Markets Slide Sideways

The Weekly Update

Week of June 26, 2017

By Christopher T. Much, CFP®, AIF®

Last week, markets kept relatively quiet despite the continuing drop in oil prices. The S&P 500 rose by 0.21%, the Dow increased by 0.05%, and the NASDAQ—the week’s best performer—jumped 1.84%. Internationally, the MSCI EAFE fell by 0.20%. Asian markets remained relatively mixed while European markets were down modestly.

A global glut of oil has led to 5-straight weeks of price declines. OPEC’s attempts to curb oil production have not yet played out as expected, as prices are down roughly 20% for the year. Though oil rose slightly on Friday due to a weaker U.S. dollar, oil markets closed the week at a 10-month low. Still, oil stocks and energy companies in general comprise less than 6% of stocks in the S&P 500 on a capitalization basis, down from 11% only 3 years ago. As such, they are less significant to the overall markets today than in the past.

What We Learned Last Week

Despite oil’s problems, a few economic indicators for the week pointed to the potential for mildly stronger Q2 consumer spending.

  • Existing Home Sales Rebound: Overall, existing home sales for May rebounded with a 1.1% increase from April to an annualized rate of 5.62 million sales. Single-family sales rose 1.0% for an annualized rate of 4.98 million, while condos sales rose by 1.6% for an annualized rate of 640,000.
  • New Home Sales and Pricing Surge: New home sales for May rose 2.9% to a 610,000 annualized rate on strong pricing. Median house pricing jumped to $345,800, an 11.5% rise for the month. The 16.8% year-on-year increase is roughly double the actual sales gain of 8.9%.
  • Low Jobless Rate Stays Steady: June jobless numbers have so far remained on track and consistent with the current historic lows. Last week’s data revealed that the 241,000 claims matched general consensus.
  • Flash Purchasing Managers’ Index (PMI) Slows: The PMI flash composite index came in at 53.0 for the month versus 53.9 for the prior month. Though new orders and employment in the service sector appear optimistic, manufacturing’s new orders and output have fallen. The single index is a synthesis of data such as new sales orders, inventories, and employment. A reading above 50 indicates rising output versus the previous month.

What Is Next?

With Q2 ending this week, markets will look at the durable goods orders, additional home sales data, and consumer sentiment, while continuing to watch oil prices. In addition, the second part of the Fed stress test for banks will report on Wednesday. The second half of the stress tests evaluates banks’ abilities to pay dividends and buy back stock. All 34 major banks passed the first part of the test last week, indicating their strength in an economic downturn.

If you have any questions about this content or your financial future, we welcome you to contact us. Our team is here to provide the perspectives you need for the road ahead.

Economic Calendar

Monday: Durable Goods Orders
Tuesday: Case Shiller Home Prices Index, Consumer Confidence Index
Wednesday: Pending Home Sales
Friday: Personal Income and Outlays, Consumer Sentiment

Past performance is no guarantee of future results. Data collected from Investors FastTrack software.
http://performance.morningstar.com/Performance/index-c/performance-return.action?t=SPX&region=usa&culture=en-US
http://performance.morningstar.com/Performance/index-c/performance-return.action?t=%21DJI&region=usa&culture=en-US
http://performance.morningstar.com/Performance/index-c/performance-return.action?t=@CCO
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http://www.cnbc.com/2017/06/22/asia-markets-oil-prices-china-regulators-in-focus.html
http://www.cnbc.com/2017/06/23/european-stocks-eye-european-politics-eu-summit-brexit-oil-data.html
http://www.cnbc.com/2017/06/22/oil-edges-up-but-set-for-worst-h1-performance-in-20-years.html
https://www.bloomberg.com/news/articles/2017-06-23/this-time-it-is-different-stocks-are-ignoring-oil-s-bear-market
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http://www.cnbc.com/2017/06/22/big-banks-make-it-through-stress-tests-investors-await-cash-release.html
Markets Slide Sideways2017-06-26T19:56:31-04:00

Mixed Markets Continue

The Weekly Update

Week of June 19, 2017

By Christopher Much, CFP®, AIF®

Markets remained mixed last week as the Dow closed at another record high, while the NASDAQ fell and the S&P 500 held steady. By Friday, the Dow gained 0.52%, the NASDAQ fell -0.92%, and the S&P 500 gained a slight 0.05%. Meanwhile, the MSCI EAFE remained virtually unchanged from last week, down only -0.002%.

In other markets, oil closed at $44.74 a barrel, down 2.4% on the week—its fourth week of declines. Overall, European equity markets remained steady while most Asian markets recorded modest gains at week’s end.

The Fed Increases Interest Rates

As expected, the Fed announced last week that it raised the short-term interest rate target by 25 basis points to a range between 1.00 and 1.25%. This was the third interest rate hike by the Fed in the last six months. The Fed also announced its intention to reduce the $4.5 trillion balance sheet by selling off assets acquired in the wake of the 2008 financial crisis. The Fed currently plans to sell approximately $10 billion monthly starting later this year.

Further, last Wednesday, Federal Reserve Chair Janet Yellen reported on the Fed’s belief that the current weak inflation numbers are temporary. However, the Fed’s plan to continue raising interest rates going forward and sell off its assets may change if the economy does not gain momentum in Q3 and Q4. To date, the economic data continues to point to a Q2 Gross Domestic Product (GDP) that may be weaker than previously anticipated.

Soft Economic Data Continues

Consumer Sentiment Dampens: The preliminary consumer sentiment index for June dropped to 94.5, the lowest since last November. The index fell from May’s reported 97.1.

Retail Sales Soften: Retail sales had their largest monthly drop since January 2016. Sales declined 0.3% in May against predictions of a 0.1% gain over April. The report includes a variety of disappointing numbers :

  • 0.1% decrease for restaurants
  • 0.2% dip for automotive vehicles
  • 1.0% fall for department stores

Business Inventories Drop: In April, business inventories dropped 0.2% from the prior month, which was 0.1% under the consensus. Further, retail inventories also dropped 0.2%, and wholesale inventories abruptly fell 0.5% for the month.

CPI Falls: The Consumer Price Index fell 0.13% in May. The disappointing numbers mark another decline—the 2nd in 3 months—as economists had expected a 0.2% increase from April’s number.

Housing Weakens: In May, housing starts dropped 5.5% from April and permits fell 4.9%. The trend continues the decline from Q1 and could signal another negative quarter.

Market Details on the Horizon

More housing news will influence the week ahead as the existing home sales report comes out on Wednesday and the new home sales report comes out on Friday. Markets will continue to watch the fundamentals, including consumer spending, which makes up 69% of GDP. So far this year, consumer spending has been soft with vehicle sales and restaurant sales sliding downward most months.

As always, we are here to talk should you have any questions about the markets or your own financial objectives. Our goal is to help you understand your financial life with clarity and confidence.

ECONOMIC CALENDAR

Wednesday: Existing Home Sales
Thursday: Jobless Claims
Friday: PMI Composite Flash, New Home Sales

Past performance is no guarantee of future results. Data collected from Investors FastTrack software.
http://www.cnbc.com/2017/06/16/us-stocks-housing-amazon-whole-foods.html
http://performance.morningstar.com/Performance/index-c/performance-return.action?t=%21DJI&region=usa&culture=en-US
http://performance.morningstar.com/Performance/index-c/performance-return.action?t=@CCO
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http://www.cnbc.com/2017/06/15/asia-markets-tech-stocks-bank-of-japan-in-focus.html
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Mixed Markets Continue2017-06-26T17:59:51-04:00

Mixed Markets. Mixed News.

The Weekly Update

Week of June 12, 2017

By Christopher Much, CFP®, AIF®

Markets last week were mixed with leading tech stocks falling dramatically as some investors pulled profits. The NASDAQ took the biggest hit, finishing 1.55% down on the week—its worst week of the year. Meanwhile, the Dow rose 0.31% for the week, notching another record close on Friday. The S&P 500 fell 0.30%, and the MSCI EAFE closed the week down 1.22%.

The S&P tech sector dropped 3.3% on Friday; however, it remained up 18% for the year. Major tech stocks account for almost 13% of the total number of stocks in the S&P 500, while comprising nearly 40% of the S&P 500 increase for the year.

Internationally, Asian markets were mixed while European markets closed the week generally higher. The European equities markets took last week’s UK election in stride, though the pound dropped in response to the Conservatives losing their majority.

Domestically, monthly job openings exceeded 6 million in April. Hiring, however, has slowed to only 5 million per month, suggesting workers’ skills may not match job needs. Moreover, the economy continues to show signs of softening.

Indications of a Softer Economy

  • Wholesale and Retail Inventories Down: Revised wholesale inventories shrunk 0.5% in April, the largest contraction in more than 12 months. In addition, retail inventories fell in April as sales weakened.
  • Inflation Slows: Last week, consumer prices remained weak. Inflation slowed in April to an annual rate increase of 1.7% year-over-year, down from the 1.9% recorded in March and 2.1% in February. Falling oil prices, excessive auto inventories, and increasing apartment rental inventories will all create headwinds to reaching the Fed’s target rate of 2.0%.
  • Factory Orders Down: Factory orders fell 0.2% in April. While motor vehicles rose 0.6% and computers gained 1.6%, durable goods orders fell 0.8%.
  • Oil Prices Drop: Though summer driving season is here, U.S. gasoline demand dropped by nearly a half-million barrels a day. While the need for fuel fell—and despite beliefs that oil would fall by 3.5 million barrels—stockpiles rose by 3.3 million barrels. As a result, oil dropped by 4%, ending the week at $45.86 per barrel.

What Comes Next?

The Fed will hold a meeting this week to determine whether to raise interest rates. Expectations are that the Federal Open Market Committee (FOMC) will raise the fed funds rate 0.25% to 1.25% despite the soft economic news, which the Fed characterized as “transitory.” The FOMC meeting will also address quarterly forecasts for the remainder of the year. The markets expect both Japan and Britain’s central banks to also address the issue of interest rates.

In addressing the federal debt, the Treasury Secretary assured last week that the U.S. will not default on its debt. Congress must address the debt limit this summer or fall, but markets may react negatively if delays occur. Meanwhile, Congress continues to wrestle with policy questions around tax reform, an infrastructure program, and healthcare reform. How the government addresses these important initiatives could alter market dynamics in the future.

If you have questions on where you stand as these events unfold, do not hesitate to contact us.

ECONOMIC CALENDAR

Wednesday: Consumer Price Index, Retail Sales, Business Inventories, FOMC Meeting Announcement
Thursday: Industrial Production, Housing Market Index
Friday: Housing Starts, Consumer Sentiment

Past performance is no guarantee of future results. Data collected from Investors FastTrack software.
https://www.bloomberg.com/news/articles/2017-06-08/pound-drops-as-u-k-exit-poll-unnerves-investors-markets-wrap
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http://money.cnn.com/data/world_markets/europe/
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Mixed Markets. Mixed News.2017-06-17T22:37:45-04:00