The Markets

A horrific week around the globe did little to discourage investors--that is, the few who were actually trading. The Nasdaq reached a level it hadn't seen since March 2000, the S&P 500 had its 28th record close of the year, and the Dow industrials' gains took the index above 17,000 once again. The Russell 2000, which has struggled much of the summer, came within a hair of returning to positive territory year-to-date. Meanwhile, the benchmark 10-year Treasury yield rose as demand fell.

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

Last Week's Headlines

  • Minutes of the most recent meeting of the Fed's monetary policy committee showed intensified debate over whether to accelerate an increase in interest rates once the Fed's bond-buying program ends. However, Fed Chair Janet Yellen's speech at the annual Jackson Hole gathering shed little light on how that debate might be resolved, focusing instead on the slack that still remains in the labor market.
  • Increases in the cost of food and shelter in July were partly offset by lower airline fares and the first decline in the cost of energy since March. That left the Consumer Price Index up 0.1% for the month--the smallest monthly increase since February, according to the Bureau of Labor Statistics.
  • Housing starts leaped 15.7% in July; that meant they were up 21.7% from last July, according to the Commerce Department. Building permits--an indicator of future activity--also were up 8.1% for the month.
  • There also was some good news about sales of existing homes. The National Association of Realtors® said July's 2.4% gain was the fourth straight monthly increase, though sales were still 4.3% lower than a year earlier. Foreclosures and short sales represented 9% of all sales--far below the 15% of July 2013, and the first time since October 2008 that the percentage has been in the single digits.
  • The Philly Fed's August manufacturing survey showed a strong increase, rising to 28 from 23.9 in July. It was the third straight month of gains and the highest reading since March 2011. However, growth in new orders and shipments fell slightly.
  • The Conference Board's index of leading economic indicators saw sharp improvement in July. The 0.9% increase was helped by gains in building permits, financial markets, and employment.
  • Bank of America will pay $16.65 billion to settle accusations by the Justice Department, Securities and Exchange Commission, several states, and other governmental agencies that it deliberately misrepresented mortgage-backed securities that were backed by home loans that subsequently went bad. The settlement is reportedly the largest to result from government investigations into bank practices that led up to the 2008 financial crisis. Under the agreement, $7 billion of the money will be used to help modify borrowers who are underwater on home loans and deal with abandoned properties.

Eye on the Week Ahead

As the release of Q2 earnings reports winds to a close, the GDP number for Q2 will be watched to see if the robust 4% initial estimate is revised downward. Home prices and durable goods orders will have to contend with end-of-summer activities for traders' attention.