The Markets (as of market close July 31, 2015) The stock markets rebounded last week amid a tepid report from the Federal Open Market Committee seemingly halting talk of an imminent interest rate hike--although every indication points to some rate movement before the end of the year. Nevertheless, each of the major U.S. indexes showed improvement over last week. Both the large-cap Dow (121 points) and S&P 500 (24 points) posted gains, as did Nasdaq, which jumped almost 40 points. Even the Global Dow showed improvement. On the other hand, the price of gold (COMEX) continued to hover around $1,095.00 as the demand remained weak. Crude oil (WTI) saw some upward movement early in the week, but ended up losing value--selling at $46.77/barrel as of late afternoon Friday. The national average retail regular gasoline price was $2.745 per gallon on July 27, 2015, $0.057 less than last week's price and $0.794 below a year ago.
Last Week's Headlines • Following its July meeting, the Federal Open Market Committee (FOMC) essentially reiterated what it had been saying for much of this year--labor is improving, inflation is still running "below the Committee's long-run objective" of 2.0%, so interest rates will not be raised. In fact, according to the FOMC press release, "even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rates below levels the Committee views as normal in the longer run." It would appear that September (the next scheduled Committee meeting) may be the earliest the FOMC would consider raising interest rates. • Following a slow first quarter, real gross domestic product--the value of the production of goods and services in the United States, adjusted for price changes--increased at an annual rate of 2.3% in the second quarter of 2015, according to the "advance" estimate released by the Bureau of Economic Analysis. In the first quarter, revised real GDP actually increased 0.6%, up from a previously estimated -0.2%. The second quarter GDP is an estimate and is likely to be revised when the next report is issued in late August. Moderate second-quarter growth is attributable, in part, to an increase in exports, stronger consumer spending, deceleration of imports, and stronger state and local government spending. • The number of new claimants for unemployment insurance increased by 12,000 to 267,000 for the week ended July 25, according to the Department of Labor. The advance seasonally adjusted insured unemployment rate was 1.7% for the week ended July 18, an increase of 0.1% from the previous week's unrevised rate. Continuing unemployment claims increased by 46,000 to 2,262,000 for the week ended July 18. • Reversing a two-month trend of declines, June saw new orders for manufactured durable goods increase $7.7 billion or 3.4% to $235.3 billion, the U.S. Census Bureau announced. While this sector can be volatile, increased orders may be evidence that manufacturing is beginning to finally pick up steam. • The S&P/Case-Shiller Home Price Composite Index measures U.S. single-family residential real estate prices across 20 major metropolitan regions. According to the latest report, residential real estate prices actually dropped a seasonally adjusted 0.2% in May compared to April. However, the 20-City Composite is still up 4.9% year-over-year. • The otherwise robust housing market may be showing signs of slowing as pending sales of existing homes fell 1.8% in June, according to the National Association of Realtors®. Despite last month's drop-off, the Pending Sales Index is still ahead of June 2014 (110.3/101.9). • Consumer confidence in the economy dropped in July, according to the Conference Board's Consumer Confidence Index®. The index for July stands at 90.9, down from 99.8 in June. According to the Conference Board's report, "A less optimistic outlook for the labor market, and perhaps the uncertainty and volatility in financial markets prompted by the situation in Greece and China, appears to have shaken consumers' confidence." • Similarly, the University of Michigan's Index of Consumer Sentiment for July fell 3 points to 93.1. The Current Economic Conditions index dropped to 107.2 (compared to 108.9 in June), while the Index of Consumer Expectations lost 3.7 points, coming in at 84.1. • The U.S. Labor Department's Employment Cost Index (ECI) measures total employee compensation costs, including wages, salaries, and benefits. In a somewhat unanticipated result, the ECI rose only 0.2% for the 3-month period ended June 2015--the lowest result in the 33-year history of the report. For the year, compensation costs for civilian workers increased 2.0% for the 12-month period ending June 2015--the same increase as occurred during the12-month period ended June 2014. This report could influence whether the FOMC will push for an interest rate increase come its next meeting in September.
Eye on the Week Ahead
Next week will focus on the manufacturing sector and international trade. The latest information on unemployment and wages will be available at the end of 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.