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The Markets
After generally positive economic data once again suggested that the
economy really did begin to rebound this spring, the Dow industrials
surpassed 17,000 for the first time, while the S&P 500 hit three new
all-time records during the week. And as investors embraced stocks,
worries about the potential impact of a strong economy on potential Fed
rate increases also sent the benchmark 10-year Treasury yield up and the
price down.
Last Week's Headlines
- The unemployment rate fell to 6.1% in
June; that's 1.4% lower than a year earlier and the lowest level in
almost six years. The economy added 288,000 new jobs during the month,
higher than the 272,000 monthly average since March. The data, coupled
with upward revisions to payroll figures for April and May, suggested
possible acceleration in job growth. The Bureau of Labor Statistics said
the widespread job gains were led by professional/business services,
retail, restaurants/bars, and health care.
- TA 2% increase in new orders placed
with U.S. manufacturers put orders at their highest level since late
2013. Even though the Institute for Supply Management's index showed
that manufacturing growth didn't accelerate in June, it still remained
at a healthy 55.3% reading (any number above 50 represents expansion).
The ISM's measure of the services sector also showed slightly slower
growth than the previous month, though the reading remained at a robust
56.3%.
- After three straight monthly
increases, new orders for U.S. manufactured goods slipped 0.5% in May,
though most of the decline was in the volatile transportation sector.
The Commerce Department also said inventories were at their highest
level on record and have increased 18 of the last 19 months.
- Commercial construction spending rose
1.1% in May, but the Commerce Department said that was largely offset by
a 1.4% drop in the value of new home projects. The 0.1% overall
increase in construction spending was weaker than April's 0.8% gain, but
the annual rate was 6.6% higher than a year ago.
- As expected, the European Central Bank
left two key interest rates unchanged, hoping that measures taken last
month will be enough to help stimulate the economy.
- Higher auto-related exports and less
spending on imported oil and consumer goods helped cut the U.S. trade
deficit by 5.5% in May to $44.4 billion, according to the Bureau of
Economic Analysis.
- The U.S. Supreme Court ruled that
closely held, for-profit companies can choose to opt out of a provision
of the Affordable Care Act that requires that employees' insurance
include coverage for birth control. The court also ruled that workers
who aren't full-fledged public employees cannot be required to pay fees
to a union even if they benefit from its collective bargaining efforts.
- Two separate assessments suggested
that China's sluggish manufacturing sector may be rebounding. The
reading on the Chinese government's purchasing managers' index nudged up
slightly to 51 in May. Meanwhile, HSBC/Markit's Manufacturing PMI was
basically flat but stayed in expansion territory, apparently responding
to small steps taken by the government to stimulate economic growth.
Eye on the Week Ahead
In a week that's light on fresh economic reports, investors may begin
to focus on the Q2 earnings season, which has its unofficial start on
Tuesday when Alcoa reports. Minutes of the most recent Federal Open
Market Committee meeting could shed new light on the debate over whether
the Fed should be concerned yet about inflation.
Data sources: Economic: Based on
data from U.S. Bureau of Labor Statistics (unemployment, inflation);
U.S. Department of Commerce (GDP, corporate profits, retail sales,
housing); S&P/Case-Shiller 20-City Composite Index (home prices);
Institute for Supply Management (manufacturing/services). Performance:
Based on data reported in WSJ Market Data Center (indexes); U.S.
Treasury (Treasury yields); U.S. Energy Information
Administration/Bloomberg.com Market Data (oil spot price, WTI Cushing,
OK); www.goldprice.org (spot gold/silver); Oanda/FX Street (currency
exchange rates). All information is based on sources deemed reliable,
but no warranty or guarantee is made as to its accuracy or completeness.
Neither the information nor any opinion expressed herein constitutes a
solicitation for the purchase or sale of any securities, and should not
be relied on as financial advice. Past performance is no guarantee of
future results. All investing involves risk, including the potential
loss of principal, and there can be no guarantee that any investing
strategy will be successful.
The Dow Jones Industrial Average
(DJIA) is a price-weighted index composed of 30 widely traded blue-chip
U.S. common stocks. The S&P 500 is a market-cap weighted index
composed of the common stocks of 500 leading companies in leading
industries of the U.S. economy. The NASDAQ Composite Index is a
market-value weighted index of all common stocks listed on the NASDAQ
stock exchange. The Russell 2000 is a market-cap weighted index composed
of 2,000 U.S. small-cap common stocks. The Global Dow is an equally
weighted index of 150 widely traded blue-chip common stocks worldwide.
Market indices listed are unmanaged and are not available for direct
investment.
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