The Markets
Oil prices continued to
fall early last week, sending large-cap indexes lower. As the week
progressed, oil prices gained some momentum, as did U.S. stock indexes.
On the heels of a favorable jobs report, stocks rebounded by the end of
last week to post gains in each of the indexes listed here. Both the
S&P 500 and Nasdaq reached record highs. The Dow gained more than
111 points over the prior week's closing value. Bond prices fell due to
lower demand, sending the yield on 10-year Treasuries up 15 basis
points.
Abroad, Japan approved a
$274 billion stimulus package in an attempt to spark the it's languid
economy. Part of the package includes payment of about $147 to each of
the approximately 22 million low-income Japanese. The immediate response
from Japanese investors was underwhelming, as the Nikkei Stock Average
dropped. The Bank of England cut interest rates for the first time since
2009 to 0.25% and adopted additional stimulus measures in an attempt to
support the British economy during the period of adjustment following
the vote to leave the EU.
Crude oil (WTI) prices
continue to be volatile, falling below $40 during last week, until a
moderate rally had the price close at $41.98 a barrel last week, up
slightly from $41.38 per barrel the previous week. The price of gold
(COMEX) dropped to $1,341.40 by late Friday afternoon, down from the
prior week's price of $1,357.90. The national average retail regular
gasoline price decreased for the seventh week in a row to $2.159 per
gallon on August 1, $0.023 under the prior week's price and $0.530 below
a year ago.
Last Week's Headlines
- In another clear sign of a
strengthening economy, the jobs report showed 255,000 new jobs were
added in July, while the unemployment rate remained at a relatively low
4.9% (7.8 million unemployed). For the month, job gains occurred in
professional and business services, health care, and financial
activities. The average workweek for all employees on private nonfarm
payrolls increased by 0.1 hour to 34.5 hours in July. In July, average
hourly earnings for all employees on private nonfarm payrolls increased
by $0.08 to $25.69. Over the year, average hourly earnings have risen by
2.6%. This report should be a boost to the stock market, which has been
reacting to volatile oil prices and tepid earnings reports.
- For the third consecutive month,
consumers had more to spend in June and they spent it, according to the
Bureau of Economic Analysis. Compared to a month earlier, consumers'
income increased by 0.2%, disposable personal income (after taxes) also
increased by 0.2%, while personal consumption expenditures (purchases of
consumer goods and services) jumped 0.4%. As was the case in April and
May, consumer spending outpaced income growth. Since consumers are
spending more than they're making, it stands to reason that they're
saving a little less given that the personal savings rate dipped from
5.5% in May to 5.3% in June. Inflationary pressures remain soft, as the
personal consumption expenditures price index--a preferred inflationary
measure of the Fed--increased only 0.1% in June from the prior month.
- According to the latest information
from the Census Bureau, the goods and services trade deficit reached
$44.5 billion in June--up $3.6 billion from May's revised figures--due
to a surge in consumer purchases of foreign goods. June exports were
$183.2 billion, $0.6 billion more than May exports. June imports were
$227.7 billion, $4.2 billion more than May imports. Year-to-date, the
goods and services deficit decreased $5.8 billion, or 2.3%, from the
same period in 2015. Exports decreased $54.2 billion, or 4.7%. Imports
decreased $60.0 billion, or 4.3%.
- The seasonally adjusted Markit final
U.S. Manufacturing Purchasing Managers' Index™ (PMI™) registered 52.9 in
July, up from 51.3 in the previous month. During the latest survey
period, respondents noted improving business conditions evidenced by
stronger rates of output and growth in new orders and employment.
- The July PMI® from the Institute for
Supply Management also reported growth, but at a slower rate compared to
the prior month. The PMI® registered 52.6%, a decrease of 0.6
percentage point from the June reading of 53.2%. An index reading over
50.0% indicates growth. According to the report, 12 of the 18 industries
included in the survey reported an increase in new orders in July (same
as in June), but only half of the 18 industries reported an increase in
production in July (down from 12 in June).
- From the non-manufacturing sector
(services, construction, mining, agriculture, forestry, and fishing and
hunting) economic activity grew, but at a slower pace in July compared
to June. The Non-Manufacturing Index was at 55.5%, down from June's
reading of 56.5%. Each of the index sub-components--non-manufacturing
business activity, employment, and price--decreased with only new orders
gaining in July over June, a sign that business activity may be picking
up in the third quarter.
- In the week ended July 30, the advance
figure for seasonally adjusted initial unemployment insurance claims
was 269,000, an increase of 3,000 from the prior week's level. The
advance seasonally adjusted insured unemployment rate remained at 1.6%.
The advance number for seasonally adjusted insured unemployment during
the week ended July 23 was 2,138,000, a decrease of 6,000 from the
previous week's revised level.
Eye on the Week Ahead
Trading is expected to be light next week, as it has been for much of
the summer. Two reports for July that are indicative of inflationary
trends--retail sales and the Producer Price Index--come out at the end
of next 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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