The Markets
Amid a flood of mostly positive economic data and what at first blush
appears to be good news from Ukraine, nearly all market sectors finished
the short week in positive territory. Even surprises from the European
Central Bank and Friday's jobs numbers seemed to have minimal impact on
investors, as the S&P 500 continued its record-breaking run.
Last Week's Headlines
- The manufacturing sector reported its strongest economic reading
since March 2011. The Institute for Supply Management's Purchasing
Managers Index (PMI) came in at 59% for August, up 1.9 points from
July's reading of 57.1%. Part of the increase was due to record levels
in the New Orders Index, which registered its highest reading in more
than a decade.The positive results in new orders was echoed by the U.S.
Census Bureau, which reported that new orders for manufactured goods
rose by a record-setting 10.5% in July, the highest reported increase in
22 years. Manufactured goods orders have risen in five of the last six
months. Shipments, unfulfilled orders, and inventories also hit record
levels. Transportation equipment saw a 74.1% increase, and was the
reason for the unprecedented rise. Excluding transportation, new orders
actually fell by 0.8%.The positive results in new orders was echoed by
the U.S. Census Bureau, which reported that new orders for manufactured
goods rose by a record-setting 10.5% in July, the highest reported
increase in 22 years. Manufactured goods orders have risen in five of
the last six months. Shipments, unfulfilled orders, and inventories also
hit record levels. Transportation equipment saw a 74.1% increase, and
was the reason for the unprecedented rise. Excluding transportation, new
orders actually fell by 0.8%.Construction rose by 1.8% in July to a
seasonally adjusted annual rate of $981.3 billion, according to the U.S.
Census Bureau. The figure is 8.2% higher than a year earlier. Through
July, construction spending totaled $535.4 billion, nearly 8% higher
than the $496.3 billion spent during the same time frame in 2013. Growth
was led by nonresidential private construction and public construction,
particularly highways.The Federal Reserve's beige book report was
generally favorable, stating that economic activity had expanded since
the previous report and noting that "none of the Districts pointed to a
distinct shift in the overall pace of growth." Notable areas of growth
included consumer spending, auto sales, and tourism.The Commerce
Department announced that the trade deficit shrank to $40.5 billion in
July, down from $40.8 billion in June. Exports rose by $1.8 billion,
while imports rose by $1.5 billion. The European Central Bank (ECB)
surprised observers Thursday with the announcement that it would cut all
interest rates, and launch programs to buy asset-backed securities and
euro-denominated covered bonds. Details surrounding the new programs
will be provided at the ECB's October meeting. In announcing the moves,
ECB President Mario Draghi said, "These decisions will add to the range
of monetary policy measures taken over recent months," adding that they
reflect significant differences in monetary policy cycle among the
eurozone's major advanced economies. He also noted that the moves will
"support the provision of credit to the broader economy."Labor
productivity (output per hour) rose 2.3% during the second quarter of
2014, while the costs of labor edged down 0.1%. During the quarter,
hours worked rose 2.6% and output increased 5%. Productivity increased
1.1% from second quarter 2013 to second quarter 2014. Unit labor costs
increased 1.7% over the previous four quarters.After months of positive
news, the Labor Department reported disappointing job growth for August,
and revised figures downward for earlier this summer. Despite an
unemployment rate that continued to decline--down to 6.1% in August from
July's 6.2%--nonfarm jobs rose by just 142,000 in August. For the
previous 12 months, nonfarm payrolls increased by 212,000, on average.
After accounting for revisions in both June and July, the total number
of added jobs in those months was 28,000 less than previously reported.
- Ukraine and pro-Russian rebels signed a
truce that took effect Friday evening, local time, in what observers
hope will be the beginning of the end of the five-month conflict. Friday
also brought news of a new "spearhead" force of several thousand land
troops agreed to by NATO allies to address growing threats in the Middle
East and other areas, if needed.
Eye on the Week Ahead
In a week that promises minimal influence in the way of economic
data, investors may be watching events abroad, particularly to see
whether the Ukrainian cease-fire agreement holds.
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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