The Markets
The major indexes listed
here posted gains by the end of last week, marking the best overall
week of performance in the new year. Both the Dow and the S&P 500
posted end-of-week gains of 2.62% and 2.84%, respectively. The Nasdaq
and Russell 2000 recouped some of their early-year losses with gains
close to 4.0%. Even the Global Dow gained 3.80% over the prior week's
close.
The price of crude oil
(WTI) increased, closing the week at $29.83 a barrel, $0.81 ahead of the
prior week's closing price. The price of gold (COMEX), possibly feeling
the effects of money moving back into equities, fell by last week's end
selling at $1,228 by late Friday afternoon, down from the prior week's
closing price of $1,238.20. The national average retail regular gasoline
price decreased for the seventh week in a row to $1.724 per gallon on
February 15, 2016, $0.035 below the prior week's price and $0.550 under a
year ago.
Last Week's Headlines
- The minutes from January's Federal
Open Market Committee meeting highlight a mixed bag of economic
indicators. While the Committee noted improving labor market conditions,
increased household and business spending, and an improving housing
sector, these positive trends were somewhat offset by slowing economic
growth, inflation running below the Committee's target rate of 2.0%,
soft exports, and declining inventory investment. As to whether and when
target rates will be increased, the Committee emphasized that it will
continue to assess realized and expected economic conditions relative to
the Committee's objectives of maximum employment and 2% inflation. This
assessment will take into account a wide range of information,
including measures of labor market conditions, indicators of inflation
pressures and inflation expectations, and readings on financial and
international developments. At present, due to the apparent uncertainty
of inflationary trends and economic growth, the Committee maintains its
intent to gradually increase the federal funds rate, which will likely
remain, for some time, below levels that are expected to prevail in the
longer run.
- The Housing Market Index (HMI), based
on a monthly survey of members of the National Association of Home
Builders, is designed to reflect the pulse of the single-family housing
market. According to the latest survey, builder confidence is dropping
as evidenced by February's HMI reading of 58, which is 3 points lower
than January's reading and the lowest reading since May 2015. Builders
noted high land costs, the lack of available land, and the scarcity of
labor as primary reasons for the slowdown in the single-family housing
market. On the plus side, respondents did feel the prospective sales
market would pick up over the next six months. Also, it's important to
note that these are preliminary readings that will likely be revised
later.
- Housing starts and building permits
for privately owned housing units were both down in January from the
prior month. Applications for building permits for new home construction
were at an annual rate of 1,202,000--0.2% below the revised December
rate, but 13.5% above the January 2015 estimate. Privately owned housing
starts for January were at an annual rate of 1,099,000, which is 3.8%
below December's rate, but 1.8% above the rate from a year earlier. On
the other hand, completions were up in January, 2.0% ahead of December's
revised rate and 8.4% above the rate for January 2015. Nevertheless,
the start of the new year finds the housing market slowing down,
particularly considering that the number of building permits, indicative
of future construction, has fallen the past two months.
- The prices producers receive for goods
and services, as measured by the Producer Price Index (PPI), advanced
0.1% in January, following a 0.2% decrease in December. As reported by
the Bureau of Labor Statistics, the increase in producer prices is
attributable to a 0.5% advance in prices for services, which offset a
0.7% drop in the prices for goods. Looking at trends in this segment of
the economy, producer prices are down 0.2% compared to January 2015,
marking the 12th straight year-over-year decline. As an indicator of
inflationary trends, downward movement in producer prices may lead the
Federal Open Market Committee to hold off on further interest rate
increases for the time being.
- Impacted by falling energy prices,
consumer prices for goods and services remained relatively flat in
January, according to the latest Consumer Price Index. On a more
positive note, the CPI increased 1.4% over the last 12 months, and the
index, less food and energy, is up 0.3% for the month. The increase
(less food and energy) was broad-based, with most of the major
components rising, but increases in the indexes for shelter and medical
care were the largest contributors. This report may imply that inflation
is trending upward, but the strong dollar and declining energy prices
have kept inflation in check. The CPI, coupled with the PPI, is keeping
inflation below the Fed's target rate of 2.0%, lending credence to the
view that interest rates will remain the same for the near term.
- The Federal Reserve puts out a monthly
index of industrial production, which attempts to demonstrate the
overall production of factories, mines, and utilities. For January,
industrial production increased 0.9%, following a 0.7% drop in December.
The index for utilities jumped 5.4%, while demand for heating moved up
markedly after having been suppressed by unseasonably warm weather in
December. Manufacturing output increased 0.5% in January and was 1.2%
above its year-earlier level. Mining production was unchanged following
four months of declines that averaged about 1.5% per month. In addition,
capacity utilization for the industrial sector increased 0.7 percentage
points in January to 77.1%, a rate that, while improving, is still 2.9
percentage points below its long-run (1972 to 2015) average.
- The Conference Board Leading Economic
Index® for the U.S. declined 0.2% in January following a 0.3% decrease
in December. According to the report, January's decline was driven
primarily by large declines in stock prices and further weakness in
initial claims for unemployment insurance. However, the report further
states that despite back-to-back monthly declines, the index doesn't
signal a significant increase in the risk of recession, and its
six-month growth rate remains consistent with a modest economic
expansion through early 2016.
- For the week ended February 13, there
were 262,000 initial claims for unemployment insurance, a decrease of
7,000 from the prior week's unrevised level of 269,000. For the week
ended February 6, the advance number for continuing unemployment
insurance claims was 2,273,000, an increase of 30,000 from the previous
week's revised level. The advance seasonally adjusted insured
unemployment rate was 1.7% for the week ended February 6, an increase of
0.1 percentage point from the previous week's unrevised rate.
Eye on the Week Ahead
Several important reports that provide a fairly significant gauge of
the economy are highlighted this week, including information on new and
existing home sales, orders for durable goods, consumer spending, and
the latest GDP figures.
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.
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