The Markets
Spurred by a bounce in
crude oil prices and banking shares, the stock market rallied last
Friday, but not enough to overcome five consecutive trading-day losses.
Money continued to move from equities to the safety of bonds and gold,
driving the yield on 10-year Treasuries down to 1.74% while driving up
the price of gold. Despite Friday's rally, the Dow lost over 230 points
over the prior week, while the S&P 500 and Nasdaq came close to
recouping early-week losses, each falling less than 1% compared to their
respective prior week's closing values.
The price of crude oil
(WTI) rallied from a low price of $26.05 on February 11, closing the
week at $29.02 a barrel, still down $1.98 from the prior week's closing
price. The price of gold (COMEX) increased again, selling at $1,238.20
by late Friday afternoon, up from the prior week's closing price of
$1,174.10. The national average retail regular gasoline price decreased
for the sixth week in a row to $1.759 per gallon on February 8, 2016,
$0.063 below the prior week's price and $0.432 under a year ago.
Last Week's Headlines
- In testimony before both the House
Committee on Financial Services and the Senate Committee on Banking,
Housing and Urban Affairs, Federal Reserve Chair Janet Yellen stated
that overall economic conditions may not be sufficiently improved to
justify a further interest rate hike in March, when the Federal Open
Market Committee (FOMC) next convenes. Addressing the FOMC's objectives
of maximum employment and 2.0% inflation, Yellen noted that while there
has been progress in the labor market, "there is still room for further
sustainable improvement." Yellen said the committee expects inflation to
continue at its slow pace in the near term primarily due to declines in
oil prices and weak exports. However, she said inflation is expected to
rise to its 2.0% objective over the medium term. The text of the
prepared testimony may be found here.
- December saw the number of job
openings (5.6 million), hires (5.4 million), and total separations (5.1
million) increase over November, according to the latest Job Openings
and Labor Turnover Summary (JOLTS) from the Bureau of Labor Statistics.
Over the 12 months ended in December 2015, hires totaled 61.4 million
and separations totaled 58.8 million, yielding a net employment gain of
2.6 million. Another positive aspect of this report is the increase in
the number of quits, which was 3.1 million in December, compared to 2.9
million in November. Generally, an increasing quits rate is indicative
of workers moving up to better jobs. Also, layoffs and discharges fell
from 1.69 million in November to 1.61 million in December.
- According to advance estimates, the
Census Bureau reported that retail and food services sales for January
were $449.9 billion, an increase of 0.2% over the prior month and 3.4%
above January 2015. Total sales for the first quarter of fiscal 2016 are
up 2.5% from the same period a year ago. Boosted by low gasoline prices
and dwindling unemployment, consumers increased retail spending on most
items, but particularly on motor vehicles, groceries, and building
materials. In fact, excluding gasoline, retail sales in January were up
0.4% from December.
- The monthly budget statement from the
Department of the Treasury revealed a budget surplus of $55 billion for
January. Total receipts for the month were $314 billion--$181 billion of
which came from individual income taxes. The government spent $258
billion in January, with defense, Social Security, and Medicare
comprising about 53% of the total outlays. Four months into the
government's fiscal year, the total budget deficit is $160.4 billion,
about 17% lower than the comparable period last year.
- Not unexpectedly, prices for U.S.
imports decreased 1.1% in January for the second consecutive month, the
U.S. Bureau of Labor Statistics reported last week. U.S. export prices
also fell in January, decreasing 0.8%. The decline followed a 1.1% drop
in December. Principally driven by low oil-based goods and a sinking
global economy, import prices are down 6.2% year-on-year. Export prices
are down 5.7% compared to a year earlier, impacted by receding
agricultural products, which are down 12.7% year-on-year.
- Trade sales and manufacturers'
shipments for December were down 0.6% from November and 2.7% from
December 2014, while manufacturers' inventories were up 0.1% and 1.7%,
respectively, for the same periods. The total business inventories to
sales ratio for December was 1.39, compared to 1.38 in November and 1.33
in December 2014. With slowing sales, businesses are trying to keep
inventories down. Inventories that far exceed sales could negatively
impact employment.
- The University of Michigan's Index of
Consumer Sentiment for February came in at 90.7, down from 92.0 in
January and significantly lower than the 95.4 index reading in February
2015. The latest information indicates consumer confidence continues to
decline, due to a less favorable economic outlook for the year ahead.
- For the week ended February 6, there
were 269,000 initial claims for unemployment insurance, a decrease of
16,000 from the prior week's unrevised level of 285,000. For the week
ended January 30, the advance number for continuing unemployment
insurance claims was 2,239,000, a decrease of 21,000 from the previous
week's revised level. The advance seasonally adjusted insured
unemployment rate was 1.6% for the week ended January 30, a decrease of
0.1 percentage point from the previous week's unrevised rate.
Eye on the Week Ahead
This week's focus is on inflationary trends with the latest reports
on producer prices and the Consumer Price Index. The week also offers
the latest information on housing starts, a closely monitored report on
the housing sector in particular, and the economy in general. The
minutes from the FOMC's last meeting are released this week, which, when
coupled with Chair Janet Yellen's congressional testimony, could
provide insight as to the inclination of the committee relative to
raising interest rates at its next meeting in March.
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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