Market Week

October 22nd, 2015

The Markets

Record corporate mergers and acquisitions headlined the economic news last week, while the market posted its third consecutive week of gains (except for the Russell 2000). Of the indexes listed here, both the large-cap Dow and S&P 500 closed the week with moderate gains, while the Nasdaq proved to be last week’s biggest winner. Money continued to find its way into the bond market, driving prices higher while pushing yields down.

The price of gold (COMEX) increased, selling at $1,177.30 by late Friday afternoon compared to $1,155.60 a week earlier. Crude oil (WTI) prices fell back a bit, selling at $47.26 per barrel by week’s end. For the first time in eight weeks, the national average retail regular gasoline price increased to $2.337 per gallon on October 12, 2015, $0.019 higher than the previous week’s price of $2.318 per gallon, but still $0.870 below a year ago.

Market/Index

2014 Close

Prior Week

As of 10/16

Weekly Change

YTD Change

DJIA

17823.07

17084.49

17215.97

0.77%

-3.41%

Nasdaq

4736.05

4830.47

4886.69

1.16%

3.18%

S&P 500

2058.90

2014.89

2033.11

0.90%

-1.25%

Russell 2000

1204.70

1165.36

1162.31

-0.26%

-3.52%

Global Dow

2501.66

2414.33

2421.58

0.30%

-3.20%

Fed. Funds

0.25%

0.25%

0.25%

0%

0%

10-year Treasuries

2.17%

2.08%

2.03%

-5 bps

-14 bps

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

·
Closing out the government’s fiscal year, the U.S. Treasury Department’s budget report for September showed the budget deficit narrowed by 9.2% to $438.9 billion. The deficit at the close of fiscal 2014 was $483.4 billion. Compared to fiscal 2014, total receipts for fiscal 2015 increased to $3.249 trillion ($3.020 trillion in 2014), while government outlays for 2015 were ahead of 2014–$3.688 trillion to $3.504 trillion.
Tax increases, both individual and corporate, contributed to the higher income total for 2015, while higher expenditures for Social Security and Medicare added to 2015’s increased outlays.

·
The Federal Reserve produces a monthly index of industrial production that attempts to show how much factories, mines, and utilities are producing. Industrial production decreased 0.2% in September from August. In September, manufacturing output moved down 0.1% for a second consecutive monthly decrease; the index for mining fell 2.0%, while the index for utilities rose 1.3%. Capacity utilization (an estimate of how much factory
capacity is in use) for the industrial sector fell 0.3% in September to 77.5% compared to August, a rate that is 2.6% below its long-run (1972-2014) average.

·
The Producer Price Index, which measures prices companies receive for goods and services, fell 0.5% in September, according to the U.S. Labor Department. For the 12-month period ended September 2015, producer prices fell 1.1%. Prices for goods dropped 1.2% (the largest decrease since January), while prices for services decreased 0.4% (the largest decline since February). In September, over 80% of the decline in the prices of
goods can be traced to prices for energy, which fell 5.9%. These figures are yet another sign of stagnant inflationary trends.

·
Further adding credence to the fact that the rate of inflation is not increasing, the Bureau of Labor Statistics reported that the Consumer Price Index for September decreased 0.2%. Over the last 12 months, the index has essentially remained unchanged. The drop in gasoline prices helped fuel the fall in the index. In addition, the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) decreased 0.6% over the last 12 months, meaning Social Security recipients will not see a cost-of-living adjustment next year–the first time that’s happened since 2011. Also, with Medicare Part B premiums scheduled to increase, about 30% of the roughly 52 million enrolled in Medicare Part B could see their premiums increase by as much as 52%, according to the Wall Street Journal.

·
Despite uncertainty in foreign economies, weakening job growth, and volatility in the stock markets, consumers continued to spend in September as retail and food services sales increased 0.1% from the previous month, and 2.4% above September 2014, according to the latest Census Bureau report. However, excluding motor vehicles, retail and food sales were actually down 0.3% in September. Lower gas prices may be giving consumers
a few more discretionary dollars to spend as overall retail sales haven’t fallen since this past January.

·
An indication of manufacturers’ production is reflected in the ratio between the dollar value of inventories and sales. Theoretically, rising inventories may mean manufacturers are anticipating growing demand in the coming months. But if sales don’t grow commensurate with increased inventories (i.e., actual sales don’t meet expectations), then production will likely slow. With this in mind, the latest report from the Census Bureau reveals that business inventories were unchanged in August, while sales fell 0.6%, driving the inventory-to-sales ratio up to 1.37 in August from 1.36 in July. Thus, manufacturers are whittling down inventories against a decline in sales.

·
According to the latest report on job openings and labor turnover from the Bureau of Labor Statistics, the number of job openings decreased to 5.4 million on the last business day of August, while the number of hires and separations was little changed at 5.1 million and 4.8 million, respectively. Within separations, the quits rate and layoffs and discharges rate remained unchanged.

·
A preliminary survey of consumer sentiment for October shows that consumers did not prolong their concerns following September’s tumultuous stock market performance as the Index of Consumer Sentiment increased 5.6% to 92.1 from 87.2 in September. The University of Michigan’s Surveys of Consumers Current Economic Conditions index and its Index of Consumer Expectations also increased in the early part of October compared to
September.

·
Initial claims for unemployment insurance decreased by 7,000 for the week ended October 10, to close at 255,000–its lowest level since 1973, matching the level recorded during the July 18 week. The advance seasonally adjusted insured unemployment rate was unchanged at 1.6% for the week ended October 3, while the advance number for continuing unemployment insurance claims decreased 50,000 to 2,158,000.

Eye on the Week Ahead

The housing market is in the news next week, with reports on both housing starts and existing home sales likely to reveal whether this sector continues its relatively strong showing this year.

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.

Market Week: October 12, 2015

October 12th, 2015

The Markets (as of market close October 9, 2015)

Investors, possibly feeling comfortable that interest rates will not be raised in the near future, kicked back into the equities markets as each of the indexes listed here posted gains over the prior week. The minutes from the last Fed meeting confirmed that interest rates would remain at their current levels for the near term due to concern over persistently low inflation figures. Equity gains this past week also pushed the indexes listed here (excluding Nasdaq, which is ahead of last year) closer to their 2014 year-end levels. The yield on U.S. 10-year Treasury bonds increased over the prior week as investors undoubtedly shifted their investment dollars to equities causing bond prices to fall.

The price of gold (COMEX) increased, selling at $1,155.60 by late Friday afternoon compared to $1,137.60 a week earlier. Crude oil (WTI) prices made a noticeable jump, selling at $49.49 per barrel by week’s end. For the seventh week in a row, the national average retail regular gasoline price decreased, dropping to $2.318 per gallon on October 5, 2015, $0.004 under the previous week’s price of $2.322 per gallon and $0.981 below a year ago.

Market/Index

2014 Close

Prior Week

As of 10/9

Weekly Change

YTD Change

DJIA

17823.07

16472.37

17084.49

3.72%

-4.14%

Nasdaq

4736.05

4707.78

4830.47

2.61%

1.99%

S&P 500

2058.90

1951.36

2014.89

3.26%

-2.14%

Russell 2000

1204.70

1114.12

1165.36

4.60%

-3.27%

Global Dow

2501.66

2279.08

2414.33

5.93%

-3.49%

Fed. Funds

0.25%

0.25%

0.25%

0%

0%

10-year Treasuries

2.17%

1.99%

2.08%

9 bps

-9 bps

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

· This past Monday, the U.S., Japan, and 10 other countries reached a trade accord known as the Trans-Pacific Partnership. In theory, the agreement seeks to remove trade barriers to some goods and services, which are otherwise advantageous to domestic industries, by allowing for more trade among the participating nations. Included in the agreement are provisions aimed at enhancing worker conditions, protecting property rights to benefit drug and technology companies, and defining automotive-assembly rules. However, before becoming official, the deal must be ratified by the governing bodies of the participating nations.

· In addition to a monthly manufacturing index, the Institute for Supply Management (ISM) also publishes a monthly non-manufacturing index based on data compiled from purchasing and supply executives from industries including services, construction, mining, agriculture, forestry, fishing and hunting, wholesale and retail trade, transportation, finance and insurance, and real estate. According to the latest report, the non-manufacturing index registered 56.9% for September, 2.1% lower than August. While a reading of 50% or higher is considered expansion in the non-manufacturing sector, the lower reading indicates a “cooling off” in the rate of growth during the month of September.

· As expected, the U.S. trade deficit for goods and services expanded by $6.5 billion to $48.3 billion in August. Compared to July, exports decreased by $3.7 billion, while imports grew by only $2.8 billion. Year-to-date, the goods and services deficit increased $17.6 billion, or 5.2%, from the same period in 2014. During this period, exports have decreased $58.9 billion or 3.8%, while imports decreased $41.3 billion, or 2.2%. Decreasing exports reflects weakness in foreign demand for U.S. goods and services, coupled with a strong dollar.

· Prices for U.S. imports edged down 0.1% in September, after a 1.6% decrease in August, according to the latest report from the U.S. Bureau of Labor Statistics. The continued downward trend in nonfuel import prices more than offset an advance in fuel prices. The price index for U.S. exports declined 0.7% in September, following a 1.4% drop the previous month. Year-on-year export prices are down 7.4%, while import prices have contracted
10.7%.

· Jobless claims decreased by 13,000 for the week ended October 3, to close at 263,000. The advance seasonally adjusted insured unemployment rate was unchanged at 1.6% for the week ended September 26, while the advance number for continuing unemployment insurance claims increased 9,000 to 2,204,000.

Eye on the Week Ahead

Several reports on tap for next week serve as useful economic indicators. The Producer Price Index and Consumer Price Index track prices at the producer and consumer levels, while the retail sales report is a major indicator of consumer spending.

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.