The Markets
Despite
poor employment and manufacturing reports, the equities markets rallied
to post gains in each of the major indexes listed here except for the
Russell 2000, which ultimately lost less than 1% by last week's end. The
late Friday rally was sparked by gains in energy and materials stocks
(following a jump in oil prices), coupled with a lessening of concerns
over China's otherwise gloomy economic picture. Nevertheless, investors
piled money into U.S. government bonds, sending the yield on 10-year
U.S. Treasuries tumbling to below 2% for the first time since April.
However, the jobs and manufacturing reports are likely to forestall any
talk by the Fed of an interest rate increase at its next meeting in
October.
The
price of gold (COMEX) fell a bit, selling at $1,137.60 by late Friday
afternoon compared to $1,139.10 a week earlier. Crude oil (WTI) prices
gained some, selling at $45.66 per barrel by week's end. For the sixth
week in a row, the national average retail regular gasoline price
decreased, dropping to $2.322 per gallon on September 28, 2015, $0.005
under the previous week's price of $2.327 per gallon and $1.032 below a
year ago.
Last Week's Headlines
- Last
week kicked off with a report on personal income and outlays from the
Bureau of Economic Analysis. According to the latest figures, personal
income increased $52.5 billion, or 0.3%, and disposable personal income
(net income after taxes and adjustments for inflation) increased $47.1
billion, or 0.4%, in August compared to July. The price index for
personal consumption expenditures--an indication of inflationary
trends--was virtually unchanged in August and only 0.3% ahead of August
2014. However, real disposable income (after adjustments for taxes and
inflation) has been at a record high for two consecutive months--likely
attributable, at least in part, to cheaper gasoline prices.
- Total
nonfarm employment increased by only 142,000 in September, while the
unemployment rate remained unchanged at 5.1%, according to the recent
Bureau of Labor Statistics report. September's job increase falls far
below the monthly average of 198,000 jobs per month in 2015. While the
job market expanded prior to this summer, it has definitely slowed down,
as U.S. employers slammed the brakes on further job expansion,
indicative of fears of an economic slowdown. Further evidence of
employment contraction includes declines in the labor force
participation rate and the employment-population ratio, while average
hourly earnings sit at $25.09--down a cent from August.
- The
Institute for Supply Management (ISM) publishes a monthly manufacturing
index, which seeks to measure the general direction of production, new
orders, backlogs, inventories, imports, exports, and prices. A reading
over 50% is considered "expanding." However, September's PMI index of
50.2% is 0.9% below August's reading, and is the lowest reading since
May 2013. The New Orders Index registered 50.1%, a decrease of 1.6% from
August's reading of 51.7%, while at 51.8%, the Production Index also
fell below the August reading of 53.6%. Although this may be an anomaly,
it nevertheless points to a potential weakening in manufacturing and
production. Markit's Manufacturing Purchasing Managers' Index also
indicated another month of relatively subdued growth in
September--registering the second-lowest level since October 2013.
- On
the heels of the rather gloomy ISM and Markit reports, the Commerce
Department reports that new orders for manufactured goods in August
decreased $8.2 billion, or 1.7%, to $473.0 billion. Shipments, down four
of the last five months, again decreased $3.2 billion, or 0.7%, to
$480.1 billion. Unfilled orders and inventories also decreased in
August.
- The
latest figures from the National Association of Realtors® show pending
home sales were down 1.4% in August, but still 6.1% ahead of August
2014. While this report indicates some slowdown in existing home sales,
it is more reflective of the demand for housing outpacing the supply,
and rising home prices in general.
- The
S&P/Case-Shiller Home Price Index measures monthly changes in the
value of home prices in 20 metropolitan regions across the country. The
latest National Home Price Index recorded a slightly higher
year-over-year gain with a 4.7% annual increase in July. On a monthly
basis, home prices in July were 0.7% higher than prices in June.
According to David M. Blitzer, Managing Director and Chairman of the
Index Committee at S&P Dow Jones Indices, "Prices of existing homes
and housing overall are seeing strong growth and contributing to recent
solid growth for the economy." The National Home Price Index has risen
at a 4% or higher annual rate since September 2012.
- Construction
spending is a sector that has been picking up of late. The U.S. Census
Bureau reported that construction spending during August 2015 was
estimated at a seasonally adjusted annual rate of $1,086.2 billion, 0.7%
above the revised July estimate of $1,079.1 billion. The August figure
is 13.7% above the August 2014 estimate of $955.0 billion.
- Despite
downturns in the stock market this month, consumer confidence remained
somewhat positive according to The Conference Board's Consumer
Confidence Index®, which increased to 103 in September, compared to
101.3 in August. According to the report, consumers' appraisal of
current conditions was more positive in September, reflective of a more
confident outlook for business conditions and the job market.
- Further
evidence of an impending global economic slowdown may lie in the latest
report from the International Monetary Fund, which warns of rising
corporate debt for companies in emerging markets. Low interest rates
available in advanced countries such as the United States and Japan have
made it easier for emerging market companies to borrow. "These developments
make emerging market economies more vulnerable to a rise in interest
rates, dollar appreciation, and an increase in global risk aversion,"
according to the report.
- According
to the Commerce Department's Advance Report: U.S. International Trade
in Goods, sagging exports continue to hinder economic growth as exports
of goods fell a seasonally adjusted 3.2% to $123 billion in August.
While imports advanced 2.2% to $190 billion, it was not enough to
prevent further expansion of the trade deficit by 13.6% to $67 billion.
The continued strength of the dollar, coupled with weakness overseas,
has shifted the sale of goods from U.S. manufacturers to cheaper markets
abroad.
- Jobless
claims rose by 10,000 for the week ended September 26, to close at
277,000. The advance seasonally adjusted insured unemployment rate was
unchanged at 1.6% for the week ended September 19, while the advance
number for continuing unemployment insurance claims decreased 53,000 to
2,191,000.
Eye on the Week Ahead
The
week ahead focuses on manufacturing, imports and exports, and
international trade--sectors that have been underperforming to date. The
situation in China continues to bear watching as that country's
weakening economy continues to influence global stock markets,
particularly the major indexes in the United States.
Data sources: News items are based
on reports from multiple commonly available international news sources
(i.e. wire services) and are independently verified when necessary with
secondary sources such as government agencies, corporate press releases,
or trade organizations. Market data: 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.
|
|
|
|
|
