2%. With the median funds forecast at 2.4%, the FOMC appears to be targeting two more rate hikes before the end of the year.
  • Consumer prices continued to climb at a slow pace in May, inching up 0.2% following the same increase in April. Over the last 12 months, the Consumer Price Index has risen 2.8%. The CPI less food and energy also rose 0.2% for the month and is up 2.2% over the last 12 months. Some of the categories showing monthly price gains include energy (particularly gas); shelter; education and communication; medical care commodities; new vehicles; tobacco and smoking products; hospital services; and motor vehicle insurance. Airline fares dropped 1.9%. Other price drops occurred in used cars and trucks; household furnishing and operations; and fuel oil.
  • The prices producers receive for goods and services at the wholesale level rose 0.5% in May after climbing 0.1% the prior month. In May, 60% of the price increase is attributable to a 1.0% advance in goods prices, particularly gasoline prices. Prices less food, energy, and trade services increased 0.1% in May over April, and 2.6% from May 2017. The prices for services moved up 0.3%. One-third of the May advance in prices for services is attributable to a 1.5% rise in margins for machinery, equipment, parts, and supplies wholesaling (trade indexes that measure changes in margins received by wholesalers and retailers). On an unadjusted basis, wholesale prices increased 3.1% for the 12 months ended in May, the largest 12-month increase since climbing 3.1% in January 2012.
  • Retail sales jumped 0.8% in May from the previous month, and 5.9% above May 2017. Retail trade sales were up 0.8% from April 2018, and 6.0% above last year. Gasoline stations sales were up 17.7% from May 2017, while nonstore (online) retail sales were up 9.1% from last year.
  • The federal government showed a $146.8 billion deficit in May following a $214.3 billion surplus in April. For comparison, the May 2017 deficit was $88.4 billion. For fiscal 2018, the total government deficit is $532.2 billion. Over the same eight months in 2017, the deficit was $432.9 billion — a difference of about 23%. Of note, for the current fiscal year to date (October through May), individual income taxes are up $94.5 million compared to 2017, while corporate income taxes are down $42.2 million. Compared to fiscal 2017, total government receipts for fiscal 2018 are up 2.6%, while expenditures have increased by 5.9%.
  • Industrial production edged down 0.1% in May after rising 0.9% in April. Manufacturing production fell 0.7% in May. Excluding motor vehicles and parts, factory output moved down 0.2% for the month. Over the past 12 months, industrial production is up 3.5%.
  • Prices for U.S. imports increased 0.6% for the second consecutive month in May, as rising fuel and nonfuel prices contributed to the advances in both months. Import prices have risen 4.3% for the 12 months ended in May 2018 — largely driven by higher fuel prices. Excluding fuel, import prices are up 0.2% for the month and 1.9% for the year. U.S. export prices rose 0.6% for the second consecutive month in May, and are up 4.9% for the year.
  • In the week ended June 9, there were 218,000 initial claims for unemployment insurance, a decrease of 4,000 from the previous week’s level. The advance insured unemployment rate remained at 1.2%. The advance number of those receiving unemployment insurance benefits during the week ended June 2 was 1,697,000, a decrease of 49,000 from the prior week’s level, which was revised up by 5,000. This is the lowest level for insured unemployment since December 1, 1973, when it was 1,692,000.

Eye on the Week Ahead

Performance statistics from the housing sector for May are released this week and next. Housing starts, new building permits, and existing home sales each dropped off in April. Reports this week hope to show a reversal of that trend for May. Next week, figures on new home sales are released for May following April’s lackluster returns.

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What I’m Watching This Week – 11 June 2018

The Markets (as of market close June 8, 2018)

As the Group of Seven (G7) summit kicked off last Friday, and tensions seemed to escalate between the United States and its trade partners, stocks closed the week on a positive note. All of the indexes tracked here rose more than 1%, with the domestic large caps of the Dow faring especially well. Year-to-date, the Global Dow remained in negative territory, while the Nasdaq and Russell 2000 boasted solid gains.

The price of crude oil (WTI) dipped slightly last week, closing at $65.56 per barrel, down from the prior week’s closing price of $65.72 per barrel. The price of gold (COMEX) rose to $1,303.50 by early Friday evening, up from the prior week’s price of $1,298.00. The national average retail regular gasoline price fell to $2.940 per gallon on June 4, 2018, $0.022 lower than the prior week’s price but $0.526 more than a year ago.

Market/Index 2017 Close Prior Week As of 6/8 Weekly Change YTD Change
DJIA 24719.22 24635.21 25316.53 2.77% 2.42%
Nasdaq 6903.39 7554.33 7645.51 1.21% 10.75%
S&P 500 2673.61 2734.62 2779.03 1.62% 3.94%
Russell 2000 1535.51 1647.98 1672.49 1.49% 8.92%
Global Dow 3085.41 3025.69 3060.76 1.16% -0.80%
Fed. Funds target rate 1.25%-1.50% 1.50%-1.75% 1.50%-1.75% 0 bps 25 bps
10-year Treasuries 2.41% 2.90% 2.93% 3 bps 52 bps

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

Last Week’s Economic Headlines

  • Business expanded in the non-manufacturing, or services, sector in May, according to the latest Non-Manufacturing ISM® Report On Business®. Not only did business activity grow in May, but new orders, employment, and prices also advanced over their April returns. Not surprisingly, new export orders retracted notably in May.
  • According to the Job Openings and Labor Turnover Summary for April, there were 6.7 million job openings at the end of the month — an increase of about 65,000 openings over March. Notable increases in job openings occurred in manufacturing; professional and business services; and leisure and hospitality. Several areas saw job openings decrease in April from March, including federal, state, and local government; education and health services; and financial activities. The number of hires and separations grew in April compared to March.
  • The goods and services trade deficit was $46.2 billion in April, down $1.0 billion from March. April exports were $211.2 billion, $0.6 billion more than March exports. April imports were $257.4 billion, $0.4 billion less than March imports. Year-to-date, the goods, and services deficit increased $20.8 billion, or 11.5%, from the same period in 2017. Exports increased $62.0 billion, or 8.1%. Imports increased $82.8 billion, or 8.7%.
  • In the week ended June 2, there were 222,000 initial claims for unemployment insurance, a decrease of 1,000 from the previous week’s level, which was revised up by 2,000. The advance insured unemployment rate remained at 1.2%. The advance number of those receiving unemployment insurance benefits during the week ended May 26 was 1,741,000, an increase of 21,000 from the prior week’s level, which was revised down by 6,000.

Eye on the Week Ahead

An interesting week lies ahead on both the economic and geopolitical fronts. President Trump is scheduled to meet with North Korean leader Kim Jong Un on the 12th in Singapore. The United States hopes to negotiate an end to North Korea’s nuclear weapons program in exchange for relief from economic sanctions. In other upcoming news, the Federal Open Market Committee meets this week. Many analysts predict an interest rate hike is in the offing.

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What I’m Watching This Week – 4 June 2018

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

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

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

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

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

Last Week’s Economic Headlines

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

Eye on the Week Ahead

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

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