Tag: Investment plan

What I’m Watching This Week – 23 May 2016

Published on by dredheadz

The Markets (as of market close May 20, 2016)

The Dow slipped for the fourth week in a row as investors may have been influenced by the uncertainty surrounding whether the Fed will raise interest rates at its next meeting in June. The S&P 500 rebounded slightly, posting a marginal gain for the first time in four weeks. The Nasdaq returned the week’s best results, while gaining ground on its year-end closing value.

Crude oil (WTI) closed at $47.67 a barrel last week, up $1.30 over the prior week’s closing price. The price of gold (COMEX) fell by last week’s end, selling at $1,252.90 by late Friday afternoon, down from the prior week’s closing price of $1,274.30. The national average retail regular gasoline price increased to $2.242 per gallon on May 16, 2016, $0.022 above the prior week’s price but $0.502 below a year ago.

Market/Index 2015 Close Prior Week As of 5/20 Weekly Change YTD Change
DJIA 17425.03 17535.32 17500.94 -0.20% 0.44%
Nasdaq 5007.41 4717.68 4769.56 1.10% -4.75%
S&P 500 2043.94 2046.61 2052.32 0.28% 0.41%
Russell 2000 1135.89 1102.44 1112.28 0.89% -2.08%
Global Dow 2336.45 2293.75 2287.28 -0.28% -2.10%
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% 1.70% 1.84% 14 bps -42 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

  • Surging oil prices and a slightly weakening dollar may be firming inflationary trends as the all items Consumer Price Index increased 0.4% in April, according to the Bureau of Labor Statistics. Over the last 12 months, the all items index rose 1.1%. The gain in the all items index reflects several sub-index increases, including the food index (0.2%), the shelter index (0.3%), the energy index (3.4%), and the gasoline index (8.1%). An index used as a gauge for overall inflation, the index for all items less food and energy (the core index) increased 0.2% in April. Over the last 12 months, the core index is up 2.1% compared to a 2.2% rise for the 12 months ended March.
  • The National Association of Home Builders Housing Market Index for May remained at 58 for the fourth consecutive month. The index for current single family sales remained at 63–the same as April–while the index for single family sales over the next six months increased in May to 65 from April’s reading of 62. According to NAHB Chief Economist Robert Dietz, “The fact that future sales expectations rose slightly this month shows that builders are confident that the market will continue to strengthen. Job creation, low mortgage interest rates, and pent-up demand will also spur growth in the single-family housing sector moving forward.”
  • The sale of existing homes increased for the second consecutive month, despite an inventory shortage and increasing price momentum. Total existing home sales rose 1.7% in April at an annual rate of 5.45 million from 5.36 million in March. Sales are up 6.0% from April 2015. Total housing inventory at the end of April increased 9.2% to 2.14 million existing homes available for sale, but is still 3.6% lower than a year ago (2.22 million).The median existing-home price for all housing types in April was $232,500, up 6.3% from April 2015 ($218,700). April’s price increase marks the 50th consecutive month of year-over-year gains.
  • The number of building permits issued (3.6%) and housing starts (6.6%) increased in April compared to March, while the number of housing completions fell 11.0%. While these figures could be revised as further information is obtained, this report reflects positive expansion in the private housing sector following a slowdown in the first quarter of the year.
  • The Federal Reserve reported that industrial production increased 0.7% in April after falling the previous two months. Manufacturing output rose 0.3% after declining the same amount in March. The index for utilities jumped 5.8% in April, as the demand for electricity and natural gas returned to a more normal level after being suppressed by warmer-than-usual weather in March. At 104.1% of its 2012 average, total industrial production in April was 1.1% below its year-earlier level. Also, capacity utilization for the industrial sector increased 0.5 percentage point in April to 75.4%, a rate that is 4.6 percentage points below its long-run (1972-2015) average.
  • The minutes from the April FOMC meeting, released last week, revealed that an interest rate increase in June is a distinct possibility if economic conditions continued to improve into the second quarter. Raising the federal funds rate can have conflicting implications. On the one hand, raising rates is indicative of the Fed’s opinion that the economy is improving. Conversely, higher rates can have the effect of increasing the cost of investing in stocks, which could negatively impact the markets.
  • For the week ended May 14, there were 278,000 claims for unemployment insurance, a decrease of 16,000 from the previous week’s unrevised level. The advance seasonally adjusted insured unemployment rate remained at 1.6% from the prior week’s unrevised level. The advance number for continuing unemployment insurance claims for the week ended May 7 was 2,152,000, a decrease of 13,000 from the previous week’s revised level.

Eye on the Week Ahead

Following last week’s reports on housing starts and existing home sales, this week provides the latest information on new home sales. The second estimate on the first-quarter GDP closes the week.

What I’m Watching This Week – 16 May 2016

Published on by dredheadz

The Markets (as of market close May 13, 2016)

Despite gains earlier in the week, each of the indexes listed here closed last week down from their prior week’s closing values. The Dow and S&P 500 extended their losing streaks to three weeks, with the Dow suffering the largest weekly regression, falling over 205 points. Year-to-date, only the Dow and S&P 500 remain ahead of their 2015 closing values as the tech-heavy Nasdaq, the Russell 2000, and the Global Dow remain behind their respective year-end values.

Crude oil (WTI) jumped last week, closing at $46.37 a barrel, up $1.81 over the prior week’s closing price. The price of gold (COMEX) dropped by last week’s end, selling at $1,274.30 by late Friday afternoon, down from the prior week’s closing price of $1,289.70. The national average retail regular gasoline price decreased to $2.220 per gallon on May 9, 2016, $0.020 below the prior week’s price and $0.471 under a year ago.

Market/Index 2015 Close Prior Week As of 5/13 Weekly Change YTD Change
DJIA 17425.03 17740.63 17535.32 -1.16% 0.63%
Nasdaq 5007.41 4736.16 4717.68 -0.39% -5.79%
S&P 500 2043.94 2057.14 2046.61 -0.51% 0.13%
Russell 2000 1135.89 1114.72 1102.44 -1.10% -2.94%
Global Dow 2336.45 2313.29 2293.75 -0.84% -1.83%
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% 1.77% 1.70% -7 bps -56 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

  • Following a slow start in 2016, consumers picked up the retail spending pace in April. The Census Bureau’s advance estimate for retail and food services sales for April were at $453.4 billion, an increase of 1.3% over March, and 3.0% above April 2015. Retail trade sales were up 1.4% from March 2016, and up 2.7% from last year. Nonstore retailers (such as online shopping sites) were up 10.2% from April 2015, while gasoline stations were up 2.2% for the month, although gas stations are down 9.4% from last year. Since about two-thirds of economic output consists of consumer spending, this report is good news on the economic front.
  • The prices producers received for goods and services increased 0.2% in April following a 0.1% fall in March. For April, services edged up 0.1% and goods advanced 0.2%. Excluding volatile food and energy, prices for goods and services rose a scant 0.1% for April, and are up 0.9% on the year. Prices are unchanged for 12 months ended in April. As an indicator of inflationary trends, this report does not indicate significant movement toward the Fed’s target rate of 2.0%.
  • The latest Treasury budget report for April shows a surplus of $106.5 billion–significantly lower than the April 2015 surplus of $156.7 billion. For the month, total receipts were $438.4 billion–up $210.6 billion over the March total, while outlays were $332.0 billion–$3.9 billion lower than March’s outlays. Not surprisingly, April’s surge in receipts is attributable to the collection of individual income taxes, which are up 1.2% over the first seven months of the fiscal year. Outlays, which are up 4.4%, include increased Medicare payments (+11.3%) and defense spending (+0.4%). The year-to-date deficit is $355.0 billion, which is more than 25% higher than the deficit over the same period last year.
  • Higher fuel prices and a weaker dollar kicked up the price indexes for both imports and exports in April, according to the latest report from the Bureau of Labor Statistics. Import prices paid for goods manufactured abroad and purchased here rose 0.3% for the month following a 0.3% increase in March. April’s import price gain marked the largest increase since a 1.1% rise in May 2015. Overall, import prices declined 5.7% over the past year. Export prices paid for goods manufactured here but sold abroad increased 0.5% in April, after recording no change in March. Export prices registered the first monthly advance since a 0.5% increase last May, which also represents the largest 1-month index increase since the 0.9% rise in March 2014. The price index for exports fell 5.0% for the year ended in April, the smallest 12-month decline since the index decreased 5.0% from January 2014 to January 2015.
  • Although a bit dated, the most recent Job Openings and Labor Turnover (JOLTS) report from the Bureau of Labor Statistics provides useful information on the number of job openings available on the last business day of the reported month. For March, there were 5.757 million job openings on the last business day of March, up from 5.608 million in February. Hires edged down to 5.3 million, while separations were little changed at 5.0 million. This report provides continued good news on the labor front as job openings increased to 3.9%. Also, workers are staying on the job as the quits rate remained the same at 2.1%, while layoffs fell 0.1 percentage point to 1.2%.
  • The University of Michigan’s Surveys of Consumers report for May showed a bit more optimism compared to April. The Index of Consumer Sentiment rose to 95.8 from 89.0 in April. The Current Economic Conditions index increased from 106.7 in April to 108.6 in May, and the Index of Consumer Expectations jumped almost 10 points, from April’s 77.6 to 87.5 in May. According to the report, “consumer sentiment rebounded in early May due to more frequent income gains, an improved jobs outlook, and the expectation of lower inflation and interest rates.”
  • For the week ended May 7, there were 294,000 claims for unemployment insurance, an increase of 20,000 from the previous week’s revised level. The advance seasonally adjusted insured unemployment rate remained at 1.6% from the prior week’s revised level. The advance number for continuing unemployment insurance claims for the week ended April 30 was 2,161,000, an increase of 37,000 from the previous week’s revised level.

Eye on the Week Ahead

Information this week focuses on inflation data and retail sales. The week also brings the latest figures on import and export prices, which could get a boost from surging oil prices.

What I’m Watching This Week – 9 May 2016

Published on by dredheadz

The Markets (as of market close May 6, 2016)

A mixed bag of economic indicators headlined by an underwhelming jobs report, coupled with news of continuing financial trouble in Puerto Rico, pushed stocks lower for the second week in a row. Each of the indexes listed here lost value by last week’s end with the Russell 2000 and the Global Dow falling the most. Following last Friday’s jobs report, the yield on 10-year Treasuries fell to 1.70% before climbing a bit by the end of the day to 1.77%–still 6 points lower than the prior week’s closing yield.

Crude oil (WTI) fell slightly, closing the week at $44.56 a barrel, down $1.36 under the prior week’s closing price. The price of gold (COMEX) also dropped by last week’s end, selling at $1,289.70 by late Friday afternoon, down from the prior week’s closing price of $1,295.90. The national average retail regular gasoline price increased to $2.240 per gallon on May 2, 2016, $0.078 above the prior week’s price but $0.424 below a year ago.

Market/Index 2015 Close Prior Week As of 5/6 Weekly Change YTD Change
DJIA 17425.03 17773.64 17740.63 -0.19% 1.81%
Nasdaq 5007.41 4775.36 4736.16 -0.82% -5.42%
S&P 500 2043.94 2065.30 2057.14 -0.40% 0.65%
Russell 2000 1135.89 1130.84 1114.72 -1.43% -1.86%
Global Dow 2336.45 2377.38 2313.29 -2.70% -0.99%
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% 1.83% 1.77% -6 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 Headlines

  • Job growth slowed in April, according to the latest report from the Bureau of Labor Statistics. Total nonfarm payroll employment increased by 160,000 in April, and the unemployment rate was unchanged at 5.0%. However, over the prior 12 months, employment growth had averaged 232,000 per month. Job gains occurred in professional and business services, health care, and financial activities. Job losses continued in mining. The number of unemployed persons was little changed at 7.9 million, and the number of long-term unemployed (those jobless for 27 weeks or more) declined by 150,000 to 2.1 million in April. Both average wages and the length of the average workweek increased in April, with the workweek lengthening by 0.1 hour to 34.5 hours, and payrolls gaining $0.8 per hour to $25.53.
  • New orders for manufactured goods increased $5.0 billion, or 1.1%, to $458.4 billion in March, according to the latest report from the Census Bureau. Shipments increased 0.5% and inventories gained 0.2%. However, unfilled orders dropped $1.2 billion, or 0.1%. The overall gain in new factory orders for March is tempered, somewhat, by the fact that it follows February’s 3.1% decrease, and is down 2.2% year-on-year.
  • Despite the positive factory report for March, April didn’t start off very well for U.S. manufacturers, as the purchasing managers’ indexes for both Markit and the Institute for Supply Management (ISM®) fell in April. The Markit U.S. Manufacturing Purchasing Managers’ Index™ (PMI™) registered 50.8 in April, down from 51.5 in March and only slightly above the 50.0 no-change threshold. The latest reading was weaker than the average seen in the first quarter of 2016 (51.7) and signaled the slowest improvement in overall business conditions for just over six-and-a-half years.
  • The ISM® Purchasing Managers’ Index fell 1.0 percentage point to 50.8% in April. The New Orders Index registered 55.8%, a decrease of 2.5 percentage points from the March reading. The Production Index registered 54.2%, 1.1 percentage points lower than the March reading.
  • Non-manufacturing (service) business activity expanded in April, as the composite ISM® Non-Manufacturing Index increased 1.2 percentage points over the March NMI® of 54.5%. For April, the New Orders Index (3.2 percentage points), the Employment Index (2.7 percentage points), and the Prices Index (4.3 percentage points) all increased over their respective March readings, with only the Non-Manufacturing Business Activity Index falling by 1.0 percentage point.
  • According to the Census Bureau, construction spending during March was estimated at a seasonally adjusted annual rate of $1,137.5 billion, 0.3% above the revised February estimate of $1,133.6 billion. The March figure is 8.0% above the March 2015 estimate of $1,052.9 billion. For the month, both private residential construction (1.6%) and nonresidential construction (0.7%) were above their respective February totals.
  • The goods and services deficit was $40.4 billion in March, down $6.5 billion from February. March exports were $176.6 billion, $1.5 billion less than February exports. March imports were $217.1 billion, $8.1 billion less than February imports. Year-to-date, the goods and services deficit decreased $1.0 billion, or 0.8%, from the same period in 2015. Exports decreased $30.5 billion, or 5.4%. Imports decreased $31.6 billion, or 4.5%. While the narrowing of the trade gap may appear to be a positive, the fact that imports decreased is indicative of slowing domestic demand for goods and services and curtailed consumer spending. Falling exports shows an ongoing weakened demand for American-made goods and services abroad, spearheaded by the continued strength of the dollar. In general, this report is not a good sign for projecting economic growth.
  • Nonfarm business sector labor productivity decreased at a 1.0% annual rate during the first quarter of 2016, the U.S. Bureau of Labor Statistics reported, as output increased 0.4% while hours worked increased 1.5%. From the first quarter of 2015 to the first quarter of 2016, productivity increased 0.6%. Productivity is essentially the measure of the output of goods and services for each hour worked. For the first quarter of 2016, it took workers more time to produce fewer goods and services.
  • The debt crisis in Puerto Rico worsened last week as the island’s Government Development Bank (GDB) could not make a debt payment of about $367 million. The latest missed payment has prompted some in Washington to consider legislation that would allow the U.S. territory to restructure more than $70 billion in debt. Puerto Rico was able to reach a tentative agreement with the hedge funds that own the bonds of the GDB to exchange some unsecured bonds for new, secured bonds for what amounts to about $0.56 on the dollar. Further adding insult to injury, the ongoing risk of the Zika virus has emerged as a serious health issue.
  • For the week ended April 30, there were 274,000 claims for unemployment insurance, an increase of 17,000 from the previous week’s revised level. The advance seasonally adjusted insured unemployment rate fell to 1.5%. The advance number for continuing unemployment insurance claims for the week ended April 23 was 2,121,000, a decrease of 8,000 from the prior week’s revised level.

Eye on the Week Ahead

Two important economic reports are to be published at the end of the week. The Census Bureau releases the latest information on consumer spending in April through the retail sales report. Overall retail sales dropped off in March, as consumers spent less and saved more. The report on what producers are charging for consumer goods and services is highlighted in the Producer Price Index from the Bureau of Labor Statistics. Another sign of sluggish inflationary trends along with the retail sales, producer prices also fell in March.

Monthly Market Review – April 2016

Published on by dredheadz

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

Despite a poor close to the month, the indexes listed here improved in April (with the exception of the Nasdaq) compared to their March closing values–but not by much. The Dow gained a scant 88.55 points over the month, while the S&P 500 increased less than 0.3%. On the year, only the Russell 2000 and the Nasdaq remain below their year-end values.

Bond yields increased by the close of trading for April as prices fell, presumably due to investor money moving back to equities. The price of gold (COMEX) increased by month’s end, selling at $1,294.90–about $62 higher than March’s end-of-month price of $1,233.00.

Market/Index 2015 Close Prior Month As of 4/29 Month Change YTD Change
DJIA 17425.03 17685.09 17773.64 0.50% 2.00%
Nasdaq 5007.41 4869.85 4775.36 -1.94% -4.63%
S&P 500 2043.94 2059.74 2065.30 0.27% 1.05%
Russell 2000 1135.89 1114.03 1130.84 1.51% -0.44%
Global Dow 2336.45 2307.34 2377.38 3.04% 1.75%
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% 1.79% 1.83% 4 bps -43 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 continued its strong run in March based on the latest information from the Bureau of Labor Statistics. Total nonfarm payroll employment rose by 215,000 in March, and the unemployment rate was little changed at 5.0%. Employment increased in retail trade, construction, and health care. Job losses occurred in manufacturing and mining. There were 8 million unemployed persons, while the labor force participation rate increased slightly to 63% from 62.9% in February, and is up 0.6% since September. The average workweek remained at 34.4 hours. Average hourly earnings for all employees on private nonfarm payrolls increased by $0.07 to $25.43, following a $0.02 decline in February. Over the year, average hourly earnings have risen by 2.3%.
  • FOMC/interest rates:Following its latest meeting in April, the Federal Open Market Committee decided to maintain the target range for the federal funds rate at 0.25% to 0.50%. With inflation running below the Committee’s 2.0% target rate, the federal funds rate is expected to remain, for some time, below levels that are expected to prevail in the longer run, which leaves the timing of the next rate increase open to speculation.
  • Oil: Crude oil prices gained over the month, closing over $45 for the first time since February–this despite the inability of several major oil-producing countries to reach an agreement to cap production. At the end of April, crude oil (WTI) was selling at $45.92 per barrel, compared to the $37.49 per barrel closing price at the end of March.
  • GDP/budget: The first estimate of the GDP for quarter one revealed only marginal growth at 0.5%, compared to the fourth-quarter annualized growth rate of 1.4%. Positives in the first-quarter GDP include residential spending and state and local government spending, which were offset by decreases in nonresidential (business) investment, consumer spending, federal government spending, increasing imports, and decreasing exports. While this report is based on economic information that will surely be updated in the coming months, initial estimates show an overall economy that isn’t expanding at any great pace. Since October, the federal deficit is up almost 4.9% compared to the first half of 2015, and sits at about $461 billion. In March, the deficit was $108 billion, $55.13 billion over the deficit a year ago, as spending in March on Social Security and Medicare increased 3% and 6%, respectively.
  • Inflation: The latest inflation rate for the United States based on consumer prices is 0.9% through the 12 months ended March 2016 as published by the Bureau of Labor Statistics on April 14, 2016–well below the Fed’s stated target rate of 2.0%. Overall, the Consumer Price Index rose 0.1% in March from February. Over the last twelve months, the index had increased 0.9%. However, the gain (0.1%) in the core prices index less food and energy was the smallest increase since last August. Personal consumption expenditures, the Fed’s favored measure of inflation, rose only 0.1% in March over February and has increased 0.8% since last March, certainly below the Fed’s 2.0% inflation target rate for the 47th consecutive month. The Producer Price Index, which measures the prices companies receive for goods and services, fell 0.1% in March following a 0.2% decline in February. Prices for services declined 0.2% for the month, while prices for goods, which had dropped each of the previous eight months, rose 0.2% in March. Retail sales for goods and services dipped 0.3% in March, although they’re still 1.7% ahead of last March. Retail sales, excluding auto and gas, actually rose 0.1% for the month, while total sales for the first quarter of 2016 are up 2.8% compared to the same period a year ago.
  • Housing: The housing sector was a mixed bag of good and bad in March. New home construction fell a sharp 8.8% from February. Single family home starts fell 9.2%, and multifamily starts dropped 8.5%. Applications for building permits were down 7.7%–not a positive sign for new home construction. The latest figures from the Census Bureau show that the 511,000 annual rate of sales of new single-family homes in March is 1.5% below February’s revised rate of 519,000, but 5.4% above the March 2015 estimate of 485,000. The median sales price of new houses sold in March was $288,000 ($297,400 in February), while the average sales price was $356,200 ($342,100 in February). The seasonally adjusted estimate of new houses for sale at the end of March was 246,000–a supply of 5.8 months at the current sales rate. On the other hand, sales of existing homes were up 5.1% in March at an annualized rate of 5.330 million. According to the latest report from the National Association of Realtors®, year-on-year sales growth of existing homes is up 11.0%. The median sales price for existing homes increased 5.0% over February to $222,700, which marks the 49th consecutive month of year-over-year gains. Total housing inventory at the end of March increased 5.9% to 1.98 million existing homes available for sale, which is still 1.5% lower than a year ago (2.01 million).
  • Manufacturing: Manufacturing and industrial production had been relatively weak sectors in the economy for quite some time, and some indicators in March are proving that trend is continuing. According to the Federal Reserve’s report for March, industrial production decreased 0.6% for the second month in a row. For the first quarter, industrial production fell at an annual rate of 2.2%. Durable goods orders increased 0.8% for March, following a downwardly revised 3.1% drop in February. Shipments of durable goods dropped 0.5% and unfilled orders fell 0.1%. Manufacturers are guardedly optimistic as reflected in a couple of noted purchasing managers’ indexes. The Markit U.S. Manufacturing Purchasing Managers’ Index™ was 51.5 for March–only slightly ahead of February’s 51.3. The Institute for Supply Management PMI for March was 51.8%, showing expansion for the first time in six months.
  • Imports and exports: Based on the advance report from the Census Bureau, the international trade in goods deficit was $56.899 billion in March, down from $62,864 billion in February. The trade in goods deficit for March is reflective of $116,733 billion of exports and $173,632 billion of imports. Based on advance figures, the trade in goods deficit for the first three months of 2016 sits at $181,991 billion. In a report from the Bureau of Labor Statistics, prices in March for U.S. imports increased 0.2% following February’s 0.4% drop, primarily driven by an increase in fuel and lubricant prices, which jumped 4.9%. Excluding petroleum, import prices actually fell 0.2%. Despite the monthly increase, overall import prices remained down over the past year, falling 6.2% from March 2015. U.S. export prices recorded no change in March after falling 0.5% in February.
  • International markets: Japan experienced a major earthquake on April 14, killing many and forcing the evacuation of thousands of Japanese. It is not certain what impact the devastating earthquake will have on Japan’s major industries, but it’s sure to affect manufacturing as well as imports and exports. Greece and its creditors continued negotiations over further austerity measures to be implemented by the country in exchange for additional loans and debt relief. The European Central Bank maintained its interest rates as the benchmark rate remained at 0%. The GDP in Great Britain fell to 0.4% in the first quarter, while China’s GDP growth weakened to 6.7%. Sixteen major oil producers were unable to come to an agreement on reducing oil production, likely leading to continued weakness in crude oil prices.
  • Consumer sentiment: The Conference Board Consumer Confidence Index® for April fell to 94.2 from March’s revised 96.1, driven by low expectations for future job availability. The University of Michigan’s Index of Consumer Sentiment fell to 89 in April, compared with 91.0 in March as consumer expectations for an improving economy continue to wane.

Eye on the Month Ahead

The start of the second quarter saw the markets recover from their end-of-year regression. However, the economy as a whole hasn’t picked up steam as noted by the FOMC following its April meeting. As we wind through May, all eyes will be on important economic indicators such as the GDP, residential housing, labor, and consumer spending in an attempt to determine the direction of the economy heading into the summer months.

What I’m Watching This Week – 2 May 2016

Published on by dredheadz

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

The markets suffered their worst week of losses since February as each of the indexes listed here ended the week in negative territory. The Nasdaq fell the most by the end of the week, down over 2.5%, as the technology sector declined following investor sell-offs. Long-term bond yields dipped for the week as prices rose, possibly influenced by the Fed’s decision to maintain interest rates at their current level.

Crude oil (WTI) closed the week over $45 for the first time since November at $45.92 a barrel, up $2.28 over the prior week’s closing price. The price of gold (COMEX) rose by last week’s end, selling at $1,295.90 by late Friday afternoon, up from the prior week’s closing price of $1,233.70. The national average retail regular gasoline price increased to $2.162 per gallon on April 25, 2016, $0.025 above the prior week’s price but $0.408 below a year ago.

Market/Index 2015 Close Prior Week As of 4/29 Weekly Change YTD Change
DJIA 17425.03 18003.75 17773.64 -1.28% 2.00%
Nasdaq 5007.41 4906.23 4775.36 -2.67% -4.63%
S&P 500 2043.94 2091.58 2065.30 -1.26% 1.05%
Russell 2000 1135.89 1146.69 1130.84 -1.38% -0.44%
Global Dow 2336.45 2395.80 2377.38 -0.77% 1.75%
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% 1.88% 1.83% -5 bps -43 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

  • Following its April meeting, the Federal Open Market Committee decided to maintain the federal funds rate at its present 0.25% to 0.50% range. The Committee noted that labor market conditions continue to improve even as economic growth has slowed. While household income has increased, household spending has moderated. Earlier declines in energy prices and falling non-energy imports has contributed to weakened inflationary pressures as inflation, which is expected to remain low in the near term, remains below the Committee’s target inflation rate of 2.0%. Housing continues to improve but business investment and exports remain soft. The Committee will continue to monitor both domestic and world economic conditions, paying particular attention to inflationary trends. Nevertheless, “the Committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run.”
  • The initial estimate for the first quarter gross domestic product showed a very modest increase of 0.5%. The fourth quarter GDP increased 1.4%. While this advance estimate is likely to change as more data is made available, the initial report marks the slowest GDP growth in two years. After reaching a 3.9% growth rate in the second quarter of 2015, the GDP has regressed since. While the labor market and residential investment remain strong, business investment has slowed as has consumer spending, leading to the deceleration of the GDP.
  • As noted by the FOMC following its April meeting, inflation is accelerating at a very modest rate. Personal income and disposable personal income (net after taxes) grew by a scant 0.4% in March, according to the latest report from the Bureau of Economic Analysis. Personal consumption expenditures effectively remained at its current level, inching up only 0.1% from February. As it relates to inflationary trends, the price index increased only 0.8% from March 2015, well below the Fed’s target rate of 2.0%. Excluding volatile food and energy categories, growth in the core prices also has fallen short of the target, gaining 1.6% year-on-year.
  • Compensation costs for civilian workers increased 0.6% for the three-month period ended in March 2016, according to the U.S. Bureau of Labor Statistics. Wages and salaries (which make up about 70% of compensation costs) increased 0.7%, and benefits (which make up the remaining 30% of compensation) increased 0.5%. Total employee compensation gained 1.9% for the quarter, lagging behind the annual gain of 2.0% from the prior three quarters. Compared to the first quarter of 2015, wages and salaries have increased 2.0%, while benefits increased 1.7%.
  • The number of new homes sold in March fell for the fourth consecutive month. The 511,000 annual rate of new home sales was 1.5% lower than February’s revised annual rate of 519,000. The March rate is still 5.4% above the March 2015 rate of 485,000. The median sales price of new houses sold in March was $288,000 ($9,400 below February’s median sales price), while the average sales price was $356,200. The seasonally adjusted estimate of new houses for sale at the end of March was 246,000, which represents a supply of 5.8 months at the current sales rate.
  • An indication of future home sales based on contract signings, the Pending Home Sales Index from the National Association of Realtors® climbed 1.4% in March to 110.5 following February’s downwardly revised 109.0. The index has increased year-over-year for 19 consecutive months and is at its highest reading since May 2015 (111.0). Home sale activity is relatively strong despite supply deficiencies and rising home prices.
  • The rate of homeownership is falling, according to the latest information from the Commerce Department. The homeownership rate of 63.5% was 0.2 percentage point lower than the first-quarter 2015 rate (63.7%) and 0.3 percentage point lower than the fourth-quarter 2015 rate (63.8%). The current homeownership rate is close to its 48-year low of 63.4% reached in last year’s second quarter.
  • The Conference Board Consumer Confidence Index® fell in April to 94.2, down from 96.1 in March. The Present Situation Index increased from 114.9 to 116.4, while the Expectations Index decreased from 83.6 to 79.3 in April. While consumer respondents thought current economic conditions have improved, their short-term expectations were less optimistic, particularly with respect to business conditions and the labor market.
  • The Index of Consumer Sentiment fell from 91 to 89 in April, down 2.2% for the month and 7.2% year-on-year. The survey from the University of Michigan notes that consumer expectations for the economy suffered the largest drop, falling 4.8% from March and 12.6% from a year ago.
  • Good news for the manufacturing sector as the preliminary report on new orders for manufactured durable goods in March increased $1.8 billion, or 0.8%, to $230.7 billion, following a 3.1% drop in February. Excluding transportation, new orders actually fell 0.2% and excluding defense, new orders dropped 1.0%. Shipments of manufactured durable goods in March, down three of the last four months, decreased $1.1 billion, or 0.5%, to $237.0 billion. Unfilled orders for manufactured durable goods in March, down three of the last four months, decreased $1.3 billion, or 0.1%, to $1,182.5 billion. Inventories of manufactured durable goods increased less than $0.1 billion, virtually unchanged at $394.1 billion in March following a 0.3% February decrease.
  • The Census Bureau’s advance report on international trade in goods for March reveals the trade deficit narrowed to $56,899 billion, down from $62,864 billion in February. Total exports were $116,733 billion in March ($118,698 billion in February), while imports totaled $173,632 billion ($181,562 billion in February), each sector falling from the prior month. This advance report shows not only a narrowing trade deficit, but also an overall slowing of trade activity.
  • For the week ended April 23, there were 257,000 claims for unemployment insurance, an increase of 9,000 from the previous week’s revised level. The advance seasonally adjusted insured unemployment rate remained at 1.6%. The advance number for continuing unemployment insurance claims for the week ended April 16 was 2,130,000, a decrease of 5,000 from the prior week’s revised level.

Eye on the Week Ahead

The week begins with information from the manufacturing sector, which has been growing at a snail’s pace. The week ends with the latest report on the employment situation, which may influence the markets as it can affect several major sectors of the economy.

What I’m Watching This Week – 25 April 2016

Published on by dredheadz

The Markets (as of market close April 22, 2016)

Equities markets had a fair week as each of the major indexes listed here posted gains (except the Nasdaq) over the prior week. Both the large-cap Dow and S&P 500 are well ahead of their respective 2015 closing values. The Russell 2000 recorded the largest weekly gain and is now ahead of last year’s closing value. The Global Dow posted weekly gains despite the European Central Bank’s decision to maintain interest rates at their current level and the effects of the devastating earthquake in Japan. Of the major indexes listed here, only the Nasdaq remains below its end-of-year mark. As money moved into equities, the prices of investments such as gold and long-term bonds slipped. Oil prices gained, despite the collapse of talks between some major oil-producing nations aimed at capping production.

The price of crude oil (WTI) closed the week at $43.75 a barrel, up $3.35 over the prior week’s closing price. The price of gold (COMEX) fell by last week’s end, selling at $1,233.70 by late Friday afternoon, down from the prior week’s closing price of $1,235.80. The national average retail regular gasoline price increased to $2.137 per gallon on April 18, 2016, $0.068 above the prior week’s price but $0.348 below a year ago.

Market/Index 2015 Close Prior Week As of 4/22 Weekly Change YTD Change
DJIA 17425.03 17897.46 18003.75 0.59% 3.32%
Nasdaq 5007.41 4938.22 4906.23 -0.65% -2.02%
S&P 500 2043.94 2080.73 2091.58 0.52% 2.33%
Russell 2000 1135.89 1130.92 1146.69 1.39% 0.95%
Global Dow 2336.45 2367.41 2395.80 1.20% 2.54%
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% 1.75% 1.88% 13 bps -38 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 National Association of Home Builders Housing Market Index (HMI) came in at 58 for April, unchanged for the third consecutive month. The HMI is based on a monthly survey of NAHB members who are asked to rate the market conditions for single-family home sales currently and in the next six months, as well as traffic of prospective buyers of new homes. Compared to last April, the HMI is up 2 points. In particular, the index for present sales fell 2 points, coming in at 63, while builders expressed optimism for sales over the next six months, as that index increased 1 point to 62. Prospective buyer traffic continues to be lagging as that index has remained around 44 for three out of the last four months, possibly reflecting the reluctance of first-time homebuyers to enter the market–instead preferring to rent.
  • New home construction slowed during the end of the first quarter as housing starts fell 8.8% from a month earlier, according to the latest report from the Census Bureau. Single-family home starts dropped 9.2% and multifamily starts fell 8.5%. An indication of future construction, applications for building permits also lost ground, coming down 7.7% from February. On the plus side, housing completions jumped 3.5% for March and are up 31.6% year-over-year. Compared to last March, housing starts are up 14.2% while permits are up 4.6%.
  • While new home construction may be lagging, sales of existing homes gained ground in March jumping 5.1% from February, according to the National Association of Realtors®. The median existing home price for all housing types in March was $222,700, up 5.7% from March 2015 ($210,700). March’s price increase marks the 49th consecutive month of year-over-year gains. Total housing inventory available for sale at the end of March increased 5.9% to 1.98 million, but is still 1.5% lower than a year ago (2.01 million). Unsold inventory is at a 4.5-month supply at the current sales pace, up from 4.4 months in February. Properties typically stayed on the market for 47 days in March, a decrease from 59 days in February, while 42% of homes sold were on the market for less than a month–the highest percentage since July 2015 (43%).
  • Marking the weakest upturn in overall business conditions since September 2009, the Markit Flash U.S. Manufacturing PMI™ for April fell to 50.8 from 51.5 in March. The flash PMI index, which is based on approximately 85% of usual monthly survey replies, was only marginally above the crucial 50.0 no-change threshold. According to the report, softer rates of manufacturing output and new business growth, alongside a weaker rise in staffing numbers, were the main factors weighing on the headline PMI figure during April.
  • For the week ended April 16, there were 247,000 claims for unemployment insurance, a decrease of 6,000 from the previous week’s revised level. This is the lowest level for initial claims since November 24, 1973 when it was 233,000. The advance seasonally adjusted insured unemployment rate remained at 1.6%. The advance number for continuing unemployment insurance claims for the week ended April 9 was 2,137,000, a decrease of 39,000 from the prior week’s revised level.

Eye on the Week Ahead

The big news this week comes from the Federal Reserve, which is meeting for the third time this year. Since raising interest rates in December, the Fed has been cautious about increasing them again. While some experts believe the Fed will raise rates again in 2016, it may not be in April. The Committee does not meet again until June.

What I’m Watching This week – 18 April 2016

Published on by dredheadz

The Markets (as of market close April 15, 2016)

Despite inflationary trends slowing as retail and producer prices fell in March, stocks gained over the past week, buoyed by better than expected first-quarter corporate earnings reports. Each of the indexes listed here posted gains led by the Global Dow and the Russell 2000, followed by the large-cap Dow and S&P 500, which have risen about 14.0% since their February lows.

The price of crude oil (WTI) closed the week at $40.40 a barrel, up $0.74 over the prior week’s closing price. The price of gold (COMEX) fell by last week’s end, selling at $1,235.80 by late Friday afternoon, down from the prior week’s closing price of $1,240.10. The national average retail regular gasoline price fell for the first time in eight weeks, selling at $2.069 per gallon on April 11, 2016, $0.014 under the prior week’s price and $0.339 below a year ago.

Market/Index 2015 Close Prior Week As of 4/15 Weekly Change YTD Change
DJIA 17425.03 17576.96 17897.46 1.82% 2.71%
Nasdaq 5007.41 4850.69 4938.22 1.80% -1.38%
S&P 500 2043.94 2047.60 2080.73 1.62% 1.80%
Russell 2000 1135.89 1097.31 1130.92 3.06% -0.44%
Global Dow 2336.45 2287.60 2367.41 3.49% 1.33%
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% 1.71% 1.75% 4 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 Headlines

  • Prices consumers paid for goods increased slightly in March, indicating only marginal inflationary pressures in the economy. The Consumer Price Index rose 0.1% in March from February, according to the latest information from the Bureau of Labor Statistics. Over the last 12 months, the index rose 0.9%, a slightly smaller increase than the 1.0% change for the 12 months ended February. The food index declined 0.2% in March, while the indexes for energy (0.9%) and for all items less food and energy (0.1%) increased, leading to the slight seasonally adjusted increase in the all items index. The gain in the index less food and energy, referred to as core prices, was the smallest increase since August. The core prices index has risen 2.2% over the last 12 months–down 0.1% from the 12-month period ended February. Despite rising in March, the energy index has declined 12.6% over the last year.
  • In another report from the Bureau of Labor Statistics, real average hourly earnings for all employees increased 0.2% from February to March due to the increase in real average hourly earnings combined with no change in the average workweek. In fact, average hourly wages increased 0.3%, which is offset by the 0.1% increase in the Consumer Price Index referenced above.
  • Overall, receipts for retail goods and services sold to consumers fell in March, according to the U.S. Census Bureau. Advance estimates of U.S. retail and food services sales fell 0.3% from the previous month to $446.89 billion. Sales and services are still 1.7% above March 2015. A drop in auto sales impacted the latest figures. Retail sales excluding auto and gas sales actually rose 0.1% for the month. Total sales for the first quarter of 2016 were up 2.8% from the same period a year ago.
  • On the heels of curtailed consumer spending, producer prices also dropped as the Producer Price Index fell 0.1% in March following a 0.2% decline in February. Reversing trends, prices for services, which had risen each month since October, fell 0.2% in March, while prices for goods, which had declined each of the previous eight months, actually rose 0.2% in March. Three-quarters of the March decrease in prices for services can be attributed to margins for machinery, equipment, parts, and supplies wholesaling, which moved down 1.9%. Most of the increase in prices for goods can be traced to prices for energy, which rose 1.8%, with the gasoline index climbing 7.1%.
  • The Bureau of Labor Statistics last week reported that the U.S. import price index increased 0.2% in March following a 0.4% drop the prior month. An upturn in fuel and lubricant prices, which increased 4.9% in March, sparked the overall price increase as it more than offset lower nonfuel prices. Specifically, petroleum and petroleum product prices actually increased 6.5% from February. Prices for U.S. exports recorded no change in March, after falling 0.5% in February. The March advance was the largest one-month increase since the index increased 1.1% in May 2015. Despite the upturn, overall import prices remained down over the past year, falling 6.2% from March 2015.
  • The government deficit is expanding during the first six months of fiscal 2016, following several years of contraction. Since reaching its high point of $1.4 billion during the recession of 2009, the deficit has fallen, going from 9.8% of the GDP to around 2.5%. However, for fiscal 2016 (beginning October 2015), the deficit sat at about $461.04 billion–up almost 4.9% from the first half of fiscal 2015. In March, the deficit was $108.04 billion, $55.13 billion over the deficit from March 2015. Spending on Social Security and Medicare was up 3% and 6%, respectively. While the government is collecting more taxes from individuals, corporate tax receipts are down, possibly reflecting receding corporate profits.
  • The dollar amount of inventories held by manufacturers, wholesalers, and retailers in relation to sales provides an indication of the direction of production activity in the near term. The ratio of inventories to sales for February was 1.41, the same as January. A lower ratio means products are moving and inventories are not being held long term. An increase in inventories to sales could lead to a slowdown in production and job loss. Compared to January, inventories fell from $1,813,781 to $1,812,098, while sales fell even more, from $1,289,496 in January to $1,284,417 in February. The inventories to sales ratio for February is up from a year earlier–1.41 to 1.37.
  • Industrial production decreased 0.6% in March for a second month in a row. For the first quarter as a whole, industrial production fell at an annual rate of 2.2%. At 103.4% of its 2012 average, total industrial production in March was 2.0% below its year-earlier level. Manufacturing output fell 0.3% for the month–significantly impacted by a 1.6% decline in vehicle production. The output of consumer goods decreased 0.4% following a 0.8% drop in February.
  • The Index of Consumer Sentiment declined in early April, according to the latest report from the University of Michigan. At 89.7, the index fell for the fourth consecutive month. According to the report, “Consumers reported a slowdown in expected wage gains, weakening inflation-adjusted income expectations, and growing concerns that slowing economic growth would reduce the pace of job creation.”
  • For the week ended April 9, there were 253,000 claims for unemployment insurance, a decrease of 13,000 from the previous week’s revised level. This marks 58 consecutive weeks of initial claims below 300,000, the longest streak since 1973. The advance seasonally adjusted insured unemployment rate remained at 1.6%. The advance number for continuing unemployment insurance claims for the week ended April 2 was 2,171,000, a decrease of 18,000 from the prior week’s revised level.

Eye on the Week Ahead

The housing sector of the economy, which had been strong, recently has shown signs of slowing down. This week’s reports on new construction and existing home sales for March may shed some light on the direction of the housing market entering the spring–a historically favorable season for home sales. Globally, several major oil producers are scheduled to meet this week to consider limiting production.

What I’m Watching This Week – 11 April 2016

Published on by dredheadz

The Markets (as of market close April 8, 2016)

The equities market has been volatile thus far this year. Following last week’s gains, the indexes listed here all closed the week in negative territory. Both the Dow and the S&P 500 fell 1.21% for the week–this following a rally last Friday after gains in the price of oil. Uncertainty over whether continued austerity would hasten global growth was felt in the foreign markets, as the Global Dow fell more than half a point and is over 2.0% behind its year-end closing price. Money moved into long-term bonds as increasing prices drove 10-year Treasuries down 6 basis points from the prior week.

The price of crude oil (WTI) closed the week at $39.66 a barrel, up $3.03 over the prior week’s closing price. The price of gold (COMEX) rose by last week’s end, selling at $1,240.10 by late Friday afternoon, up from the prior week’s closing price of $1,223.60. The national average retail regular gasoline price increased for the seventh week in a row, selling at $2.083 per gallon on April 4, 2016, $0.017 over the prior week’s price but $0.330 under a year ago.

Market/Index 2015 Close Prior Week As of 4/8 Weekly Change YTD Change
DJIA 17425.03 17792.75 17576.96 -1.21% 0.87%
Nasdaq 5007.41 4914.54 4850.69 -1.30% -3.13%
S&P 500 2043.94 2072.78 2047.60 -1.21% 0.18%
Russell 2000 1135.89 1117.68 1097.31 -1.82% -3.40%
Global Dow 2336.45 2302.06 2287.60 -0.63% -2.09%
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% 1.77% 1.71% -6 bps -55 bps

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

Last Week’s Headlines

  • Reversing what had been a favorable report in January, factory orders decreased $8.0 billion, or 1.7%, following a 1.2% increase in January, according to the Commerce Department’s full report on manufacturers’ shipments, inventories, and orders for February. Shipments, down 10 of the last 11 months, once again decreased, falling $3.4 billion, or 0.7%. Unfilled orders for manufactured durable goods decreased $4.1 billion, or 0.3%, following a 0.1% increase in January. Inventories, down 8 consecutive months, continued that trend, dropping $2.6 billion, or 0.4%. This report once again highlights the continuing weakness in the manufacturing sector.
  • The Institute for Supply Management® Non-Manufacturing Index for March, at 54.5%, is 1.1 percentage points higher than February. Based on surveys from firms involved in services, construction, mining, agriculture, forestry, and fishing and hunting, index readings of 50% and above are indicative of growth. According to the ISM® report, respondents felt that business conditions are mostly positive and that the economy is stable and will continue on a course of slow, steady growth.
  • The trade deficit increased from $45.9 billion in January to $47.1 billion in February. The deficit is reflective of a greater increase in imports over exports. February imports were $225.1 billion, $3.0 billion more than January imports, while February exports were $178.1 billion, $1.8 billion more than January exports. Year-to-date, the goods and services deficit increased $10.8 billion, or 13.1%, from the same period in 2015. February’s trade deficit is the highest in the last six months as the ongoing strength of the dollar overseas continues to cut into exports, curtailing overall U.S. economic growth.
  • The latest job openings and labor turnover (JOLTS) report reveals that the number of job openings decreased from 5.6 million in January to 5.4 million on the last day of February. The job openings rate was 3.7%. The number of hires (5.4 million) and total separations (5.0 million) also increased over January’s figures. Over the 12 months ended in February, hires totaled 62.1 million and separations totaled 59.4 million, yielding a net employment gain of 2.7 million.
  • The Federal Open Market Committee (FOMC) minutes from its March meeting indicate that, while some positive economic trends were noted, many Committee members expressed a view that “the global economic and financial situation still posed appreciable downside risks to the domestic economic outlook.” As to the prospect of raising interest rates in the near term, “many participants expressed the view that a somewhat lower path for the federal funds rate than they had projected in December now seemed most likely to be appropriate for achieving the Committee’s dual mandate.” It is interesting to note that not all members of the Committee shared this view–some thought it was appropriate to raise rates in March, and will likely suggest raising rates in April unless economic conditions deteriorate.
  • For the week ended April 2, there were 267,000 claims for unemployment insurance, an increase of 9,000 from the previous week’s revised level. The advance seasonally adjusted insured unemployment rate remained at 1.6%. The advance number for continuing unemployment insurance claims for the week ended March 26 was 2,191,000, an increase of 19,000 from the prior week’s revised level.

Eye on the Week Ahead

Inflation indicators are front and center this week as the latest figures on producer prices, retail sales, and consumer prices are available. The week closes with an important report from the Federal Reserve on industrial production, which has been sagging for quite some time.

What I’m Watching This Week – 4 April 2016

Published on by dredheadz

The Markets (as of market close April 1, 2016)

A solid jobs report for March, coupled with continued strength in the housing sector, may have influenced equities as each of the indexes listed here posted gains week-over-week. Following the prior week’s sell-off, gains in the large-cap indexes have moved the S&P 500 and Dow solidly into positive territory for the year. The biggest gainer, however, was the Russell 2000, which jumped 3.53% by week’s end and is closing in on its 2015 year-end value. Long-term bonds continue to attract investor money, driving prices higher as yields on the U.S. 10-year Treasuries fell 21 points over the prior week’s closing price.

The price of crude oil (WTI) continued to be volatile, closing at $36.63 a barrel, $2.96 less than the prior week’s closing price. The price of gold (COMEX) rose by last week’s end, selling at $1,223.60 by late Friday afternoon, up from the prior week’s closing price of $1,218.70. The national average retail regular gasoline price increased for the sixth week in a row, selling at $2.066 per gallon on March 28, 2016, $0.059 over the prior week’s price but $0.382 under a year ago.

Market/Index 2015 Close Prior Week As of 4/1 Weekly Change YTD Change
DJIA 17425.03 17515.73 17792.75 1.58% 2.11%
Nasdaq 5007.41 4773.50 4914.54 2.95% -1.85%
S&P 500 2043.94 2035.94 2072.78 1.81% 1.41%
Russell 2000 1135.89 1079.54 1117.68 3.53% -1.60%
Global Dow 2336.45 2279.29 2302.06 1.00% -1.47%
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% 1.98% 1.77% -21 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 Headlines

  • Labor continues its relatively strong run as the latest information from the Bureau of Labor Statistics shows 215,000 new jobs were created in March. The labor force participation rate also increased slightly to 63% from 62.9% in February, and is up 0.6% since September. The unemployment rate increased marginally to 5.0% in March from 4.9% in February, with roughly 8.0 million unemployed persons. Employment increased in retail trade, construction, and health care. Job losses occurred in manufacturing and mining. Average hourly earnings rose $0.07 to $25.43 from February–an increase of 2.3% from a year ago.
  • Essentially reiterating what had been said following the December and subsequent FOMC meetings, Chair Janet Yellen suggested the Fed needs to proceed cautiously with respect to raising interest rates. In a speech before the Economic Club of New York, Yellen noted that ongoing global economic and financial uncertainty, impacted by the economic slowdown in China and falling oil prices, has heightened the risk to the U.S. economy.
  • While consumer income has grown over the first two months of 2016, personal spending has increased, but at a much slower pace, according to the Bureau of Economic Analysis. For February, both personal income and disposable personal income (personal income less taxes) increased $23.7 billion, or 0.2%, compared to January. Personal consumption expenditures (PCE), or what consumers are spending on durable goods, nondurable goods, and services, increased $11.0 billion, or 0.1% in February. On the other hand, consumers are saving at a higher rate as the personal saving rate increased 0.1% from January to 5.4% in February. The core PCE (excluding food and energy) increased 0.1% from January, while the PCE price index, which measures the increase in prices for consumer goods and services, fell 0.1% from January and is up only 1.0% from February 2015.
  • The Census Bureau’s advance report on U.S. International Trade in Goods for February has both exports (+2.0%) and imports (+1.6%) ahead of their January levels. However, the gap between imports and exports also expanded to an advance balance deficit of $62,864 in February from January’s final seasonally adjusted deficit figure of $62,398.
  • Pending home sales, those in which a contract has been signed but the transaction has not yet closed, rose 3.5% in February to 109.1, according to the National Association of Realtors®. Led by a sizable increase in the Midwest, all major regions except for the Northeast saw an increase in contract activity in February.
  • The S&P/Case-Shiller U.S. National Home Price Index showed home prices slightly increased in January, as the seasonally adjusted index gained 0.5% over December. The index recorded a higher year-over-year gain with a 5.4% annual increase in January.
  • According to the Census Bureau, construction spending in February was 0.5% below the revised January estimate but 10.3% above the February 2015 estimate. On the plus side, residential construction was up 0.9% over January. However, for February, nonresidential construction spending (-1.3%) and public construction spending (-1.7%) were below their respective January totals.
  • Purchasing managers’ manufacturing index (PMI) is based on a monthly survey of selected companies relative to the current and expected trends in the manufacturing sector. The Markit U.S. Manufacturing Purchasing Managers’ Index™ (PMI™) for March, at 51.5, is only slightly ahead of February’s 51.3. For the first quarter of 2016, the average reading of 51.7 is the weakest quarterly upturn since the third quarter of 2012. A reading of 50 or above signifies some overall growth in this sector. The Institute for Supply Management PMI for March was 51.8% (49.5% in February), which showed expansion in the manufacturing sector for the first time in the last six months.
  • The Conference Board Consumer Confidence Index®, which had decreased in February, improved in March. The index now stands at 96.2, up from 94.0 in February. Consumers surveyed expressed favorable outlooks for the labor market and business conditions, but they did not foresee the economy gaining any significant momentum in the near term. Conversely, the University of Michigan’s Index of Consumer Sentiment fell slightly in March to 91.0 from February’s reading of 91.7. The Sentiment Index in the first quarter of 2016 averaged 91.6, barely different from the 91.3 in the fourth quarter or the 90.7 in the third quarter of 2015.
  • For the week ended March 26, there were 276,000 claims for unemployment insurance, an increase of 11,000 from the previous week’s revised level. The advance seasonally adjusted insured unemployment rate remained at 1.6%. The advance number for continuing unemployment insurance claims for the week ended March 19 was 2,173,000, a decrease of 7,000 from the prior week’s revised level.

Eye on the Week Ahead

This week reveals the latest information on the international trade balance on goods and services for February, which is a major indicator of foreign trade–an economic sector that has been lagging. The FOMC also releases the minutes from its March meeting, which may shed some light on the Committee’s intentions with respect to interest rates going forward.

What I’m Watching This Week – 28 March 2016

Published on by dredheadz

The Markets (as of market close March 25, 2016)

After five consecutive weeks of gains, stocks cooled as each of the major indexes listed here slid into negative territory by the close of last week. With the latest downturn, only the Dow is ahead of its 2015 year-end closing value. Several of the markets were closed for Good Friday. Favorable reports on the GDP and new home sales could spur the market this week.

The price of crude oil (WTI) had a volatile week, yet it is clearly trending upward as the price increased again last week, closing the week slightly ahead at $39.59 a barrel, $0.24 ahead of the prior week’s closing price. The price of gold (COMEX) fell by last week’s end, selling at $1,218.70 by late Friday afternoon, down from the prior week’s closing price of $1,256. The national average retail regular gasoline price increased for the fifth week in a row, selling at $2.007 per gallon on March 21, 2016, $0.046 over the prior week’s price but $0.450 under a year ago.

Market/Index 2015 Close Prior Week As of 3/25 Weekly Change YTD Change
DJIA 17425.03 17602.30 17515.73 -0.49% 0.52%
Nasdaq 5007.41 4795.65 4773.50 -0.46% -4.67%
S&P 500 2043.94 2049.58 2035.94 -0.67% -0.39%
Russell 2000 1135.89 1101.67 1079.54 -2.01% -4.96%
Global Dow 2336.45 2327.69 2279.29 -2.08% -2.45%
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% 1.98% 1.90% -8 bps -36 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

  • Following a strong month for existing home sales in January, which had yielded the highest annual rate in six months, the National Association of Realtors® reported that existing home sales fell 7.1% in February. Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums, and co-ops, dropped to a seasonally adjusted annual rate of 5.08 million in February, down from 5.47 million in January. Despite last month’s large decline, sales are still 2.2% higher than a year ago. The drop in sales is largely attributable to low supply levels and increasing asking prices. The median existing-home price for all housing types in February was $210,800, up 4.4% from February 2015 ($201,900). February’s price increase marks the 48th consecutive month of year-over-year gains. Total housing inventory at the end of February increased 3.3% to 1.88 million existing homes available for sale, which is still 1.1% lower than a year ago (1.90 million).
  • The new home sales market gained strength in February as the annual sales rate for new single-family houses increased to 512,000–2.0% ahead of January’s revised rate of 502,000 but 6.1% below the rate for February 2015. The median sales price of new houses sold in February increased over 6.0% to $301,400, while the average sales price came in at $348,900. The seasonally adjusted estimate of new houses for sale at the end of February was 240,000. This represents a supply of 5.6 months at the current sales rate.
  • Orders for durable goods (expected to last at least three years) fell 2.8% in February from January’s revised figures, according to the latest report from the Commerce Department. Low oil prices, a strong dollar, and overall financial volatility are the leading contributors to the decline. January’s spike in durable goods orders may have been an exception, as goods orders have otherwise fallen three of the past four months. Also, new orders for capital goods decreased 1.8%–an indication that business investment also pulled back in February.
  • An anticipated surge in the manufacturing sector in March apparently did not materialize, according to the latest Markit Flash U.S. Manufacturing Purchasing Managers’ Index™. The index, at 51.4, is indicative of “subdued growth” in the manufacturing sector, up marginally from February’s 51.3 reading. The index reading of 51.7 for the first quarter is the weakest improvement over any quarter since the third quarter of 2012. Slightly stronger rates of output, new business, and employment growth were offset by the sharpest decline in pre-production inventories since January 2014.
  • The gross domestic product can fluctuate with each release as new data is integrated. As such, the third estimate of the fourth-quarter 2015 GDP increased at an annual rate of 1.4%. Last month’s “second estimate” had the GDP increasing 1.0%. In the third quarter, real GDP increased 2.0%. The increase in real GDP in the fourth quarter reflected positive contributions from personal consumption expenditures, residential fixed investment, and federal government spending that were partly offset by negative contributions from nonresidential fixed investment, exports, private inventory investment, and state and local government spending. Imports, which are a subtraction in the calculation of GDP, decreased.
  • For the week ended March 19, there were 265,000 claims for unemployment insurance, an increase of 6,000 from the previous week’s revised level. The advance seasonally adjusted insured unemployment rate remained at 1.6%. The advance number for continuing unemployment insurance claims for the week ended March 12 was 2,179,000, a decrease of 39,000 from the prior week’s revised level.

Eye on the Week Ahead

As the month of March and the first quarter come to a close, there are several important economic reports to consider. The week starts with the latest information on consumer income and spending, and the Census Bureau’s report on international trade in goods. Federal Reserve Chair Janet Yellen may reveal more information on the Fed’s perspective of the economy and the status of interest rates when she speaks to the Economic Club of New York. The week closes with the latest report on the employment situation for March, which will likely have some impact on the equities markets to kick off the month of April.