The Markets
The Dow slipped for the
fourth week in a row as investors may have been influenced by the
uncertainty surrounding whether the Fed will raise interest rates at its
next meeting in June. The S&P 500 rebounded slightly, posting a
marginal gain for the first time in four weeks. The Nasdaq returned the
week's best results, while gaining ground on its year-end closing value.
Crude oil (WTI) closed
at $47.67 a barrel last week, up $1.30 over the prior week's closing
price. The price of gold (COMEX) fell by last week's end, selling at
$1,252.90 by late Friday afternoon, down from the prior week's closing
price of $1,274.30. The national average retail regular gasoline price
increased to $2.242 per gallon on May 16, 2016, $0.022 above the prior
week's price but $0.502 below a year ago.
Last Week's Headlines
- Surging oil prices and a slightly
weakening dollar may be firming inflationary trends as the all items
Consumer Price Index increased 0.4% in April, according to the Bureau of
Labor Statistics. Over the last 12 months, the all items index rose
1.1%. The gain in the all items index reflects several sub-index
increases, including the food index (0.2%), the shelter index (0.3%),
the energy index (3.4%), and the gasoline index (8.1%). An index used as
a gauge for overall inflation, the index for all items less food and
energy (the core index) increased 0.2% in April. Over the last 12
months, the core index is up 2.1% compared to a 2.2% rise for the 12
months ended March.
- The National Association of Home
Builders Housing Market Index for May remained at 58 for the fourth
consecutive month. The index for current single family sales remained at
63--the same as April--while the index for single family sales over the
next six months increased in May to 65 from April's reading of 62.
According to NAHB Chief Economist Robert Dietz, "The fact that future
sales expectations rose slightly this month shows that builders are
confident that the market will continue to strengthen. Job creation, low
mortgage interest rates, and pent-up demand will also spur growth in
the single-family housing sector moving forward."
- The sale of existing homes increased
for the second consecutive month, despite an inventory shortage and
increasing price momentum. Total existing home sales rose 1.7% in April
at an annual rate of 5.45 million from 5.36 million in March. Sales are
up 6.0% from April 2015. Total housing inventory at the end of April
increased 9.2% to 2.14 million existing homes available for sale, but is
still 3.6% lower than a year ago (2.22 million).The median
existing-home price for all housing types in April was $232,500, up 6.3%
from April 2015 ($218,700). April's price increase marks the 50th
consecutive month of year-over-year gains.
- The number of building permits issued
(3.6%) and housing starts (6.6%) increased in April compared to March,
while the number of housing completions fell 11.0%. While these figures
could be revised as further information is obtained, this report
reflects positive expansion in the private housing sector following a
slowdown in the first quarter of the year.
- The Federal Reserve reported that
industrial production increased 0.7% in April after falling the previous
two months. Manufacturing output rose 0.3% after declining the same
amount in March. The index for utilities jumped 5.8% in April, as the
demand for electricity and natural gas returned to a more normal level
after being suppressed by warmer-than-usual weather in March. At 104.1%
of its 2012 average, total industrial production in April was 1.1% below
its year-earlier level. Also, capacity utilization for the industrial
sector increased 0.5 percentage point in April to 75.4%, a rate that is
4.6 percentage points below its long-run (1972-2015) average.
- The minutes from the April FOMC
meeting, released last week, revealed that an interest rate increase in
June is a distinct possibility if economic conditions continued to
improve into the second quarter. Raising the federal funds rate can have
conflicting implications. On the one hand, raising rates is indicative
of the Fed's opinion that the economy is improving. Conversely, higher
rates can have the effect of increasing the cost of investing in stocks,
which could negatively impact the markets.
- For the week ended May 14, there were
278,000 claims for unemployment insurance, a decrease of 16,000 from the
previous week's unrevised level. The advance seasonally adjusted
insured unemployment rate remained at 1.6% from the prior week's
unrevised level. The advance number for continuing unemployment
insurance claims for the week ended May 7 was 2,152,000, a decrease of
13,000 from the previous week's revised level.
Eye on the Week Ahead
Following last week's reports on housing starts and existing home sales,
this week provides the latest information on new home sales. The second
estimate on the first-quarter GDP closes the week.
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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