Monthly Economic Update for July, 2018

In this month’s recap: tariff talk weighs on equities worldwide, oil prices jump 10%, and the Fed raises rates once more.

Monthly Economic Update

 

Presented by JB Beckett, July 2018

 

THE MONTH IN BRIEF

While segments of the stock market rallied in June, assumptions that a global trade war was starting hurt the blue chips – the Dow Jones Industrial Average lost 0.59% last month. As the U.S., European Union, and China exchanged tariff threats, equity benchmarks worldwide treaded water or took losses. The economy was doing well: the latest hiring and retail sales data was excellent, consumer confidence appeared strong, and industries were growing impressively. Inflation pressure was mounting, and unsurprisingly, the Federal Reserve responded with another interest rate hike. New home sales improved, but residential resales waned. Ongoing trade frictions seemed to mute much of the bullishness seen early in the year.

1

 

 

DOMESTIC ECONOMIC HEALTH

The Trump administration announced further tariffs in June. New import duties aimed at China are scheduled for a July 6 launch: $34 billion in Chinese goods are supposed to be hit with 25% tariffs beginning on that date, with another $16 billion in Chinese imports potentially susceptible to these levies in the future. In addition, the U.S. may impose a 10% tariff on another $200 billion of Chinese products. A 20% tariff on autos coming from the European Union is also planned. The E.U. and China have retaliatory measures to these moves in the works (see “Global Economic Health” below).

2

Away from tariffs and their implications, investors absorbed some excellent reports on the U.S. economy. The Department of Labor’s May jobs report showed a net hiring gain of 223,000 and wages up 0.3% for the month (better than the 0.1% rise in April). The headline unemployment rate declined 0.1% to just 3.8%, and the U-6 jobless rate, including the underemployed, fell from 7.8% to 7.6%. Retail sales improved a striking 0.8% in May, and the gain held even without the inclusion of gasoline and automotive purchases.

3

Major consumer confidence indices remained elevated. The University of Michigan’s barometer of household sentiment, which had finished May at 98.0, ended June at 98.2. As for the Conference Board’s gauge, it fell 2.4 points to 126.4.

3,4

Although durable goods orders were down 0.6% for May (after a 1.0% April fall), the latest purchasing manager index readings at the Institute for Supply Management were still well above the all-important 50 level, delineating industry expansion from industry contraction. ISM’s factory PMI rose 1.4 points to 58.7, while its service sector PMI added 1.8 points to reach 58.6.

3,4

May’s Consumer Price Index arrived, and it showed yearly headline inflation at 2.8% and yearly core inflation (minus food and energy costs) at 2.2%. (Both the headline and core CPI were up 0.2% for the month.) The Federal Reserve’s preferred inflation barometer, the core PCE price index, displayed 2.0% a yearly rise through May. That marked the first time it had met the central bank’s longstanding inflation target since April 2012. Annualized wholesale inflation, as measured by the Producer Price Index, surged to 3.1% in May from 2.6% in April.

3,5

Investors widely assumed the Fed would make another quarter-point rate adjustment in June. Those expectations were met. On June 13, the Federal Open Market Committee voted to lift the target range on the federal funds rate to 1.75%-2.00%, and it also put out a new dot-plot projecting four rate hikes in 2018. (It forecast 2.8% GDP for 2018.)

6

Early in June, the federal government noted that Social Security would tap into its trust funds in 2018. This last happened in 1982. The latest report from Social Security’s trustees projected 2034 as the year in which retirement benefits could be cut 23% if no legislative action is taken to help the program beforehand. The trustees also said Medicare’s hospital insurance (Part A) fund could be depleted by 2026, three years earlier than they had previously projected; if nothing is done to boost funding before then, it will only be able to pay out 91% of Part A costs in that year.

7

 

GLOBAL ECONOMIC HEALTH

Was China ready to enter a trade war with America? Apparently so. Having already had U.S. tariffs imposed on its washing machines and solar panels earlier this year, the P.R.C. reacted to the probability of $34 billion in import taxes being imposed on its goods on July 6 by promising an equal tariff: excise taxes on $34 billion of products coming from the U.S., commencing on the very same day. The nation’s manufacturing engine revved down in June; its factory PMI fell 0.4 points to 51.5. Its service sector PMI, however, ticked up from 54.9 to 55.0.

2,8

Last month, the European Union responded to the metals tariffs enacted by the U.S. on its steel and aluminum exports with 25% duties on assorted U.S. imports (including motorcycles, bourbon, jeans, and orange juice). The Trump administration’s pledge to impose tariffs on cars coming from the E.U. was met with an immediate warning: the E.U. was ready to put additional import taxes on American-made goods. Any such retaliatory tariffs might be sizable, since the value of exported autos coming from the E.U. to the U.S. is about 10 times that of the E.U.’s total steel and aluminum exports.

2,9

 

WORLD MARKETS

 

The benchmark indices of Mexico and Canada had a fine June. In Mexico City, the Bolsa jumped 6.75% for the month, while in Toronto, the TSX Composite added 2.23%. A look around the world reveals a few other gains: 2.74% for Australia’s All Ordinaries, 1.06% for Spain’s IBEX 35, 1.36% for India’s Sensex, and 0.76% for India’s other marquee index, the Nifty 50.

10

 

Other stock gauges simply slumped as investors grew pessimistic. The Shanghai Composite took the hardest fall of any major benchmark last month, dropping 8.72%. Argentina’s Merval slipped 8.08%. South Korea’s Kospi lost 5.34%, while the Hang Seng declined 5.02%. Brazil’s Bovespa retreated 4.35%. In Europe, Germany’s DAX lost 2.85%; France’s CAC 40, 2.11%; the FTSE Eurofirst 300, 1.23%. The Nikkei 225 was barely harmed, down only 0.24% for the month. While the MSCI World Index lost just 0.17%, the MSCI Emerging Markets index fell 4.57%.

10,11

 

 

COMMODITIES MARKETS

 

Rising 10.66% for the month, WTI crude oil settled at $74.25 on the NYMEX on June 29. Heating oil futures improved 0.23% in June, but unleaded gasoline futures declined 1.13%, and natural gas futures, 1.15%.

12

 

All four marquee metals retreated in June. Silver lost the least, falling 2.67%. Copper slipped 3.34%; gold, 3.37%; platinum, 6.21%. Gold ended the month at a COMEX price of $1,254.20; silver, at a COMEX price of $16.06. The U.S. Dollar Index gained 1.42% in June, concluding the month at 95.32.

12,13

Turning to the major ag futures, we see widespread losses, some deep. While cocoa added 0.73% in June, wheat fell 5.29%; sugar, 7.11%; cotton, 8.57%; coffee, 8.93%. Corn futures tumbled 11.05%; soybean futures, 15.87%.

12

 

 

REAL ESTATE

Existing home sales, which account for the clear majority of residential estate transactions, weakened 0.4% in May; this followed the (revised) 2.7% April retreat measured by the National Association of Realtors. New home sales surprised to the upside in May, according to the Census Bureau; its latest monthly report showed the pace of new home buying improving 6.7%. One contributing factor may have been the ongoing decline in new home prices. At $313,000, the median price was down 3.3% from where it was a year earlier.

3,14

A stabilization in mortgage rates may have also spelled relief for some buyers. Rates were practically unchanged between Freddie Mac’s May 31 and June 28 Primary Mortgage Market Surveys: average interest on the 30-year fixed merely went from 4.56% to 4.55%, while the mean rate on the 15-year fixed declined to 4.04% from 4.06%. The average rate on the 5/1-year ARM, influenced to greater degree by Federal Reserve policy, rose from 3.80% to 3.87%.

15

The lagging indicator tracking home values across 20 metro markets – the S&P CoreLogic Case-Shiller index – showed a 6.4% yearly advance in U.S. home prices through April. The NAR’s forward-looking pending home sales index declined 0.5% for May, which was at least less than the 1.3% dip it took the prior month. Builders broke ground on 5.0% more residential projects nationally in May than they had in April, the Census Bureau said; the rate of permits issued, however, decreased 4.6% in May.

3,4

 

 

 

T I P   O F   T H E   M O N T H

 

The cost of a private college may be easier to handle than you think.

Grants to promote diversity of the student body and alumni-endowed scholarships may help. Also, a student’s financial need may prove greater at a pricier college, and that demonstrated need may warrant more financial aid.

 

 

LOOKING BACK… LOOKING FORWARD

The Nasdaq Composite set the pace for the big three in June, rising 0.92% to a June 29 close of 7,510.30. Finishing the month at 2,718.37, the S&P 500 improved 0.48% for the month; the Dow Jones Industrial Average lost 0.59% in June, falling to 24,271.41. Small caps moved north a bit: the Russell 2000 added 0.58% in June to settle at 1,643.07 as the trading month ended. Finally, the CBOE VIX rose 4.28% for the month to 16.09. Two Wall Street equity indices were up double-digits YTD as June concluded: the NYSE Arca Biotechnology Index at +12.54% and the Nasdaq-100 at +10.07%.

1,16

% CHANGE

Y-T-D

1-YR CHG

5-YR AVG

10-YR AVG

DJIA

-1.81

14.02

12.56

11.38

NASDAQ

8.79

22.23

24.14

22.75

S&P 500

1.67

12.34

13.85

11.24

 

 

 

 

 

REAL YIELD (%)

6/29 RATE

1 YR AGO

5 YRS AGO

10 YRS AGO

10 YR TIPS

0.74

0.55

0.53

1.48

 

Sources: wsj.com, bigcharts.com, treasury.gov – 6/29/18

16,17,18,19

Indices are unmanaged, do not incur fees or expenses, and cannot be invested into directly. These returns do not include dividends. 10-year TIPS real yield = projected return at maturity given expected inflation.

The first half of 2018 is now history. Remember all the pundits who predicted a single-digit return for the S&P 500 this year? They may be right. The S&P has largely moved sideways, and it may keep doing so in the third and fourth quarters. America is witnessing healthy economic growth, which should continue to promote strong corporate earnings – but investors have tariffs on their mind, the yield curve has been flattening, and the Federal Reserve continues to make borrowing more expensive. Another sign of reduced bullishness: the unusual length of this current stock market correction. Wall Street has not seen a correction this long since 2008, and if it persists into mid-July (which appears likely), it will become the longest correction in 34 years. Since the end of January, the S&P has simply drifted within a 10% range. A breakout in the second half could occur, but a cautionary mood does seem to be in place as well as a perception that this bull market is entering its last phase. Perhaps the mood will lift and the market will rally, but bulls could simply remain on the sidelines while the market keeps heading sideways toward 2019.

20

 

 

 

Q U O T E   O F   T H E   M O N T H

 

“Having a lot of money does not automatically make you a successful person. What you want is

money and meaning

. You want your work to be meaningful, because meaning is what brings the real richness to your life.”

Oprah winfrey

 

 

UPCOMING RELEASES

What will investors watch across the rest of July? Here are the key reports: the minutes from the Federal Reserve’s recent policy meeting and the June ISM service sector PMI (7/5), the Department of Labor’s latest employment report (7/6), June wholesale inflation (7/11), June’s Consumer Price Index (7/12), the initial July University of Michigan consumer sentiment index (7/13), the June retail sales report (7/16), June industrial output (7/17), the Census Bureau’s latest snapshot of housing starts and building permits and a new Beige Book from the Fed (7/18), the Conference Board’s June leading indicator index (7/19), the NAR’s June existing home sales report (7/23), June new home sales (7/25), June hard goods orders (7/26), the second estimate of Q2 economic growth and the final July University of Michigan consumer sentiment index (7/27), the NAR’s newest pending home sales index (7/30), and finally the Conference Board’s latest consumer confidence index, the June PCE price index, and June consumer spending (7/31).

 

 

T H E  M O N T H L Y   R I D D L E

 

Getting into it is often easy, as it may not require speech or much thought. It is often very difficult to get out of, though. 

What is it?

 

LAST WEEK’S RIDDLE: This word has six letters; the first and last letters are Es. Take away either the first or last letter, and you can pronounce the five letters left to sound the same as the six-letter word. What word is this?

ANSWER: Excuse.

 

 

JB Beckett may be reached at (803) 939-4848 or jb@beckettfinancialgroup.com BeckettFinancialGroup.com

 

Know someone who could use information like this?

Please feel free send us their contact information via phone or email. (Don’t worry – we’ll request their permission before adding them to our mailing list.)

 

 

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. The information herein has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. Investments will fluctuate and when redeemed may be worth more or less than when originally invested. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All market indices discussed are unmanaged and are not illustrative of any particular investment. Indices do not incur management fees, costs and expenses, and cannot be invested into directly. All economic and performance data is historical and not indicative of future results. The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. The NASDAQ Composite Index is a market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System. The Standard & Poor’s 500 (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 Russell 2000 Index measures the performance of the small-cap segment of the U.S. equity universe. The CBOE Volatility Index

®

(VIX

®

) is a key measure of market expectations of near-term volatility conveyed by S&P 500 stock index option prices. NYSE Group, Inc. (NYSE:NYX) operates two securities exchanges: the New York Stock Exchange (the “NYSE”) and NYSE Arca (formerly known as the Archipelago Exchange, or ArcaEx

®

, and the Pacific Exchange). NYSE Group is a leading provider of securities listing, trading and market data products and services. The New York Mercantile Exchange, Inc. (NYMEX) is the world’s largest physical commodity futures exchange and the preeminent trading forum for energy and precious metals, with trading conducted through two divisions – the NYMEX Division, home to the energy, platinum, and palladium markets, and the COMEX Division, on which all other metals trade. The Mexican Stock Exchange, commonly known as Mexican Bolsa, Mexbol, or BMV, is the only stock exchange in Mexico. The S&P/TSX Composite Index is an index of the stock (equity) prices of the largest companies on the Toronto Stock Exchange (TSX) as measured by market capitalization. The All Ordinaries (XAO) is considered a total market barometer for the Australian stock market and contains the 500 largest ASX-listed companies by way of market capitalization. The IBEX 35 is the benchmark stock market index of the Bolsa de Madrid, Spain’s principal stock exchange. The BSE SENSEX (Bombay Stock Exchange Sensitive Index), also-called the BSE 30 (BOMBAY STOCK EXCHANGE) or simply the SENSEX, is a free-float market capitalization-weighted stock market index of 30 well-established and financially sound companies listed on the Bombay Stock Exchange (BSE). The Nifty 50 (NTFE 50) is a well-diversified 50-stock index accounting for 13 sectors of the Indian economy. It is used for a variety of purposes such as benchmarking fund portfolios, index-based derivatives and index funds. The SSE Composite Index is an index of all stocks (A shares and B shares) that are traded at the Shanghai Stock Exchange. The MERVAL Index (MERcado de VALores, literally Stock Exchange) is the most important index of the Buenos Aires Stock Exchange. The Korea Composite Stock Price Index or KOSPI is the major stock market index of South Korea, representing all common stocks traded on the Korea Exchange. The Hang Seng Index is a free float-adjusted market capitalization-weighted stock market index that is the main indicator of the overall market performance in Hong Kong. The Bovespa Index is a gross total return index weighted by traded volume & is comprised of the most liquid stocks traded on the Sao Paulo Stock Exchange. The DAX 30 is a Blue-Chip stock market index consisting of the 30 major German companies trading on the Frankfurt Stock Exchange. The CAC-40 Index is a narrow-based, modified capitalization-weighted index of 40 companies listed on the Paris Bourse. The FTSEurofirst 300 Index comprises the 300 largest companies ranked by market capitalisation in the FTSE Developed Europe Index. Nikkei 225 (Ticker: ^N225) is a stock market index for the Tokyo Stock Exchange (TSE). The Nikkei average is the most watched index of Asian stocks. The MSCI World Index is a free-float weighted equity index that includes developed world markets, and does not include emerging markets. The MSCI Emerging Markets Index is a float-adjusted market capitalization index consisting of indices in more than 25 emerging economies. The US Dollar Index measures the performance of the U.S. dollar against a basket of six currencies. The NASDAQ-100 is a stock market index made up of 103 equity securities issued by 100 of the largest non-financial companies listed on the NASDAQ. It is a modified capitalization-weighted index. The NYSE Arca Biotechnology Index

SM

is an equal dollar weighted index designed to measure the performance of a cross section of companies in the biotechnology industry that are primarily involved in the use of biological processes to develop products or provide services. Additional risks are associated with international investing, such as currency fluctuations, political and economic instability and differences in accounting standards. This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. MarketingPro, Inc. is not affiliated with any person or firm that may be providing this information to you. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional.

CITATIONS:

1 – quotes.wsj.com/index/SPX [6/29/18]

2 – marketwatch.com/story/trade-war-tracker-here-are-the-new-levies-imposed-and-threatened-2018-06-22 [6/22/18] 

3 – investing.com/economic-calendar/ [6/30/18]

4 – marketwatch.com/economy-politics/calendars/economic [6/29/18]

5 – reuters.com/article/usa-economy/wrapup-1-u-s-core-pce-price-index-hits-2-0-percent-spending-slows-idUSL1N1TU1BT [6/29/18]

6 – forbes.com/sites/advisor/2018/06/19/fed-now-hinting-at-four-potential-rate-hikes-in-2018/ [6/19/18]

7 – marketwatch.com/story/new-warnings-about-cuts-to-social-security-and-medicare-are-a-reason-to-worry-2018-06-07 [6/7/18]

8 – bloombergquint.com/china/2018/06/30/china-factory-gauge-slips-in-june-as-credit-squeeze-hits-output [6/30/18]

9 – bloomberg.com/news/articles/2018-06-29/trump-given-eu-warning-that-car-tariffs-would-prompt-retaliation [6/29/18]

10 – markets.on.nytimes.com/research/markets/worldmarkets/worldmarkets.asp [6/29/18]

11 – msci.com/end-of-day-data-search [6/29/18]

12 – money.cnn.com/data/commodities [6/29/18]

13 – marketwatch.com/investing/index/dxy/historical [6/29/18]

14 – bloomberg.com/news/articles/2018-06-25/u-s-new-home-sales-climb-to-six-month-high-on-surge-in-south [6/25/18]

15 – freddiemac.com/pmms/archive.html [6/29/18]

16 – markets.wsj.com/us [6/29/18]

17 – bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=6%2F29%2F17&x=0&y=0 [6/29/18]

17 – bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=6%2F29%2F17&x=0&y=0 [6/29/18] 

17 – bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=6%2F29%2F17&x=0&y=0 [6/29/18] 

17 – bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=6%2F28%2F13&x=0&y=0 [6/29/18]

17 – bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=6%2F28%2F13&x=0&y=0 [6/29/18]

17 – bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=6%2F28%2F13&x=0&y=0 [6/29/18]

17 – bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=6%2F30%2F08&x=0&y=0 [6/29/18]

17 – bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=6%2F30%2F08&x=0&y=0 [6/29/18]

17 – bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=6%2F30%2F08&x=0&y=0 [6/29/18]

18 – treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyield [6/29/18]

19 – treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyieldAll [6/29/18]

20 – marketwatch.com/story/investors-look-to-the-second-half-of-2018-expecting-growthamid-rising-uncertainties-2018-06-30 [6/30/18]

If you wish to be removed from our mailing list please click here .

June 2nd – Weekly Economic Update

Weekly Economic Update

Presented by JB Beckett, July 2, 2018

INCOME AND SPENDING RISE, ALONG WITH CORE INFLATION
According to the latest monthly Department of Commerce snapshot, personal incomes improved 0.4% in May. Personal spending, however, advanced just 0.2% (half the gain forecast by economists polled by Reuters) and was actually flat when adjusted for inflation. May also brought the sixth straight 0.2% monthly increase for the core PCE price index, which the Federal Reserve uses as its inflation yardstick. The core PCE was up 2.0% year-over-year through May, reaching the central bank’s annualized inflation target for the first time in more than six years. 1

CONSUMER CONFIDENCE GAUGES SHOW JUNE DECLINES
The University of Michigan consumer sentiment index and the Conference Board consumer confidence index both came in lower for June. The UMich index dipped 1.1 points from its previous reading to a final June mark of 98.2; meanwhile, the CB’s gauge dipped 2.4 points to a still-impressive 126.4. 2

NEW HOME SALES JUMP 6.7%
In part, this May gain can be credited to a 17.9% surge in the South, which left new home buying in that region at its best annual pace in 11 years. The Census Bureau also noted that the median new home sale price fell 3.3% across the 12 months ending in May. 3

 

A LOSING WEEK, BUT A WINNING QUARTER
All three of the major Wall Street indices retreated last week. The S&P 500 lost 1.33%; the Nasdaq Composite, 2.37%; the Dow Jones Industrial Average, 1.26%. Friday’s settlements: S&P, 2,718.37; Nasdaq, 7,510.30; Dow, 24,271.41. This data aside, all three benchmarks were in the green in the second quarter – the S&P advanced 2.93%; the Nasdaq, an impressive 6.33%; the Dow, 0.70%. 4,5

T I P   O F   T H E   W E E K
Are you concerned about your elderly parent’s ability to manage financial matters? Consider accompanying your mom or dad when they meet with their financial professional or CPA. You may gain some insight.

THIS WEEK
Monday, the Institute for Supply Management releases its June manufacturing PMI. | Nothing major is scheduled for Tuesday. |Wednesday is July 4th; U.S. financial markets are closed for the holiday. | Minutes from the Federal Reserve’s June policy meeting appear Thursday, in addition to the latest initial claims numbers, the June Challenger job-cut report, the June ADP payrolls report, and a new ISM service sector PMI. | The Department of Labor presents its June employment report Friday.

 

% CHANGE Y-T-D 1-YR CHG 5-YR AVG 10-YR AVG
DJIA -1.81 14.02 12.56 11.38
NASDAQ 8.79 22.23 24.14 22.75
S&P 500 1.67 12.34 13.85 11.24
REAL YIELD (%) 6/29 RATE 1 YR AGO 5 YRS AGO 10 YRS AGO
10 YR TIPS 0.74 0.55 0.53 1.48

 

Sources: wsj.combigcharts.comtreasury.gov – 6/29/18 4,6,7,8

Indices are unmanaged, do not incur fees or expenses, and cannot be invested into directly. These returns do not include dividends. 10-year TIPS real yield = projected return at maturity given expected inflation.

June 25 – Weekly Economic Update

TARIFF TALK INTENSIFIES

Major economic powers proposed additional import taxes last week, as investors wondered if a global trade war was now underway. Monday evening, President Trump stated that he had instructed U.S. Trade Representative Robert Lighthizer to identify another $200 billion of Chinese products to subject to a new 10% import duty. Shortly before the trading week began, the European Union proclaimed it would place import taxes on $3.3 billion of U.S. products, in retaliation to recently imposed metals tariffs. Friday, President Trump mulled imposing a 20% tax on autos arriving from the E.U. unless it lifts such import duties. 1,2

 

EXISTING HOME SALES WEAKEN SLIGHTLY

A National Association of Realtors report says that sales tapered off 0.4% in May. While the inventory of homes listed grew 2.8% in the fifth month of the year, the median price of an existing home hit an all-time peak of $264,800. The sales pace was 3.0% slower than in May 2017. 3

 

HOUSING STARTS RISE, BUT PERMITS FALL

While home sales were nearly flat last month, groundbreaking increased 5.0% according to the Census Bureau. Its latest report on U.S. residential construction also noted a 4.6% drop in building permits, far exceeding the decline seen in April. 4

 

BLUE CHIPS SHED 2%

To be precise, the Dow Jones Industrial Average lost 2.03% last week, sinking to 24,580.89 at Friday’s close even with a 119-point Friday gain. Faring better, the Nasdaq Composite retreated 0.69% to 7,692.82 in the same time frame, while the S&P 500 declined 0.89% to 2,754.88. 5

 

THIS WEEK : Investors react to May new home sales data and Q2 earnings from Carnival on Monday. The Conference Board’s June consumer confidence index appears Tuesday, along with the latest S&P CoreLogic Case-Shiller home price index and earnings from Lennar and Sonic. On Wednesday, Wall Street considers the NAR’s May index of housing contract activity, May durable goods orders, and earnings from Bed Bath & Beyond, General Mills, Paychex, and Rite Aid. Thursday, the thirdestimate of Q1 economic growth arrives, along with the latest initial claims figures and earnings announcements from Accenture, ConAgra Brands, KB Home, Nike, and Walgreens Boots Alliance. May personal spending data, the May PCE price index, and the final June University of Michigan consumer sentiment index emerge Friday, plus earnings from Constellation Brands.

 

% CHANGE Y-T-D 1-YR CHG 5-YR AVG 10-YR AVG
DJIA -0.56 +14.88 +13.22 +10.76
NASDAQ +11.44 +23.35 +25.83 +22.25
S&P 500 +3.04 +13.16 +14.60 +10.90
REAL YIELD 6/22 RATE 1 YR AGO 5 YRS AGO 10 YRS AGO
10 YR TIPS 0.78% 0.46% 0.59% 1.75%

 

June 18 – Weekly Economic Update

FED, NEW TARIFFS GET WALL STREET’S ATTENTION

As expected, the Federal Reserve adjusted the target range on the federal funds rate to 1.75%-2.00% on Wednesday. The central bank’s latest dot-plot projection, however, raised some eyebrows: it showed four interest rate increases planned for 2018 instead of three. The median forecast of Fed officials puts the benchmark interest rate at 2.4% at the end of this year, on the way to a peak of 3.4% in 2020. Friday morning, the Trump administration announced new 25% tariffs on at least $34 billion of Chinese imports. Hours later, China retaliated, declaring that it would levy 25% import taxes on a minimum of $34 billion of goods from America. The U.S. and China both plan to implement their new tariffs on July 6. 1,2

 

YEARLY INFLATION REACHES 2.8%

The latest Consumer Price Index shows the highest 12-month inflation reading in six years; the core CPI (which leaves out food and fuel costs) rose 2.2% in the year ending in May. Both the headline and core CPI were up 0.2% last month. Wholesale inflation, as measured by the Producer Price Index, increased 0.5% in May. 3,4

 

AN IMPRESSIVE ADVANCE FOR RETAIL SALES 

According to the Department of Commerce, the May gain was 0.8% (0.9% with car and truck buying factored out). This follows an April improvement of 0.4% (revised up from 0.3%). 4

 

A MIXED WEEK FOR THE MAJOR INDICES

Once again, the Nasdaq Composite outran the Dow Jones Industrial Average and S&P 500. Last week, the tech benchmark added 1.32% to settle at 7,746.38 at Friday’s closing bell. The S&P 500 ended up flat for the week (+0.01%) at 2,779.42. At Friday’s close, the Dow Jones Industrial Average had slipped 0.89% in five days to 25,090.48. 5

 

THIS WEEK : Nothing major is slated for Monday. Wall Street considers earnings from FedEx, La-Z-Boy, and Oracle on Tuesday, along with the latest Census Bureau snapshot of housing construction activity.   Federal Reserve Chairman Jerome Powell discusses monetary policy at a European Central Bank forum on Wednesday morning; investors will also eye earnings from Micron Technology, Steelcase, and Winnebago, and a National Association of Realtors report on existing home sales. Thursday, the Conference Board issues its May leading indicators index, a new initial jobless claims report arrives, and Barnes & Noble, Darden Restaurants, Kroger, and Red Hat present earnings. Friday, Blackberry, and CarMax offer Q1 results.

 

% CHANGE Y-T-D 1-YR CHG 5-YR AVG 10-YR AVG
DJIA +1.50 +17.47 +13.30 +10.45
NASDAQ +12.21 +25.64 +25.25 +21.30
S&P 500 +3.96 +14.26 +14.17 +10.43
REAL YIELD 6/15 RATE 1 YR AGO 5 YRS AGO 10 YRS AGO
10 YR TIPS 0.81% 0.49% 0.09% 1.76%

June 11 – Weekly Economic Update

100 MONTHS OF GROWTH FOR SERVICE BUSINESSES

The Institute for Supply Management announced this milestone as it revealed a 58.6 May reading for its non-manufacturing purchasing manager index. That excellent reading was well north of the 56.8 mark seen in April. Fourteen of the fifteen service industries followed by the PMI reported expansion in May; the information sector was the only outlier. 1

 

Q2 GDP OUTLOOK BRIGHTENS

Is the economy now expanding at the rate of 5% a year? The bold new estimate by the Federal Reserve Bank of Atlanta nearly says as much. The Atlanta Fed projects a 4.6% GDP reading for Q2. The first quarter saw a 2.2% rate of growth, and the economy grew 2.3% for all of 2017. 2

 

SOCIAL SECURITY TO TAP ITS RESERVES THIS YEAR

Last week, Social Security’s trustees announced that the program needs to dip into its trust funds for the first time in 36 years in order to fully fund itself in 2018. In their annual report, the trustees noted that monthly benefits could be reduced as much as 23% by 2034 if no legislative action is taken on Capitol Hill between now and then. The report also noted that Medicare’s hospital insurance fund risks being depleted by 2026; barring a fix, Medicare might only pay out 91% of hospital costs at that point. 3

 

NASDAQ ATTAINS RECORD TERRITORY AGAIN

Finishing Friday at 7,645.51, the Nasdaq Composite retreated from its historic closes on Monday, Tuesday, and Wednesday of last week. Even so, it gained 1.21% across five trading sessions. The S&P 500 added 1.62% last week to settle at 2,779.03 Friday. The Dow Jones Industrial Average? It rose 2.77% for the week, reaching 25,316.53 at Friday’s closing bell. 4,5

 

THIS WEEK : Nothing major is scheduled on Monday. The May Consumer Price Index appears Tuesday, plus earnings from H&R Block.   Wednesday, Wall Street awaits a Federal Reserve interest rate decision and considers the May Producer Price Index. May retail sales numbers appear Thursday, in addition to a new initial jobless claims report and quarterly results from Michaels Companies. On Friday, the University of Michigan releases its preliminary June consumer sentiment index.

 

% CHANGE Y-T-D 1-YR CHG 5-YR AVG 10-YR AVG
DJIA +2.42 +19.52 +13.21 +10.62
NASDAQ +10.75 +20.94 +24.08 +21.09
S&P 500 +3.94 +14.19 +13.82 +10.41
REAL YIELD 6/8 RATE 1 YR AGO 5 YRS AGO 10 YRS AGO
10 YR TIPS 0.82% 0.41% 0.03% 1.54%

June – Monthly Economic Update

THE MONTH IN BRIEF
In May, investors were left to interpret mixed geopolitical and financial signals. The historic U.S.-North Korea summit was on, then off, then possibly on again. An apparent truce emerged in the U.S.-China tariffs battle, but it did not last. Oil rallied, but then prices fell. Federal Reserve policy meeting minutes indicated central bank officials would accept above-target inflation for a while. Other economic signals were clear: new and existing home sales were down, consumer confidence was back up, and consumer spending was strong. In the end, the markets took all this in stride – the S&P 500 rose 2.16% for the month. 1

 

DOMESTIC ECONOMIC HEALTH
On May 19, Secretary of the Treasury Steven Mnuchin told the media that the U.S.-China trade war was “on hold.” Both nations agreed to refrain from imposing new import tariffs, and China announced plans to lower taxes on imported cars and trucks from 25% to 15%. Ten days later, the U.S. surprised economists, journalists, and investors by electing to proceed with the 25% tariffs on $50 billion of Chinese imports it had proposed in April. The Chinese government indicated it was ready to institute tariffs in response. On May 31, the Trump administration said that it would move forward with its planned steel and aluminum tariffs against Mexico, Canada, and the European Union, as well as extend short-term exemptions no further. Mexico and the E.U. quickly announced retaliatory taxes for U.S. imports. 2,3

 

What did the Federal Reserve mean when it used the word “symmetric” in the minutes of its May meeting? The text referred to its “symmetric inflation objective,” and that obscure adjective (meaning “showing symmetry”) was used nine times. Market participants did learn that Fed policymakers were willing to let inflation briefly top the central bank’s 2% target rate. The Fed held interest rates steady last month, but a June rate hike seemed a distinct possibility: “Most participants judged that if incoming information broadly confirmed their current economic outlook, it would likely soon be appropriate [to] take another step in removing policy accommodation.” 4,5

 

Looking at inflation gauges and other core economic indicators kept by federal government departments, the positives seemed to outnumber the negatives. Consumer prices were up 2.5% annually through April, just 0.1% above the March reading, and yearly wholesale inflation fell to 2.6% from the 3.0% advance measured in the third month of the year. The Core PCE Price Index showed 2.3% year-over-year inflation through April, as opposed to 2.5% through March. Hard goods orders were down 1.7% in April, but rose 0.9% minus defense industry orders. Retail sales improved another 0.3% for April, and that gain held up even with auto sales removed. Another report showed consumer spending advancing 0.6% in April, consumer incomes 0.3%. Gross domestic product in the first quarter was evaluated at 2.2%. 5,6

 

Unemployment dropped to 3.9% in April and 3.8% in May, according to the Department of Labor. That was a low unseen since 2000. Wages grew 0.1% in April and 0.3% a month later; net job creation was at 159,000 in April and 223,000 in May. The U-6 rate, tracking both unemployed and underemployed workers, fell to 7.6% in May; it was 0.2% higher a month before. 5,7

 

The Institute for Supply Management’s purchasing manager indices showed slightly slower industry growth in April than in March; both benchmarks lost 2.0 points. The manufacturing PMI was at 57.3; the non-manufacturing PMI, at 56.8. 8

 

Lastly, the Conference Board’s consumer confidence index rose 2.4 points in May, reaching a lofty 128.0. The University of Michigan’s consumer sentiment index declined 0.8 points from its initial May mark to 98.0. 5

 

GLOBAL ECONOMIC HEALTH
Political turmoil in Southern Europe made investors uneasy as May concluded. Italian President Sergio Mattarella effectively prevented the formation of a coalition government in late May. Populist parties managed to establish a new government as May ended, but investors and economists worried that the populists could try to push Italy out of the European Union. Spanish Prime Minister Mariano Rajoy was ousted by a parliamentary vote and replaced by new Prime Minister Pedro Sanchez, who headed a coalition including Catalan separatists. 9,10

 

An analysis by Bloomberg pointed to a moderate deceleration in the Chinese economy. Bloomberg Economics concluded in late May that the P.R.C. was indeed on pace for 6.5% growth in 2018, parallel with official estimates. That would represent a drop from the nation’s 6.9% GDP in 2017. Meanwhile, new data showed the Japanese economy contracting 0.6% the first quarter, displaying its first negative GDP reading in more than two years. In its May economic report, Japan’s Cabinet Office maintained that the world’s third-largest economy was “gradually recovering.”11,12

 

WORLD MARKETS
Away from America, the TSX Composite achieved the standout gain of the month, rising 2.91%. Nearly matching Canada’s leading stock benchmark, the United Kingdom’s FTSE 100 advanced 2.25%. Taiwan’s TSE 50 improved 1.09%. There were other, minor index improvements: the Shanghai Composite rose 0.43%; the Sensex, 0.46%; the MSCI World, 0.31%. 13,14

 

Losses were widespread in a month with much geopolitical and trade uncertainty. The West saw two of the biggest drops: a 7.64% slump for Mexico’s Bolsa and a 10.87% fall for Brazil’s Bovespa. Political tension in Spain drove the IBEX 35 5.16% lower. Singapore’s Straits Times index slipped 5.14%, and Malaysia’s Kuala Lumpur Composite took a 6.94% fall. France’s CAC 40 lost 2.21%; the Nikkei 225, 1.45%; the Hang Seng, 1.10%. The MSCI Emerging Markets index retreated 3.75%. 13,14

 

COMMODITIES MARKETS

In the middle of May, light sweet crude seemed poised for a major monthly gain. Although the NYMEX price surpassed $72 at one point, things reversed: oil ended up losing 2.09% on the month, settling at $67.15 on May 31. Natural gas was the leader among major energy futures, up 6.62%. Heating oil rose 2.22%, while unleaded gasoline gained 1.94%. Crops were led by cotton, which jumped 11.10%, and sugar, which surged 11.02%. Coffee futures advanced 2.74% in May; wheat, 1.79%; corn, 0.32%. Soybeans retreated 1.93%, and cocoa dropped 13.60%. 15

 

Ending May at a COMEX close of $1,298.00, gold was down 1.17% for the month. Other key metals advanced: silver gained 1.14%; platinum, 1.25%; copper, 0.30%. (Silver futures closed out the month at $16.45.) The U.S. Dollar Index stood at 94.07 at the close on May 31, having added 2.43% for the month. 15,16

 

REAL ESTATE
Mortgage rates may have soared in April, but they stabilized in May. On May 31, Freddie Mac’s Primary Mortgage Market Survey found the mean interest rate for a conventional home loan at 4.56%, which was 0.02% lower than on April 26. (At the end of May 2017, the average interest rate on a 30-year ARM was 3.95%.) The average rate for the refinancer’s favorite, the 15-year FRM, rose 0.04% to 4.06% between April 26 and May 31; the average rate for the 5/1-year ARM increased 0.06% to 3.80%. 17,18

 

Home buying fell off in April. According to National Association of Realtors research, there was a 2.5% retreat in the pace of existing home sales. What homes did sell spent an average of 26 days on the market. The median sale price ($257,900) was up 5.4% in April from the start of 2018. Census Bureau data showed new home sales slowing 1.5% in the fourth month of the year, and while the median sales price for a new residence declined 7.9% during April, that median price ($312,400) was not exactly in starter-home territory in many parts of the country. 18

 

The March S&P CoreLogic Case-Shiller home price index arrived, displaying a 6.8% overall annualized improvement for housing values across 20 metro areas; the increase matched that seen in the February edition. The NAR’s pending home sales index declined 1.3% for March. Builders went to work on 3.7% fewer projects in April than they had in March. Mirroring the decline in starts, the Census Bureau also recorded a 1.8% dip in building permits. 5

 

LOOKING BACK…LOOKING FORWARD  
What really attracted equity investors in May? Tech and small-cap shares. Both the Nasdaq Composite and Russell 2000 had a great month. The Nasdaq surged 5.32%; the Russell, 5.95%. (The Russell, incidentally, ended May at +6.39% YTD.) The S&P 500 posted a fine 2.16% gain, while the Dow Jones Industrial Average rose a respectable 1.05%. The CBOE VIX lost 3.14% for the month. When the closing bell rang on May 31, the Dow settled at 24,415.84; the Nasdaq, 7,442.12; the S&P, 2,705.27; the Russell, 1,633.61; the VIX, 15.43. 1,19

 

% CHANGE Y-T-D 1-YR CHG 5-YR AVG 10-YR AVG
DJIA -1.23 +16.22 +12.31 +9.32
NASDAQ +7.80 +20.06 +23.07 +19.50
S&P 500 +1.18 +12.17 +13.18 +9.32
REAL YIELD 5/31 RATE 1 YR AGO 5 YRS AGO 10 YRS AGO
10 YR TIPS 0.76% 0.40% -0.05% 1.58%

 

Sources: wsj.combigcharts.comtreasury.gov – 5/31/18 1,20,21,22

Indices are unmanaged, do not incur fees or expenses, and cannot be invested into directly. These returns do not include dividends. 10-year TIPS real yield = projected return at maturity given expected inflation.

 

Tariffs are now being levied on imported steel and aluminum, and the trading partners affected by these taxes are responding or planning to respond with tariffs of their own on U.S. goods. Could stocks stall out because of this? An impeded flow of international trade would certainly impact the GDP of the world’s major economies and exert a drag on corporate earnings. The uneasiness about the brewing trade war gives some investors pause; the potential scope of it seems too large to price in. It is hard to imagine any kind of summer rally if the measures and countermeasures taken by various countries escalate. Not all investors appear to be worried, though – witness what happened in May even as the distinct possibility of trade wars emerged. The blue chips were hurt, but the tech sector and the small caps held up. Do these shares have further room to advance, and will investors retain their bullishness about them? June presents significant questions for investors worldwide, and we may see equities tested as threatened tariffs become reality.

 

UPCOMING ECONOMIC RELEASES:  Here is what is ahead for June: the May ISM services PMI (6/5), the May Consumer Price Index (6/12), a Federal Reserve interest rate decision and the May Producer Price Index (6/13), May retail sales (6/14), May industrial production and the preliminary June consumer sentiment index from the University of Michigan (6/15), the Census Bureau’s latest look at housing construction activity (6/19), May existing home sales (6/20), a new Conference Board index of leading indicators (6/21), May new home sales (6/25), the latest Conference Board consumer confidence index (6/26), May pending home sales and hard goods orders (6/27), the third estimate of Q1 growth from the federal government (6/28), and May personal income and personal spending, the final June University of Michigan consumer sentiment index, and a new PCE price index (6/29).

June 4 – Weekly Economic Update

HIRING, HOUSEHOLD SPENDING STRENGTHEN

Net job growth surprised to the upside in May: companies added 223,000 more workers than they laid off or fired. At 3.8%, the unemployment rate is now where the Federal Reserve thought it would be at the end of 2018, and it is also at its lowest level since April 2000. Underemployment, as measured by the Department of Labor’s U-6 jobless rate, fell 0.2% in May to a 17-year-low of 7.6%. Year-over-year wage growth was measured at 2.7% in this latest labor market snapshot. In another sign of a strong economy, the Department of Commerce said that consumer spending grew by a noteworthy 0.6% in April, with consumer incomes rising 0.3%.1,2

 

CONSUMER CONFIDENCE REBOUNDS

The Conference Board’s closely watched consumer confidence index improved to 128.0 in May, rising 2.4 points from its April mark. Analysts polled by MarketWatch expected a reading of 127.5. 2

 

FACTORY SECTOR CONTINUES TO BOOM

Growth picked up in U.S. manufacturing last month, according to the Institute for Supply Management’s May purchasing manager index. At an impressive reading of 58.7, the PMI was 1.4 points better than it was in April and matched its average reading over the past 12 months. The index has not been below 56.5 for a year. Any reading above 50.0 indicates expansion. 3

 

WALL STREET SHRUGS AT NEW IMPORT TAXES

The Trump administration is following through on its pledge to impose tariffs on metals imported from Mexico, Canada, and the European Union – and all those trading partners are responding in kind. Incipient trade war or not, investors felt confident last week – confident enough to send the Nasdaq Composite another 1.62% higher in four days. The S&P 500 added 0.49% in those four sessions, but the Dow Jones Industrial Average fell 0.48% last week. Their respective Friday settlements: Dow, 24,635.21; Nasdaq, 7,554.33; S&P, 2,734.62. 4,5

 

THIS WEEK : On Monday, Apple kicks off its weeklong 2018 developer conference, and Dell Technologies and Palo Alto Networks announce earnings. The ISM service sector PMI appears Tuesday. Wednesday, Thor Industries reports quarterly results. On Thursday, Wall Street reviews the latest initial jobless claims data and earnings from Broadcom and J.M. Smucker. Friday, nothing major is scheduled.

 

% CHANGE Y-T-D 1-YR CHG 5-YR AVG 10-YR AVG
DJIA -0.34 +16.51 +12.60 +9.70
NASDAQ +9.43 +20.93 +23.72 +20.32
S&P 500 +2.28 +12.53 +13.54 +9.74
REAL YIELD 6/1 RATE 1 YR AGO 5 YRS AGO 10 YRS AGO
10 YR TIPS 0.80% 0.40% -0.05% 1.51%

April 16th – Weekly Economic Update

CONSUMER SENTIMENT INDEX DESCENDS SLIGHTLY

In its initial April edition, the University of Michigan’s survey of household sentiment saw its index decline to 97.8 from its final March reading of 101.4. The survey’s chief economist, Richard Curtin, believed that “uncertainty surrounding the evolving [U.S.] trade policy” affected the reading, but he added that “confidence still remains relatively high.” 1

A SURPRISE RETREAT FOR THE HEADLINE CPI

Economists polled by Briefing.com assumed the Consumer Price Index would rise 0.1% in March. Instead, it fell by that amount, largely due to a dip in gasoline costs. Core consumer inflation increased 0.2% and matched their expectations. Looking at the big picture, the Department of Labor said that consumer prices were up 2.4% year-over-year through March. 2,3

OIL SOARS AS POSSIBILITY OF SYRIA STRIKE LOOMS

Light sweet crude rose 8.6% in five days on the NYMEX, breaking a 2-week losing streak and settling at $67.39 Friday. That was oil’s best close since December 2014. 4

STOCKS CLIMB AS EARNINGS SEASON BEGINS

Less anxiety about tariffs and renewed optimism about tech and financial shares led the market higher last week. The S&P 500 gained 1.99% in five days to settle at 2,656.30 Friday. The Dow Industrials rose 1.79% to a Friday close of 24,360.14, and the Nasdaq Composite added 2.77%, wrapping up Friday’s trading day at 7,106.65. Wall Street’s “fear index,” the CBOE VIX, declined 18.99% for the week. 5

 

THIS WEEK : On Monday, Bank of America, Celanese, and Netflix present Q1 results, and March retail sales numbers also arrive. Tuesday, earnings from Comerica, CSX, Goldman Sachs, IBM, Johnson & Johnson, Northern Trust, and UnitedHealth appear, plus data on March construction activity. Wednesday’s earnings roll call includes Abbott Labs, Alcoa, American Express, Fred’s, Morgan Stanley, U.S. Bancorp, and United Rentals; investors will also consider a new Federal Reserve Beige Book.  BoNY Mellon, BB&T, Blackstone Group, E*TRADE, GATX, KeyCorp, Novartis AG, Nucor, Pentair, Philip Morris, Quest Diagnostics, Snap-On, Sonoco Products, and W.W. Grainger report earnings on Thursday, when new initial jobless claims numbers are also released. GE, Honeywell International, Procter & Gamble, Regions Financial, Schlumberger, State Street, SunTrust Banks, and Waste Management announce earnings Friday.

 

% CHANGE Y-T-D 1-YR CHG 5-YR AVG 10-YR AVG
DJIA -1.45 +19.10 +12.78 +9.80
NASDAQ +2.94 +22.42 +23.14 +21.23
S&P 500 -0.65 +14.06 +13.44 +10.00
REAL YIELD 4/13 RATE 1 YR AGO 5 YRS AGO 10 YRS AGO
10 YR TIPS 0.69% 0.32% -0.68% 1.23%

April 9th – Weekly Economic Update