The Markets (as of market close April 29, 2016)
The markets suffered their worst week of losses since February as each of the indexes listed here ended the week in negative territory. The Nasdaq fell the most by the end of the week, down over 2.5%, as the technology sector declined following investor sell-offs. Long-term bond yields dipped for the week as prices rose, possibly influenced by the Fed's decision to maintain interest rates at their current level.
Crude oil (WTI) closed the week over $45 for the first time since November at $45.92 a barrel, up $2.28 over the prior week's closing price. The price of gold (COMEX) rose by last week's end, selling at $1,295.90 by late Friday afternoon, up from the prior week's closing price of $1,233.70. The national average retail regular gasoline price increased to $2.162 per gallon on April 25, 2016, $0.025 above the prior week's price but $0.408 below a year ago.
LAST WEEK’S HEADLINES
Following its April meeting, the Federal Open Market Committee decided to maintain the federal funds rate at its present 0.25% to 0.50% range. The Committee noted that labor market conditions continue to improve even as economic growth has slowed. While household income has increased, household spending has moderated. Earlier declines in energy prices and falling non-energy imports has contributed to weakened inflationary pressures as inflation, which is expected to remain low in the near term, remains below the Committee's target inflation rate of 2.0%. Housing continues to improve but business investment and exports remain soft. The Committee will continue to monitor both domestic and world economic conditions, paying particular attention to inflationary trends. Nevertheless, "the Committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run."
The initial estimate for the first quarter gross domestic product showed a very modest increase of 0.5%. The fourth quarter GDP increased 1.4%. While this advance estimate is likely to change as more data is made available, the initial report marks the slowest GDP growth in two years. After reaching a 3.9% growth rate in the second quarter of 2015, the GDP has regressed since. While the labor market and residential investment remain strong, business investment has slowed as has consumer spending, leading to the deceleration of the GDP.
As noted by the FOMC following its April meeting, inflation is accelerating at a very modest rate. Personal income and disposable personal income (net after taxes) grew by a scant 0.4% in March, according to the latest report from the Bureau of Economic Analysis. Personal consumption expenditures effectively remained at its current level, inching up only 0.1% from February. As it relates to inflationary trends, the price index increased only 0.8% from March 2015, well below the Fed's target rate of 2.0%. Excluding volatile food and energy categories, growth in the core prices also has fallen short of the target, gaining 1.6% year-on-year.
Compensation costs for civilian workers increased 0.6% for the three-month period ended in March 2016, according to the U.S. Bureau of Labor Statistics. Wages and salaries (which make up about 70% of compensation costs) increased 0.7%, and benefits (which make up the remaining 30% of compensation) increased 0.5%. Total employee compensation gained 1.9% for the quarter, lagging behind the annual gain of 2.0% from the prior three quarters. Compared to the first quarter of 2015, wages and salaries have increased 2.0%, while benefits increased 1.7%.
The number of new homes sold in March fell for the fourth consecutive month. The 511,000 annual rate of new home sales was 1.5% lower than February's revised annual rate of 519,000. The March rate is still 5.4% above the March 2015 rate of 485,000. The median sales price of new houses sold in March was $288,000 ($9,400 below February's median sales price), while the average sales price was $356,200. The seasonally adjusted estimate of new houses for sale at the end of March was 246,000, which represents a supply of 5.8 months at the current sales rate.
An indication of future home sales based on contract signings, the Pending Home Sales Index from the National Association of Realtors® climbed 1.4% in March to 110.5 following February's downwardly revised 109.0. The index has increased year-over-year for 19 consecutive months and is at its highest reading since May 2015 (111.0). Home sale activity is relatively strong despite supply deficiencies and rising home prices.
The rate of homeownership is falling, according to the latest information from the Commerce Department. The homeownership rate of 63.5% was 0.2 percentage point lower than the first-quarter 2015 rate (63.7%) and 0.3 percentage point lower than the fourth-quarter 2015 rate (63.8%). The current homeownership rate is close to its 48-year low of 63.4% reached in last year's second quarter.
The Conference Board Consumer Confidence Index® fell in April to 94.2, down from 96.1 in March. The Present Situation Index increased from 114.9 to 116.4, while the Expectations Index decreased from 83.6 to 79.3 in April. While consumer respondents thought current economic conditions have improved, their short-term expectations were less optimistic, particularly with respect to business conditions and the labor market.
The Index of Consumer Sentiment fell from 91 to 89 in April, down 2.2% for the month and 7.2% year-on-year. The survey from the University of Michigan notes that consumer expectations for the economy suffered the largest drop, falling 4.8% from March and 12.6% from a year ago.
Good news for the manufacturing sector as the preliminary report on new orders for manufactured durable goods in March increased $1.8 billion, or 0.8%, to $230.7 billion, following a 3.1% drop in February. Excluding transportation, new orders actually fell 0.2% and excluding defense, new orders dropped 1.0%. Shipments of manufactured durable goods in March, down three of the last four months, decreased $1.1 billion, or 0.5%, to $237.0 billion. Unfilled orders for manufactured durable goods in March, down three of the last four months, decreased $1.3 billion, or 0.1%, to $1,182.5 billion. Inventories of manufactured durable goods increased less than $0.1 billion, virtually unchanged at $394.1 billion in March following a 0.3% February decrease.
The Census Bureau's advance report on international trade in goods for March reveals the trade deficit narrowed to $56,899 billion, down from $62,864 billion in February. Total exports were $116,733 billion in March ($118,698 billion in February), while imports totaled $173,632 billion ($181,562 billion in February), each sector falling from the prior month. This advance report shows not only a narrowing trade deficit, but also an overall slowing of trade activity.
For the week ended April 23, there were 257,000 claims for unemployment insurance, an increase of 9,000 from the previous week's revised level. The advance seasonally adjusted insured unemployment rate remained at 1.6%. The advance number for continuing unemployment insurance claims for the week ended April 16 was 2,130,000, a decrease of 5,000 from the prior week's revised level.
EYE ON THE WEEK AHEAD
The week begins with information from the manufacturing sector, which has been growing at a snail's pace. The week ends with the latest report on the employment situation, which may influence the markets as it can affect several major sectors of the economy.
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.