Tag: Investment plan

The Markets (as of market close September 16, 2016)

Volatility in the markets reigned last week as each of the indexes listed here enjoyed gains early in the week, only to give most of them back by last week’s end. The Dow and S&P 500 closed last week only slightly ahead of their respective closing values from the previous week. While the small-cap Nasdaq finished the week up over 2.0% compared to the previous week, it too gave back plenty of gains from earlier in the week. The equities markets could be in for a ride, both domestically and abroad, as the Fed and the Central Bank of Japan are scheduled to meet later this week.

The price of crude oil (WTI) closed at $43.19 a barrel last week, down from $45.71 per barrel the previous week. The price of gold (COMEX) also fell, closing at $1,313.20 by late Friday afternoon, down from the prior week’s price of $1,331.80. The national average retail regular gasoline price decreased for the second consecutive week, falling to $2.202 per gallon on September 12, $0.021 lower than the prior week’s price and $0.173 below a year ago.

Market/Index	2015 Close	Prior Week	As of 9/16	Weekly Change	YTD Change
DJIA	17425.03	18085.45	18123.80	0.21%	4.01%
Nasdaq	5007.41	5125.91	5244.57	2.31%	4.74%
S&P 500	2043.94	2127.81	2139.16	0.53%	4.66%
Russell 2000	1135.89	1219.21	1224.78	0.46%	7.83%
Global Dow	2336.45	2442.56	2403.06	-1.62%	2.85%
Fed. Funds target rate	0.25%-0.50%	0.25%-0.50%	0.25%-0.50%	0 bps	0 bps
10-year Treasuries	2.26%	1.67%	1.69%	2 bps	-57 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

• Consumer prices rose 0.2% in August, facilitated by a 0.3% increase in the index less food and energy (the core index), which was the largest gain in that category since February. Over the last 12 months, the all items index has risen 1.1%, a larger increase than the 0.8% rise for the 12 months ended in July. Prices for medical care, shelter, and clothing increased in August. Major energy component indexes were mixed, with increases in the indexes for natural gas and electricity offsetting declines in the gasoline and fuel oil indexes. While it isn’t much, the increase in the Consumer Price Index for August shows some firming of inflationary pressure. However, price gains are still lagging compared to last August, when the all items index rose 1.1% and core prices increased 2.3%.
• An indicator of inflationary trends, the Producer Price Index (a measure of the change in prices received by U.S. producers of goods and services) was unchanged in August, the U.S. Bureau of Labor Statistics reported. Final demand prices declined 0.4% in July and rose 0.5% in June. Prices for final demand less foods, energy, and trade services increased 0.3% in August after no change in July. For the 12 months ended in August, the index for final demand less foods, energy, and trade services moved up 1.2%, the largest rise since climbing 1.3% for the 12 months ended in December 2014. A closer look at the report reveals that the price index for services increased a scant 0.1%, while the price index for goods dropped 0.4%, which can be traced to a 1.6% fall in food prices.
• Following increases in June and July, retail sales in August fell. According to the Census Bureau, advance estimates of U.S. retail and food services sales for August were at a seasonally adjusted rate of $456.3 billion, a decrease of 0.3% from the previous month, but 1.9% above August 2015. Excluding autos, retail sales dropped 0.1% in August. Sales for online retailers fell 0.3% in August, compared to July. A slowdown in consumer spending could impact the GDP for the quarter and the prospects of a Fed interest rate hike in September.
• The federal deficit grew to $107 billion in August, as total outlays ($338 billion) outpaced total receipts ($231 billion). For the fiscal year, which ends this month, the year-to-date deficit is $620.8 billion, compared to $530 billion over the same period last year. Year-to-date, total receipts are up 0.9% compared to last year, while total government expenditures have surged ahead by 13.6%.
• Industrial production decreased 0.4% in August after rising 0.6% in July. Manufacturing output also declined 0.4% in August, reversing its increase in July. Capacity utilization for the industrial sector decreased 0.4 percentage point in August to 75.5%, a rate that is 4.5 percentage points below its long-run (1972-2015) average.
• According to the latest report from the Bureau of Labor Statistics, both import prices and export prices fell in August compared to July. U.S. import prices declined 0.2% in August, after ticking up 0.1% in July. The August downturn was driven by lower fuel prices. Prices for U.S. exports decreased 0.8% in August following a 0.2% increase in July. The drop in import prices is another indication of weak inflationary pressure.
• Consumers’ opinions of the economy this month haven’t changed from August, according to the University of Michigan’s Surveys of Consumers. The Index of Consumer Sentiment was 89.8 for September, the same as August. Consumers’ opinions of the current economic conditions regressed a bit in September. However, consumers remain reasonably optimistic about their future economic prospects.
• In the week ended September 10, the advance figure for seasonally adjusted initial unemployment insurance claims was 260,000, an increase of 1,000 from the prior week’s unrevised level. The advance seasonally adjusted insured unemployment rate remained at 1.6%. The advance number for seasonally adjusted insured unemployment during the week ended September 3 was 2,143,000, an increase of 1,000 from the previous week’s revised level.

Eye on the Week Ahead

The latest reports on the sales of new and existing homes hit the news this week. But the biggest event of the week is the FOMC meeting. Clearly a market-mover, speculation as to whether the Fed will increase interest rates in September has run the gamut from “no chance” to “definitely.” Even if the Committee holds off on hiking interest rates, investors will likely focus on comments from Committee members, particularly Chair Janet Yellen, as to the future of the current quantitative easing measures.

The Markets (as of market close September 9, 2016)

Equities indexes rebounded early last week as lackluster economic reports in the labor and manufacturing sectors, coupled with a falling dollar, appear to be fueling speculation that the Fed won’t be raising interest rates following its meeting later this month. Energy shares made some positive headway early in the week, contributing to positive market returns.

However, by the close of the week, stocks and bonds posted their largest losses since the Brexit vote in June, as traders pulled an about-face, fearing that central banks would not continue further economic stimulus. First, the European Central Bank refused to commit to further stimulus. Then a few members of the Federal Reserve intimated that the time may be ripe for an interest rate increase.

By week’s end, the Dow had dropped over 400 points. Each of the indexes listed here (with the exception of the Global Dow) fell over 2.0%, led by the Russell 2000, which reversed the prior week’s gains with a fall in value of over 2.6%.

The price of crude oil (WTI) closed at $45.71 a barrel last week, up from $44.36 per barrel the previous week. The price of gold (COMEX) gained, closing at $1,331.80 by late Friday afternoon, up from the prior week’s price of $1,328.50. The national average retail regular gasoline price decreased for the first time in three weeks, falling to $2.223 per gallon on September 5, $0.014 lower than the prior week’s price and $0.214 below a year ago.

Market/Index	2015 Close	Prior Week	As of 9/9	Weekly Change	YTD Change
DJIA	17425.03	18491.96	18085.45	-2.20%	3.79%
Nasdaq	5007.41	5249.90	5125.91	-2.36%	2.37%
S&P 500	2043.94	2179.98	2127.81	-2.39%	4.10%
Russell 2000	1135.89	1251.83	1219.21	-2.61%	7.34%
Global Dow	2336.45	2463.98	2442.56	-0.87%	4.54%
Fed. Funds target rate	0.25%-0.50%	0.25%-0.50%	0.25%-0.50%	0 bps	0 bps
10-year Treasuries	2.26%	1.60%	1.67%	7 bps	-59 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 number of job openings increased to 5.9 million on the last business day of July, an increase of 228,000 from June, the U.S. Bureau of Labor Statistics reported. Most of the job gains occurred in the private sector, including professional and business services and durable goods manufacturing. The number of hires was 5.2 million in July, little changed from June.
• The Non-Manufacturing ISM® Report, which is based on a survey of the nation’s purchasing and supply executives, covers non-manufacturing industries including utilities, real estate, hotel and food services, education, and health care. The majority of survey respondents indicated that there has been a slowing in the level of business for their respective companies, as non-manufacturing business activity, new orders, employment, and prices each decreased in August from July. According to the report, the ISM® Non-Manufacturing Index (NMI®) fell to 51.4% in August from July’s reading of 55.5%. A reading over 50% indicates growth, so the non-manufacturing sector grew in August, but at a slower pace compared to the previous month.
• In the week ended September 3, the advance figure for seasonally adjusted initial unemployment insurance claims was 259,000, a decrease of 4,000 from the prior week’s unrevised level. The advance seasonally adjusted insured unemployment rate remained at 1.6%. The advance number for seasonally adjusted insured unemployment during the week ended August 27 was 2,144,000, a decrease of 7,000 from the previous week’s revised level.

Eye on the Week Ahead

Several key economic reports are released this week ahead of next week’s Federal Open Market Committee meeting. Inflationary trends may be gleaned from the perspective of both the seller (producer prices and retail sales) and the consumer (consumer prices).

The Markets (as of market close September 2, 2016)

Trading continues to be light heading into the Labor Day weekend. Stocks finished modestly higher for the week, buoyed by last Friday’s favorable employment report. Of the indexes listed here, the small-cap Russell 2000 led the charge, gaining 1.11% by last week’s end and over 10% year-to-date.

The price of crude oil (WTI) closed at $44.36 a barrel last week, down from $47.33 per barrel the previous week. The price of gold (COMEX) gained, closing at $1,328.50 by late Friday afternoon, up from the prior week’s price of $1,325.00. The national average retail regular gasoline price increased for the second consecutive week to $2.237 per gallon on August 29, $0.044 higher than the prior week’s price but $0.273 below a year ago.

Market/Index	2015 Close	Prior Week	As of 9/2	Weekly Change	YTD Change
DJIA	17425.03	18395.40	18491.96	0.52%	6.12%
Nasdaq	5007.41	5218.92	5249.90	0.59%	4.84%
S&P 500	2043.94	2169.04	2179.98	0.50%	6.66%
Russell 2000	1135.89	1238.03	1251.83	1.11%	10.21%
Global Dow	2336.45	2442.01	2463.98	0.90%	5.46%
Fed. Funds target rate	0.25%-0.50%	0.25%-0.50%	0.25%-0.50%	0 bps	0 bps
10-year Treasuries	2.26%	1.63%	1.60%	-3 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.

Last Week’s Headlines

• The labor sector cooled a bit but remained solid in August, according to the Bureau of Labor Statistics. Total nonfarm payroll employment added 151,000 jobs in August, down from 275,000 in July. The unemployment rate remained at 4.9%, as the number of unemployed persons was essentially unchanged at 7.8 million. Job gains were robust in the services sector, particularly in food services and drinking places, which has added 312,000 new jobs over the year. The average workweek for all employees on private nonfarm payrolls decreased by 0.1 hour to 34.3 hours in August. Also for the month, average hourly earnings for all employees on private nonfarm payrolls rose by $0.03 to $25.73. Over the year, average hourly earnings have risen by 2.4%.

• Consumer income and expenditures rose in July, according to the latest report from the Bureau of Economic Analysis. Personal income and disposable personal income (after tax income) each increased 0.4% to $71.6 billion and $60.1 billion, respectively. Personal consumption expenditures climbed for the fourth straight month in July, jumping 0.3% to $42.0 billion. Excluding volatile food and energy components, the core personal consumption expenditures index (a preferred inflation gauge of the Fed) moved very little, gaining only 0.1% for the month. Year-on-year, the core PCE sits at 1.6%–still below the Fed’s target inflation rate of 2.0%.

• Favorable news from the international trade sector as the goods and services deficit was $39.5 billion in July, down $5.2 billion from $44.7 billion in June, revised. July exports were $186.3 billion, $3.4 billion more than June exports. July imports were $225.8 billion, $1.8 billion less than June imports. The July decrease in the goods and services deficit reflected a decrease in the goods deficit of $5.3 billion to $60.3 billion and a decrease in the services surplus of $0.1 billion to $20.9 billion. Year-to-date, the goods and services deficit decreased $0.5 billion, or 0.2%, from the same period in 2015.

• July was a good month in the manufacturing sector. New orders for manufactured goods increased $8.4 billion, or 1.9%, following two consecutive monthly declines. Shipments decreased $0.9 billion, or 0.2%, following four consecutive monthly increases. Inventories gained for the first time in a year–increasing $0.9 billion, or 0.1%.

• The S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index, covering all nine U.S. census divisions, reported a 5.1% annual gain in June. The 20-City Composite Index reported a year-over-year gain of 5.1%, down from 5.3% in May.

• According to the survey of manufacturing executives by the Institute for Supply Management, economic activity in the manufacturing sector contracted in August following five consecutive months of expansion, while the overall economy grew for the 87th consecutive month. The August Purchasing Managers’ Index registered 49.4%, a decrease of 3.2 percentage points from July’s PMI®. A reading of 50% or less indicates contraction. On the other hand, Markit’s U.S. manufacturing index for August showed growth, but at a slower pace, registering 52.0, compared to 52.9 in July–signaling weaker improvement in overall business conditions.

• Consumer confidence improved in August over July as The Conference Board Consumer Confidence Index®, which had decreased slightly in July, increased in August. The index now stands at 101.1, compared to 96.7 in July. Consumers expressed more confidence in current business and labor market conditions in August, but weren’t too optimistic about future developments in those sectors.

• In the week ended August 27, the advance figure for seasonally adjusted initial unemployment insurance claims was 263,000, an increase of 2,000 from the prior week’s unrevised level. The advance seasonally adjusted insured unemployment rate remained at 1.6%. The advance number for seasonally adjusted insured unemployment during the week ended August 20 was 2,159,000, an increase of 14,000 from the previous week’s revised level.

Eye on the Week Ahead

The first full week of September doesn’t offer much in terms of economic reports. Trading is expected to be slow during the Labor Day week, as investors gear up for the fall and election season.

The Markets (as of market close August 31, 2016)

With no Federal Open Market Committee meeting and little news to jar the markets, the lazy, hazy days of August seemed to lull investors into a state of lethargy. Trading was light and volatility, limited. Despite the fact that several of the indexes tracked here posted new highs during the month, weekly changes shifted up and down within a narrow range. The month’s end saw mixed results, with large caps losing whatever momentum they had gained, while technology, small caps, and international stocks posted respectable monthly gains.

Long-term bond yields also showed limited movement over the month, ending 13 basis points higher than where they started. The price of gold (COMEX) slumped, selling at $1,312.20–about $46 lower than July’s closing price of $1,357.90.

Market/Index	2015 Close	Prior Month	As of 8/31	Month Change	YTD Change
DJIA	17425.03	18432.24	18400.88	-0.17%	5.60%
Nasdaq	5007.41	5162.13	5213.22	0.99%	4.11%
S&P 500	2043.94	2173.60	2170.95	-0.12%	6.21%
Russell 2000	1135.89	1219.94	1239.91	1.64%	9.16%
Global Dow	2336.45	2411.26	2445.17	1.41%	4.65%
Fed. Funds rate target	0.25%-0.50%	0.25%-0.50%	0.25%-0.50%	0 bps	0 bps
10-year Treasuries	2.26%	1.45%	1.58%	13 bps	-68 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.

The Month in Review

• Employment: The Bureau of Labor Statistics reported that 255,000 new jobs were added in July, while the unemployment rate remained at a relatively low 4.9% (7.8 million unemployed). For the month, job gains occurred in professional and business services, health care, and financial activities. Average hourly earnings for all employees on private nonfarm payrolls increased by $0.08 to $25.69 in July. Over the year, average hourly earnings have risen by 2.6%.
• FOMC/interest rates: Since there was no FOMC meeting in August, investors carefully scrutinized Fed Chair Janet Yellen’s remarks at a late-month event in Jackson Hole, Wyoming. The highlight of her presentation was the statement that, “in light of the continued solid performance of the labor market and our outlook for economic activity and inflation, I believe the case for an increase in the federal funds rate has strengthened in recent months.”

• Oil: After rising sharply throughout the month on speculation that oil-producing countries would agree to cut production, oil prices fell back at month’s end due to both a strong dollar and reports that U.S. reserves had increased more than expected, to a record high.

• GDP/budget: According to the second estimate released by the Bureau of Economic Analysis, the gross domestic product increased at an annual rate of 1.1% in the second quarter of 2016. July’s advance estimate had the second-quarter GDP increasing by 1.2%. The increase in real GDP in the second quarter primarily reflected positive contributions from personal consumption expenditures (PCE or consumer spending) and exports that were partly offset by negative contributions from private inventory investment, residential fixed investment, state and local government spending, and nonresidential fixed investment. Imports (a subtraction in the calculation of GDP) increased. The budget deficit through the first 10 months of the fiscal year totaled $513.7 billion–about 10% higher than the deficit over the same period last year ($465.5 billion).

• Inflation: Following a mundane report showing that producer prices fell 0.4% in July, the Consumer Price Index remained unchanged in July after rising each of the previous 4 months. Over the prior 12 months, the CPI rose 0.8%. Energy prices dropped 1.6% from June after advancing each of the previous 4 months. The index for all items less food and energy increased a scant 0.1%–the smallest increase since March 2016.

• Housing: The housing market continued to show momentum during the heat of the summer. The Census Bureau reported sales of new single-family homes increased 12.4% compared to June, and were 31.3% above July 2015. The median sales price of new houses sold in July 2016 was $294,600; the average sales price was $355,800. The seasonally adjusted estimate of new houses for sale at the end of July was 233,000, representing a supply of 4.3 months at the current sales rate. On the other hand, lack of inventory in many parts of the country has been curtailing the sale of existing homes, reported the National Association of Realtors®. Total existing home sales fell 3.2% to a seasonally adjusted annual rate of 5.39 million in July, down from 5.57 million in June. For only the second time in the last 21 months, sales are now below (1.6%) a year ago (5.48 million). With inventory at a premium, the lack of affordable homes for sale is discouraging prospective buyers despite low mortgage rates. The Census Bureau also reported that housing starts were up 2.1% in July, while building permits and privately owned completions were down 0.1% and 8.3%, respectively.

• Manufacturing: The manufacturing sector seems to be showing signs of life. According to the Federal Reserve’s latest report, industrial production rose 0.7% in July after moving up 0.4% in June. The advance in July was the largest for the index since November 2014. Manufacturing output increased 0.5% in July for its largest gain since July 2015. Capacity utilization for the industrial sector, a measure of how much factory capacity is in use, increased 0.5 percentage point in July to 75.9%, a rate that is 4.1 percentage points below its long-run (1972-2015) average. Another sign of good news on the manufacturing front: new orders for durable goods (expected to last at least three years) jumped 4.4% in July after falling 4.2% in June, reported the Census Bureau. Shipments increased by 0.2% for the month, while factory inventories, down for the past six months, gained 0.3% over June. And finally, both the Markit U.S. Manufacturing Purchasing Managers’ Index™ and the PMI® from the Institute for Supply Management posted upticks for July; however, the ISM PMI’s growth was slower than the previous month. The Markit PMI™ registered 52.9 for July, up from 51.3 in June. And the ISM PMI registered 52.6%, down 0.6 percentage point from the previous month. A reading over 50% indicates growth.

• Imports and exports: The prices of imported goods continued to rise in July, moving up 0.1% following a 0.6% increase in June. Prior to July, import price increases were driven by rising fuel prices. In contrast, in July, nonfuel prices led the advance while fuel prices recorded a decrease. Nevertheless, import prices have fallen 3.7% over the last 12 months. Prices for exports rose 0.2% after increasing 2.4% over the 3 previous months. However, for the last 12 months, export prices have declined 3.0%.

• International markets: Early in the month, Japan approved a $274 billion stimulus package, which included a payment of approximately $147 to each of about 22 million low-income workers. Also, in the wake of the Brexit vote, the Bank of England cut interest rates to 0.25% and introduced a series of new measures designed to stimulate growth, citing as rationale a potentially faster rise in inflation due to the drop in the pound. Later in the month, the UK reported an uptick in retail sales due to its weak currency, which seemed to be attracting foreign consumers. In China, further evidence of an economic slowdown was reported in weakening industrial production and retail sales.

• Consumer sentiment: The Conference Board Consumer Confidence Index® improved to 101.1 in August from 96.7 in July, the highest level in nearly a year. “Consumers’ assessment of both current business and labor market conditions was considerably more favorable than last month,” said Lynn Franco, Director of Economic Indicators at The Conference Board, in the August 30 news release.

Eye on the Month Ahead

As U.S. investors arise from their summer snooze, eyes will focus on the upcoming jobs report due this week, followed by the Federal Open Market Committee meeting later this month, and the final second-quarter GDP figures coming at month’s end. Have economic conditions improved enough to warrant a tightening? Time will tell. International investors will also keep watchful eyes on monetary policy, as the Bank of Japan, the Bank of England, and the European Central Bank all hold meetings this month. Finally, OPEC and non-OPEC oil producers are scheduled to meet in Algeria toward month’s end, the outcome of which may influence both oil prices and energy stocks.

The Markets (as of market close August 26, 2016)

As the “dog days” of summer drag on, trading continues to be relatively light. Oil prices fell at the beginning of last week amid rumors that Iraq may up its oil exports, prompting stocks to retreat. While stocks rallied midweek, they sunk by the close of trading last Friday following Federal Reserve Chair Janet Yellen’s intimation that short-term interest rates could be in line for an increase sooner rather than later. Of the indexes listed here, only the Russell 2000 didn’t lose ground. The Dow, S&P 500, and Nasdaq suffered their largest losses since the week of the Brexit vote in June.

Overseas, retail sales picked up in the UK in July as the weak pound (a result of the fallout from Brexit) may be attracting foreign consumers. China’s economic growth has clearly slowed as industrial production and retail sales weakened.

The price of crude oil (WTI) closed at $47.33 a barrel last week, down from $48.57 per barrel the previous week. The price of gold (COMEX) fell, closing at $1,325.00 by late Friday afternoon, down from the prior week’s price of $1,345.80. The national average retail regular gasoline price increased for the first time in the last 10 weeks to $2.193 per gallon on August 22, $0.044 higher than the prior week’s price but $0.444 below a year ago.

Market/Index	2015 Close	Prior Week	As of 8/26	Weekly Change	YTD Change
DJIA	17425.03	18552.57	18395.40	-0.85%	5.57%
Nasdaq	5007.41	5238.38	5218.92	-0.37%	4.22%
S&P 500	2043.94	2183.87	2169.04	-0.68%	6.12%
Russell 2000	1135.89	1236.77	1238.03	0.10%	8.99%
Global Dow	2336.45	2455.47	2442.01	-0.55%	4.52%
Fed. Funds target rate	0.25%-0.50%	0.25%-0.50%	0.25%-0.50%	0 bps	0 bps
10-year Treasuries	2.26%	1.58%	1.63%	5 bps	-63 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

• With no Federal Open Market Committee meeting scheduled for August, the focus was on FOMC Chair Janet Yellen’s presentation at Jackson Hole, Wyoming, last week. The highlight of Yellen’s speech was her statement that, “in light of the continued solid performance of the labor market and our outlook for economic activity and inflation, I believe the case for an increase in the federal funds rate has strengthened in recent months.” Clearly, these remarks open the door to a rate increase as soon as next month, although Yellen cautioned that the ultimate decision would rest on incoming data, not the least of which is the latest jobs report out this week.
• The gross domestic product increased at an annual rate of 1.1% in the second quarter of 2016, according to the second estimate released by the Bureau of Economic Analysis. Last month’s advance estimate had the second-quarter GDP increasing by 1.2%. In the first quarter, the GDP increased 0.8%. The increase in real GDP in the second quarter primarily reflected positive contributions from personal consumption expenditures (PCE or consumer spending) and exports that were partly offset by negative contributions from private inventory investment, residential fixed investment, state and local government spending and nonresidential fixed investment. Imports, which are a subtraction in the calculation of GDP, increased.
• Judging by the advance report on factory orders for July, manufacturers should be pretty busy in the coming months. According to the latest report from the Census Bureau, new orders for durable goods (expected to last at least three years) jumped 4.4% in July after falling 4.2% in June. Shipments increased by 0.2% for the month, while factory inventories, down for the past six months, gained 0.3% over June. Excluding aircraft and autos, core capital goods climbed a noteworthy 1.5%. While this is an advance report and final figures could differ, these figures point to the possibility that the manufacturing sector is picking up steam, contributing to overall economic growth.
• Sales of new single-family homes continued to expand in July, as the Census Bureau reported sales increased 12.4% compared to June. New home sales are 31.3% above July 2015. The median sales price of new houses sold in July 2016 was $294,600; the average sales price was $355,800. The seasonally adjusted estimate of new houses for sale at the end of July was 233,000. This represents a supply of 4.3 months at the current sales rate.
• Lack of inventory in many parts of the country is curtailing the sale of existing homes, according to the latest report from the National Association of Realtors®. Total existing home sales, which are completed transactions that include single-family homes, townhomes, condominiums, and co-ops, fell 3.2% to a seasonally adjusted annual rate of 5.39 million in July, down from 5.57 million in June. For only the second time in the last 21 months, sales are now below (1.6%) a year ago (5.48 million). With inventory at a premium, the lack of affordable homes for sale is discouraging prospective buyers despite low mortgage rates.
• The Markit Flash U.S. Manufacturing Purchasing Managers’ Index™ (PMI™) registered at 52.1 in August, down from July’s nine-month high of 52.9. A reading over 50 indicates improving business conditions. August saw a further upturn in overall business conditions, albeit at a slower rate than in July. Total new work rose at a slower pace and employment expanded at the weakest rate in four months. The euro area economy continued to expand at a steady pace in August, as the flash estimate of the Markit Eurozone PMI® inched up to a seven-month high of 53.3, up from 53.2 in July.
• The international trade deficit for July was $59.3 billion in July, a decrease of $5.2 billion compared to June. Exports of goods were up $2.9 billion, while imports dropped $2.4 billion.
• According to the University of Michigan’s Index of Consumer Sentiment, confidence eased back in late August to register a trivial decline to 89.8 from the July reading of 90.0. Less favorable personal financial prospects were largely offset by a slight improvement in the outlook for the overall economy.
• In the week ended August 20, the advance figure for seasonally adjusted initial unemployment insurance claims was 261,000, a decrease of 1,000 from the prior week’s unrevised level. The advance seasonally adjusted insured unemployment rate remained at 1.6%. The advance number for seasonally adjusted insured unemployment during the week ended August 13 was 2,145,000, a decrease of 30,000 from the previous week’s revised level.

Eye on the Week Ahead

Two important economic reports are out next week. Personal income and outlays focuses on consumer income and spending, and includes the personal consumption expenditures price index–a favored measure of inflation for the Fed. The week closes with the latest employment situation report, which can be a market mover.

The Markets (as of market close August 19, 2016)

By the close of last Monday, the Dow, S&P 500, and Nasdaq each had reached record highs for the second time in the past week, only to retreat by Tuesday’s close. The dollar lost value against the euro, yen, and pound on the heels of a Federal Open Market Committee member’s suggestion that the Committee may increase the inflation target rate from its current 2.0%. If that is true, it may hint at the Committee’s reservations about the short-range outlook for the economy.

By midweek, the price of crude oil jumped a couple of dollars–but not enough to quell the slide of equities–as investors seemed to exercise caution while waiting for the minutes from the July FOMC meeting. Stocks rallied on Thursday as oil prices continued to climb. However, by the close of the market for the week, light trading saw the indexes listed here slip slightly, possibly over concerns that the Federal Reserve may raise rates before the end of the year.

The price of crude oil (WTI) closed at $48.57 a barrel last week, up from $44.69 per barrel the previous week. The price of gold (COMEX) climbed a bit, closing at $1,345.80 by late Friday afternoon, up from the prior week’s price of $1,341.70. The national average retail regular gasoline price decreased for the ninth week in a row to $2.149 per gallon on August 15, $0.001 under the prior week’s price and $0.567 below a year ago.

Market/Index	2015 Close	Prior Week	As of 8/19	Weekly Change	YTD Change
DJIA	17425.03	18576.47	18552.57	-0.13%	6.47%
Nasdaq	5007.41	5232.89	5238.38	0.10%	4.61%
S&P 500	2043.94	2184.05	2183.87	-0.01%	6.85%
Russell 2000	1135.89	1229.82	1236.77	0.57%	8.88%
Global Dow	2336.45	2445.34	2455.47	0.41%	5.09%
Fed. Funds target rate	0.25%-0.50%	0.25%-0.50%	0.25%-0.50%	0 bps	0 bps
10-year Treasuries	2.26%	1.51%	1.58%	7 bps	-68 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

• There’s a divergence of opinion among FOMC members as to the state of the economy and whether interest rates should be raised, according to the minutes from the July meeting. Generally, members agreed to continue to leave their options open pending additional economic information, particularly regarding jobs and inflation. The cost of borrowing can have a significant impact on the economy, affecting businesses and consumers. The Fed does not meet again until the end of September. From its last meeting in July, economic indicators have been mixed, so it’s anyone’s guess what course of action, if any, the Committee will adopt following its next meeting.
• Lately, inflationary pressures have been modest at best. Following mundane retail sales and producer price reports, last week’s Consumer Price Index was unchanged in July after rising each of the previous 4 months. Over the last 12 months, the CPI rose 0.8%. Energy prices dropped 1.6% from June after advancing each of the prior 4 months. The index for all items less food and energy increased a scant 0.1%–the smallest increase since March 2016.
• The Housing Market Index rose 2 points to 60 in August compared to July. An index reading over 50 indicates optimism over pessimism. Home builders are more confident about present sales and future sales in the single-family home market, but are concerned about a lack of traffic, particularly among first-time home buyers.
• New residential construction was not as robust in July as in prior months. According to the latest report from the Census Bureau, building permits and privately-owned housing completions were down in July from June, 0.1% and 8.3%, respectively. Housing starts, on the other hand, were up 2.1%. This report may be an outlier and data can be volatile, but the current information points to builders’ lack of confidence in the market for new home sales.
• The manufacturing sector may be showing signs of strengthening. According to the Federal Reserve’s latest report, industrial production rose 0.7% in July after moving up 0.4% in June. The advance in July was the largest for the index since November 2014. Manufacturing output increased 0.5% in July for its largest gain since July 2015. Capacity utilization for the industrial sector, a measure of how much factory capacity is in use, increased 0.5 percentage point in July to 75.9%, a rate that is 4.1 percentage points below its long-run (1972-2015) average.
• In the week ended August 13, the advance figure for seasonally adjusted initial unemployment insurance claims was 262,000, a decrease of 4,000 from the prior week’s unrevised level. The advance seasonally adjusted insured unemployment rate remained at 1.6%. The advance number for seasonally adjusted insured unemployment during the week ended August 6 was 2,175,000, an increase of 15,000 from the previous week’s revised level.

Eye on the Week Ahead

The latest reports on new and existing home sales are available next week. The second quarter GDP estimate comes out at the end of next week. It is not expected to change much from the July estimate, which showed a quarter-to-quarter change of only 1.2%.

The Markets (as of market close August 12, 2016)

Talk of a possible cut in oil production following news of an informal meeting of OPEC next month sent energy stocks higher at the beginning of last week. The spike in both energy stocks and market indexes didn’t last long, however, as oil prices slumped by midweek, taking equities with them. Nevertheless, by last week’s end, stocks rallied to close at just about where they started. In fact, by last Thursday, the Dow, S&P 500, and Nasdaq had surged to all-time highs–the first time all three major indexes had done that on the same day since 1999.

The price of crude oil (WTI) closed at $44.69 a barrel last week, up from $41.98 per barrel the previous week. The price of gold (COMEX) remained at about the same price, closing at $1,341.70 by late Friday afternoon, $0.30 ahead of the prior week’s price of $1,341.40. The national average retail regular gasoline price decreased for the eighth week in a row to $2.150 per gallon on August 8, $0.009 under the prior week’s price and $0.479 below a year ago.

Market/Index	2015 Close	Prior Week	As of 8/12	Weekly Change	YTD Change
DJIA	17425.03	18543.53	18576.47	0.18%	6.61%
Nasdaq	5007.41	5221.12	5232.89	0.23%	4.50%
S&P 500	2043.94	2182.87	2184.05	0.05%	6.85%
Russell 2000	1135.89	1231.30	1229.82	-0.12%	8.27%
Global Dow	2336.45	2414.12	2445.34	1.29%	4.66%
Fed. Funds rate target	0.25%-0.50%	0.25%-0.50%	0.25%-0.50%	0 bps	0 bps
10-year Treasuries	2.26%	1.59%	1.51%	-8 bps	-75 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

• Some economic indicators in June showed inflationary trends moving upward, but that appears to have been a brief burst as producer prices fell 0.4% in July and retail sales remained unchanged from a month earlier. With July’s decrease in prices, the Producer Price Index moved down 0.2% for the prior 12 months. For the month, prices for services fell 0.3% and goods prices decreased 0.4%. The drop in the prices businesses pay for goods and services is the largest one-month decline since September 2015.
• According to the latest estimate from the Census Bureau, retail sales were essentially unchanged in July from June, where sales climbed 0.8%. Compared to July 2015, retail sales for goods and food services are up 2.3%. Excluding motor vehicles, retail sales actually fell 0.3%. Also in July, department store sales fell 0.5%, while online retail sales saw a 1.3% increase over the prior month. Gas prices dropped 2.7%, which could encourage consumers to increase spending on other goods and services in future months if gas prices remain subdued.
• Business productivity and efficiency dropped off in the second quarter, continuing the longest stretch of declines since 1979. Output increased 1.2% while hours worked jumped 1.8%, resulting in productivity decreasing 0.5%. From the second quarter of 2015 to the second quarter of 2016, productivity decreased 0.4%. Labor costs increased 2.0% in the second quarter of 2016, reflecting a 1.5% increase in hourly compensation and a 0.5% decline in productivity. This report reveals an unfavorable trend–Americans are working more hours but production is generally lagging, which might curb future wage and economic growth.
• There were 5.6 million job openings on the last day of June, according to the Job Openings and Labor Turnover report from the Bureau of Labor Statistics. Hires and separations were little changed in June from May at 5.1 million and 4.9 million, respectively. Within separations, the quits rate was 2.0% (2.9 million) and the layoffs and discharges rate was 1.1% (1.6 million). This report reflects continuing strength in the employment sector, with increasing hirings and enough worker confidence in the labor market to quit one job for another.
• The budget deficit for July was $112.8 billion, less than the July 2015 deficit of $149 billion. Through the first 10 months of the fiscal year, the deficit is $513.7 billion–about 10% higher than the deficit over the same period last year ($465.5 billion).
• The prices of imported goods continued to rise in July, moving up 0.1% following a 0.6% increase in June. Prior to July, import price increases were driven by rising fuel prices. In contrast, in July, nonfuel prices led the advance while fuel prices recorded a decrease. Nevertheless, import prices have fallen 3.7% over the last 12 months. Prices for exports rose 0.2% after increasing 2.4% over the 3 previous months. However, for the last 12 months, export prices have declined 3.0%.
• Consumer confidence inched upward in early August as the Index of Consumer Sentiment rose from 90.0 to 90.4. While consumers were still skeptical about current economic conditions, they were generally upbeat about future economic growth.
• In the week ended August 6, the advance figure for seasonally adjusted initial unemployment insurance claims was 266,000, a decrease of 1,000 from the prior week’s revised level. The advance seasonally adjusted insured unemployment rate remained at 1.6%. The advance number for seasonally adjusted insured unemployment during the week ended July 30 was 2,155,000, an increase of 14,000 from the previous week’s revised level.

Eye on the Week Ahead

Next week’s reports include one of the most widely followed indicators of inflationary trends, the Consumer Price Index, which has not shown significant price increases in the past several months, remaining below the Fed’s target inflation rate of 2.0%. Another report, the Treasury’s Industrial Production Index, not only shows how much factories are producing, but it also measures how much factory capacity is in use. If factory utilization reaches full capacity, production may slow to where it can’t keep up with the demand for goods, which can lead to price increases and rising inflation.

The Markets (as of market close August 5, 2016)

Oil prices continued to fall early last week, sending large-cap indexes lower. As the week progressed, oil prices gained some momentum, as did U.S. stock indexes. On the heels of a favorable jobs report, stocks rebounded by the end of last week to post gains in each of the indexes listed here. Both the S&P 500 and Nasdaq reached record highs. The Dow gained more than 111 points over the prior week’s closing value. Bond prices fell due to lower demand, sending the yield on 10-year Treasuries up 15 basis points.

The Bank of England cut interest rates for the first time since 2009 to 0.25%

Abroad, Japan approved a $274 billion stimulus package in an attempt to spark it’s languid economy. Part of the package includes payment of about $147 to each of the approximately 22 million low-income Japanese. The immediate response from Japanese investors was underwhelming, as the Nikkei Stock Average dropped. The Bank of England cut interest rates for the first time since 2009 to 0.25% and adopted additional stimulus measures in an attempt to support the British economy during the period of adjustment following the vote to leave the EU.

The national average retail regular gasoline price decreased for the seventh week in a row

Crude oil (WTI) prices continue to be volatile, falling below $40 during last week, until a moderate rally had the price close at $41.98 a barrel last week, up slightly from $41.38 per barrel the previous week. The price of gold (COMEX) dropped to $1,341.40 by late Friday afternoon, down from the prior week’s price of $1,357.90. The national average retail regular gasoline price decreased for the seventh week in a row to $2.159 per gallon on August 1, $0.023 under the prior week’s price and $0.530 below a year ago.

Market/Index	2015 Close	Prior Week	As of 8/5	Weekly Change	YTD Change
DJIA	17425.03	18432.24	18543.53	0.60%	6.42%
Nasdaq	5007.41	5162.13	5221.12	1.14%	4.72%
S&P 500	2043.94	2173.60	2182.87	0.43%	6.80%
Russell 2000	1135.89	1219.94	1231.30	0.93%	8.40%
Global Dow	2336.45	2411.26	2414.12	0.12%	3.32%
Fed. Funds rate target	0.25%-0.50%	0.25%-0.50%	0.25%-0.50%	0 bps	0 bps
10-year Treasuries	2.26%	1.45%	1.59%	14 bps	-67 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

• In another clear sign of a strengthening economy, the jobs report showed 255,000 new jobs were added in July, while the unemployment rate remained at a relatively low 4.9% (7.8 million unemployed). For the month, job gains occurred in professional and business services, health care, and financial activities. The average workweek for all employees on private nonfarm payrolls increased by 0.1 hour to 34.5 hours in July. In July, average hourly earnings for all employees on private nonfarm payrolls increased by $0.08 to $25.69. Over the year, average hourly earnings have risen by 2.6%. This report should be a boost to the stock market, which has been reacting to volatile oil prices and tepid earnings reports.
• For the third consecutive month, consumers had more to spend in June and they spent it, according to the Bureau of Economic Analysis. Compared to a month earlier, consumers’ income increased by 0.2%, disposable personal income (after taxes) also increased by 0.2%, while personal consumption expenditures (purchases of consumer goods and services) jumped 0.4%. As was the case in April and May, consumer spending outpaced income growth. Since consumers are spending more than they’re making, it stands to reason that they’re saving a little less given that the personal savings rate dipped from 5.5% in May to 5.3% in June. Inflationary pressures remain soft, as the personal consumption expenditures price index–a preferred inflationary measure of the Fed–increased only 0.1% in June from the prior month.
• According to the latest information from the Census Bureau, the goods and services trade deficit reached $44.5 billion in June–up $3.6 billion from May’s revised figures–due to a surge in consumer purchases of foreign goods. June exports were $183.2 billion, $0.6 billion more than May exports. June imports were $227.7 billion, $4.2 billion more than May imports. Year-to-date, the goods and services deficit decreased $5.8 billion, or 2.3%, from the same period in 2015. Exports decreased $54.2 billion, or 4.7%. Imports decreased $60.0 billion, or 4.3%.
• The seasonally adjusted Markit final U.S. Manufacturing Purchasing Managers’ Index™ (PMI™) registered 52.9 in July, up from 51.3 in the previous month. During the latest survey period, respondents noted improving business conditions evidenced by stronger rates of output and growth in new orders and employment.
• The July PMI® from the Institute for Supply Management also reported growth, but at a slower rate compared to the prior month. The PMI® registered 52.6%, a decrease of 0.6 percentage point from the June reading of 53.2%. An index reading over 50.0% indicates growth. According to the report, 12 of the 18 industries included in the survey reported an increase in new orders in July (same as in June), but only half of the 18 industries reported an increase in production in July (down from 12 in June).
• From the non-manufacturing sector (services, construction, mining, agriculture, forestry, and fishing and hunting) economic activity grew, but at a slower pace in July compared to June. The Non-Manufacturing Index was at 55.5%, down from June’s reading of 56.5%. Each of the index sub-components–non-manufacturing business activity, employment, and price–decreased with only new orders gaining in July over June, a sign that business activity may be picking up in the third quarter.
• In the week ended July 30, the advance figure for seasonally adjusted initial unemployment insurance claims was 269,000, an increase of 3,000 from the prior week’s level. The advance seasonally adjusted insured unemployment rate remained at 1.6%. The advance number for seasonally adjusted insured unemployment during the week ended July 23 was 2,138,000, a decrease of 6,000 from the previous week’s revised level.

Eye on the Week Ahead

Trading is expected to be light next week, as it has been for much of the summer. Two reports for July that are indicative of inflationary trends–retail sales and the Producer Price Index–come out at the end of next week.

The Markets (as of market close July 29, 2016)

Following an initial downturn largely in response to June’s Brexit vote, equities rebounded during the month of July. The first full week of the month saw each of the indexes listed here improve over the prior week, led by the Nasdaq, which gained almost 2.0%. The Dow recouped just about all of the value lost right after the vote. Long-term bond yields, highlighted by 10-year Treasuries, continued to slide–falling 90 basis points from their year-end value. By the week ended July 15, money flowed from long-term bonds (10-year Treasuries yield increased by 18 basis points) into equities as the Dow posted a 2.0% weekly gain, while the Russell 2000 jumped almost 2.4%. Also helping boost stocks was a much-improved labor report, which saw the addition of almost 290,000 new jobs in June. As the month wore on, light trading slowed the growth of the indexes listed here with the exception of the Nasdaq, which ended the week of the 22nd about 1.5% ahead of its value from the prior week. As the month of July came to a close, each of the indexes listed here posted robust gains, led by the Nasdaq and the Russell 2000, each gaining about 6.0% over their June closing values.

Long-term bond yields fluctuated during the month, ultimately closing at essentially the same yield as June’s closing return. The price of gold (COMEX) increased by month’s end, selling at $1,357.90–about $33 over June’s end-of-month price of $1,324.90.

Market/Index	2015 Close	Prior Month	As of 7/29	Month Change	YTD Change
DJIA	17425.03	17929.99	18432.24	2.80%	5.78%
Nasdaq	5007.41	4842.67	5162.13	6.60%	3.09%
S&P 500	2043.94	2098.86	2173.60	3.56%	6.34%
Russell 2000	1135.89	1151.92	1219.94	5.90%	7.40%
Global Dow	2336.45	2312.12	2411.26	4.29%	3.20%
Fed. Funds rate target	0.25%-0.50%	0.25%-0.50%	0.25%-0.50%	0 bps	0 bps
10-year Treasuries	2.26%	1.46%	1.45%	-1 bps	-81 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.

The Month in Review

• Employment: The labor market picked up the pace in June after a pullback in May, based on the latest information from the Bureau of Labor Statistics. Total nonfarm payroll employment added 287,000 new jobs in June compared to the revised estimate of only 11,000 in May. Job growth occurred in leisure and hospitality, health care and social assistance, and financial activities. The unemployment rate increased by 0.2 percentage point to 4.9% in June, and the number of unemployed persons increased by 347,000 to 7.8 million. The labor force participation rate remained at 62.7%. The average workweek was 34.4 hours for the fifth consecutive month. In June, average hourly earnings for all employees on private nonfarm payrolls edged up $0.02 to $25.61 on the heels of a $0.06 increase in May. Over the year, average hourly earnings have risen by 2.6%.
• FOMC/interest rates:At its meeting at the end of July, the Federal Open Market Committee opted to maintain the target range for the federal funds rate at its current 0.25% to 0.50%. The rate range has not changed since last December. In its statement, the FOMC noted improvement in the employment sector, growth in household spending, and expanding economic activity in general. However, business fixed investment has been soft, while inflation continues to run below the Fed’s long-run objective of 2.0%. The Committee does not meet again until September, when the possibility of a rate hike may be realized.
• Oil: Crude oil prices took a nosedive during July, as prices dropped to under $42 per barrel by the close of the month. This is well below the June closing price of $48.57 per barrel.
• GDP/budget: The most recent estimate for the second-quarter GDP showed only a modest 1.2% annual rate of growth. On the plus side, consumer spending jumped 4.2%. However, businesses apparently aren’t quite as confident in the prospect of economic growth, as the report showed diminishing business investment and inventories–a drag on the GDP, which has not experienced a rate of growth of at least 2.0% in three quarters. The year-to-date federal deficit was $487.0 billion through June, compared to the $316.4 billion deficit over the same period last year–an increase of about 27%. June actually saw a budget surplus for the month of $6.3 billion. For the month, the government took in $329.6 billion in receipts and paid out $323.3 billion in expenditures.
• Inflation: The latest inflation rate for the United States based on the Consumer Price Index is 1.0% through the 12 months ended June 2016, as published by the Bureau of Labor Statistics–still below the Fed’s stated target rate of 2.0%. For June, the Consumer Price Index rose 0.2%–the same increase as May. The index for all items less food and energy (core prices) increased 0.2% in June. Core prices rose 2.3% over the 12 months ended in June–the same increase as for the 12 months ended May. Businesses paid higher prices for goods and services in June as the Producer Price Index rose 0.5% in June from May–the biggest increase in a year. Prices less foods, energy, and trade services rose 0.3% in June after declining 0.1% in May. The index for services advanced 0.4% in June, the third consecutive monthly increase. Prices for goods rose 0.8%. Since businesses generally pass on any price increases they incur to the consumer, rising producer prices may be a precursor to further price increases for consumers, which will likely accelerate inflationary pressure. Not deterred by rising prices, consumers continued to spend, as retail sales for goods and services increased 0.6% for June from the previous month and 2.7% above June 2015. Excluding autos and gasoline, retail sales climbed 0.7%. Nonstore retailer sales (online sellers) were up 14.2% from June 2015, while department store sales fell 3.8% over the same period.
• Housing: Consumers continued to invest in real estate in June on the back of a solid job market and low mortgage rates. In June, new home sales increased 3.5% for single-family homes from the prior month, and a whopping 25.4% ahead of June 2015. Prompted by increasing demand and limited supplies, the median sales price for new homes jumped from $288,800 in May to $306,700 in June, while the average sales price was $358,200. With roughly 244,000 new homes available for sale, the supply is down to 4.9 months compared to 5.1 months in May. Sales of existing homes also increased in June–up 1.1% to an annual rate of 5.57 million compared to 5.51 million in May. Existing home sales are up 3.0% from a year ago. The median existing-home price for all housing types in June was $247,700, up 3.7% from the prior month and 4.8% ahead of June 2015. The 2.12 million existing homes available for sale represents a supply of 4.6 months, a slight decrease from the 4.7-month supply in May. Single-family home starts increased 4.8% in June as did the number of building permits issued, which increased 1.5% for the month.
• Manufacturing: June brought conflicting information on the health of the manufacturing sector. On the one hand, the Federal Reserve reported that industrial production increased 0.6 percentage point in June following a 0.3 percentage point decline in May. Manufacturing output moved up 0.4 percentage point in June, a gain largely due to an increase in motor vehicle assemblies. However, total industrial production for the 12 months ended June 2016 is down 0.7 percentage point. The recent increase in industrial production is reflected in manufacturers’ guarded optimism as both the Markit U.S. Manufacturing Purchasing Managers’ Index™ and the Institute for Supply Management PMI showed improvement in June compared to May. The Markit PMI was 51.3 in June, up from 50.7 for May. The ISM Manufacturing Index for June came in at 53.2, following May’s reading of 51.5. On the other hand, new orders for manufactured goods fell a noticeable 4.0 percentage points in June. Unfilled orders also dropped 0.9 percentage point, meaning manufacturers are meeting demand, which is a good thing, unless new orders continue to slow, which may cause manufacturers to cut back on jobs.
• Imports and exports: Based on the advance report from the Census Bureau, the trade deficit grew about 3.7% to $63.3 billion in June from $61.1 billion in May. June’s exports were $120.2 billion, while imports totaled $183.5 billion. Based on advance figures, the trade in goods deficit for the first four months of 2016 sits at $239.0 billion. Import prices for goods manufactured abroad and purchased here rose 1.8% for the month, and export prices increased 0.9% in June. The goods deficit in June 2016 is essentially the same as the June 2015 deficit ($63.8 billion).
• International markets: Following the UK’s referendum vote in late June to leave the European Union, UK business and consumer confidence about their respective economic prospects has been less than upbeat. UK businesses cut payroll and output in response to the uncertainty created by the Brexit vote, in contrast to the eurozone, where businesses added to their payrolls at a rate not seen in the last five years. The European Central Bank kept its monetary policy intact with the benchmark rate at 0.0%. Equities in the UK have actually experienced a nice recovery from the end of June through July, with the FSTE 100 gaining almost 6.0%. Elsewhere, major stock indexes in Japan and China continue to run below their 2015 year-end closing values.
• Consumer sentiment: The Conference Board Consumer Confidence Index® for June, at 97.3, remained relatively the same as May’s reading of 97.4, as respondents expressed positive sentiments about the employment situation, but were not as confident in the prospects of economic growth in the short term.

Eye on the Month Ahead

The dog days of August will likely keep trading volumes light, which can sometimes heighten volatility. The FOMC does not meet in August so interest rates will remain unchanged for at least another month. Global economies will probably remain relatively quiet through August as well.

The Markets (as of market close July 29, 2016)

The large-cap indexes cooled off a bit last week, particularly influenced by a somewhat disappointing GDP growth rate for the second quarter and lackluster earnings reports from some key companies. On the other hand, the tech-based Nasdaq and the small-cap Russell 2000 each posted weekly gains, with the Nasdaq leading the way among the indexes listed here. Treasury yields fell, with the benchmark 10-year Treasuries dropping 11 basis points by last week’s end, likely influenced by falling oil prices. Abroad, the eurozone seems to be recovering from the initial shock caused by the Brexit vote, as the second-quarter GDP expanded at a modest 1.2% (the same as the U.S. GDP), which is ahead of the first-quarter pace.

Crude oil (WTI) prices continue to fall, closing at $41.38 a barrel last week, down from $44.21 per barrel the previous week. The price of gold (COMEX) jumped to $1,357.90 by late Friday afternoon, up from the prior week’s price of $1,330.30. The national average retail regular gasoline price decreased for the sixth week in a row to $2.182 per gallon on July 25, $0.048 under the prior week’s price and $0.563 below a year ago.

Market/Index	2015 Close	Prior Week	As of 7/29	Weekly Change	YTD Change
DJIA	17425.03	18570.85	18432.24	-0.75%	5.78%
Nasdaq	5007.41	5100.16	5162.13	1.22%	3.09%
S&P 500	2043.94	2175.03	2173.60	-0.07%	6.34%
Russell 2000	1135.89	1212.89	1219.94	0.58%	7.40%
Global Dow	2336.45	2396.80	2411.26	0.60%	3.20%
Fed. Funds rate target	0.25%-0.50%	0.25%-0.50%	0.25%-0.50%	0 bps	0 bps
10-year Treasuries	2.26%	1.56%	1.45%	-11 bps	-81 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

• While the latest estimate of the gross domestic product isn’t particularly noteworthy, some of the underlying information bodes well for economic growth. The GDP grew at a 1.2% annualized rate in the second quarter, up slightly from the prior estimate of 1.1%. The annual growth rate for the GDP has been below 2.0% for the last three quarters. The final estimate of the first-quarter GDP showed a 0.8% annual rate of growth. On the plus side, consumer spending expanded at a rate of 4.2%–the highest growth rate since 2014. Spending for goods grew at a 6.8% rate, while spending on services expanded by 3%. The drawback to overall economic growth is on the business side of the GDP, which saw businesses scale back inventories and business investment.
• Following its July meeting, the Federal Open Market Committee noted that, while the labor market has continued to strengthen and economic activity has been expanding at a moderate rate, business fixed investment has been soft and inflation continues to run below the Committee’s 2.0% target rate. Against that backdrop, the Committee decided to maintain the target range for the federal funds rate at 0.25%-0.50%. The Committee does not meet again until mid-September.
• Demand for manufactured durable goods fell for the third consecutive month in June. Following May’s 2.8% decline, new orders for durable goods in June fell another $9.3 billion, or 4.0%–the largest decrease since August 2014. Shipments of durable goods were up 0.4%, unfilled orders fell 0.9%, and inventories decreased 0.2%. This information predates the Brexit vote, which further strengthened the dollar compared to the pound and euro, likely leading to continued weakening of foreign demand for U.S. manufactured goods.
• The housing market continues to expand as new home sales increased by 3.5% in June over the prior month. Compared to last year, the rate of new home sales is 25.4% above the June 2015 estimate. The median sales price of new houses sold in June 2016 was $306,700; the average sales price was $358,200. The seasonally adjusted estimate of new houses for sale at the end of June was 244,000. This represents a supply of 4.9 months at the current sales rate–well below the available supply of 5.5 months in June of 2015.
• Primarily curtailed by affordability and supply constraints, pending home sales based on contract signings remained relatively the same in June compared to the prior month. The Pending Home Sales Index inched up 0.2% for the month to 111.0 (110.8 in May), but is 1.0% higher than June 2015 (109.9).
• The S&P-Case-Shiller U.S. National Home Price NSA Index reported a 5.0% annual gain in May, the same as the prior month. According to the report, home prices continue to increase across the country, while sales of existing homes in May reached the highest monthly level since 2007.
• The United States continues to spend more on imports than it receives for exports as the trade deficit for June grew by $2.2 billion (3.7%) over May. Exports of goods were $120.2 billion, while imports were $183.5 billion, for a net trade deficit of $63.3 billion.
• Labor costs continue to expand as evidenced by the employment cost index, which increased 0.6% for the second quarter. Employee costs grew at the same rate in the first quarter, and are up 2.3% year-on-year. Wages and salaries increased 0.6%, while benefit costs jumped 0.5% for the second quarter (2.5% and 2.0%, respectively, year-on-year).
• Consumers remain slightly more positive about current business and labor market conditions, according to the latest Conference Board Consumer Confidence Index®. The index for July, at 97.3, is essentially the same as the June index of 97.4. However, respondents in the University of Michigan’s Surveys of Consumers were troubled by the Brexit vote, particularly those consumers in the top third in household income. Overall, the Index of Consumer Sentiment dropped a bit from 93.5 in June to 90.0 in July.
• In the week ended July 23, the advance figure for seasonally adjusted initial unemployment insurance claims was 266,000, an increase of 14,000 from the prior week’s level. The advance seasonally adjusted insured unemployment rate rose to 1.6%. The advance number for seasonally adjusted insured unemployment during the week ended July 16 was 2,139,000, an increase of 7,000 from the previous week’s revised level.

Eye on the Week Ahead

So far, the summer has been good for equities markets and most economic indicators. Two important reports are issued next week for the month of June: personal income and outlays and the employment situation. Personal income and outlays, offers information on consumer income, savings, and spending, which can offer a glimpse into the strength of the economy from the consumer’s perspective. June’s jobs report was encouraging following May’s disappointing information. This report often has a direct impact on the U.S. stock markets as Wall Street tends to pay particular attention to several pieces of information from this report, including the unemployment rate, the number of new jobs added, and wage information.