The Markets
After experiencing positive gains the past few weeks, the short holiday week closed with all the major indexes experiencing losses. Both the S&P 500 and the Dow ended the week in the red, as did the small-cap Russell 2000 and Nasdaq, although each of the latter performed a little better than their large-cap peers. Favorable economic news may have driven the market decline in response to fears that the Federal Reserve would be raising interest rates sooner rather than later.
Last Week's Headlines
- Instead of a marginal gain as previously estimated, real gross domestic product decreased 0.7% in the first quarter of 2015 according to the "second" estimate released by the Bureau of Economic Analysis. This is in contrast to an increase of 2.2% in the fourth quarter of 2014. The downturn primarily reflected a deceleration in personal consumption expenditures and downturns in exports, in nonresidential fixed investment, and in state and local government spending that were partly offset by a deceleration in imports and upturns in federal government spending and in private inventory investment.
- While the headline for durable goods orders in April may be negative, underlying figures show reason for optimism. The advance report of new orders for manufactured durable goods decreased $1.2 billion or 0.5% to $235.5 billion, which follows a 5.1% gain in March. However, excluding transportation, new orders actually increased 0.5%, while orders for nondefense capital goods--a measure of business investment--rose 1.0% from the prior month.
- The housing market is on the rebound. The S&P/Case-Shiller 20-City Composite Home Price Index for March increased 1.0%, continuing the rise in home prices over the last 12 months. New home sales also gained 6.8% in April, according to the Commerce Department. This is 26.1% above April 2014. The median price of a new home, $297,300, is also up 8.3% from last year.
- The Conference Board Consumer Confidence Index®, which had declined in April, increased moderately in May. The index now stands at 95.4, up from 94.3 in April. Consumer sentiment also rebounded to close at 90.7, up from a mid-month low of 88.6, according to the University of Michigan Survey of Consumers.
- More people filed new claims for unemployment insurance in the week ending May 23. The advance figure for seasonally adjusted initial claims for unemployment insurance was 282,000, an increase of 7,000 from the previous week's revised level (revised up from 274,000 to 275,000).
- For the fourth straight month, pending home sales rose 3.4% in April--up 14.0% year-on-year, far ahead of year-on-year final sales of existing homes, which are up 6.1% (following a decline of 3.3% in April).
- For the week ending May 22, the Energy Information Administration's weekly report noted that U.S. commercial crude oil inventories decreased by 2.8 million barrels from the previous week. Yet at 479.4 million barrels, U.S. crude oil inventories are at the highest level for this time of year in at least the last 80 years. The national average retail regular gasoline price increased for the fifth week in a row to $2.744 per gallon on May 25, 2015, $0.030 per gallon above last week but $0.900 under a year ago.
Eye on the Week Ahead
The week kicks off with the Bureau of Economic Analysis report on consumer income and spending. There are also major updates in manufacturing, housing, and international trade. Business production will be in the news as well with the ISM Manufacturing Index and the productivity and costs report.
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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