Market Week: September 26, 2016

September 26th, 2016

The Markets (as of market close September 23, 2016)

Buoyed by news from the Fed and the Bank of Japan that measures intended to stimulate the economy would continue — at least in the short term — U.S. stock and bond prices posted gains for the week. While the response last Wednesday and Thursday was positive in the equities markets, falling oil prices sent stocks tumbling by last week’s end. Nevertheless, each of the indexes listed here posted week-on-week gains, with the Russell 2000 and the Global Dow each gaining almost 2.50%. Last week was all about the Fed as investors seem cautiously optimistic that the FOMC won’t raise interest rates at least until December.

The price of crude oil (WTI) closed at $44.59 a barrel last week, up from $43.19 per barrel the previous week. The price of gold (COMEX) increased, closing at $1,341.10 by late Friday afternoon, up from the prior week’s price of $1,313.20. The national average retail regular gasoline price increased to $2.225 per gallon on September 19, $0.023 higher than the prior week’s price and $0.102 below a year ago.

Market/Index

2015 Close

Prior Week

As of 9/23

Weekly Change

YTD Change

DJIA

17425.03

18123.80

18261.45

0.76%

4.80%

Nasdaq

5007.41

5244.57

5305.75

1.17%

5.96%

S&P 500

2043.94

2139.16

2164.69

1.19%

5.91%

Russell 2000

1135.89

1224.78

1254.62

2.44%

10.45%

Global Dow

2336.45

2403.06

2465.59

2.60%

5.53%

Fed. Funds target rate

0.25%-0.50%

0.25%-0.50%

0.25%-0.50%

0 bps

0 bps

10-year Treasuries

2.26%

1.69%

1.61%

-8 bps

-65 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

· Echoing sentiments similar to those made following its July meeting, the Federal Open Market Committee decided to keep interest rates at their current level — at least until it meets again in November. According to the FOMC press release, “The Committee judges that the case for an increase in the federal funds rate has strengthened but decided, for the time being, to wait for further evidence of continued progress toward its objectives.” Committee Chair Janet Yellen noted that economic activity has picked up, spurred on by increased household income and spending. The employment sector has also been solid, averaging 180,000 new jobs per month. However, business
investment remains soft, particularly in the energy sector. Overall consumer price inflation — as measured by the price index for personal consumption expenditures — was less than 1% over the 12 months ended in July, still short of the Committee’s 2% objective. As to the prospects of future rate hikes, Yellen said the federal funds rate projects to increase only gradually to 1.1% at the end of next year, 1.8% at the end of 2018, and 2.6% by the end of 2019.

· The real estate sector was not as robust in August as it was in July. The Census Bureau report on new residential construction revealed that privately-owned housing starts fell 5.8% in August, compared to the prior month. Building permits dropped 0.4% and housing completions were down 3.4% for the month. On the plus side of the report, building permits for single-family home construction rose 3.7% in August over July — a positive indication that builders have confidence in that segment of the real estate market moving forward.

· Existing home sales also fell in August, according to the latest figures from the National Association of Realtors®. Higher home prices and scant inventory were the main reasons sales of existing homes declined 0.9% to a seasonally adjusted annual rate of 5.33 million — off from July’s downwardly revised annual rate of 5.38 million, but still slightly ahead of a year ago (5.29 million).

· While the real estate sector may have slowed down in August, home builders are optimistic about the new home market in September. According to the National Association of Home Builders, the Housing Market Index climbed 6 points from its August reading to 65 — the highest reading since October 2015. Builder confidence is high based, in part, on rising household incomes, low mortgage interest rates, and relatively tight inventory of new and existing single-family homes.

· In the week ended September 17, the advance figure for seasonally adjusted initial unemployment insurance claims was 252,000, a decrease of 8,000 from the prior week’s unrevised level. The advance seasonally adjusted insured unemployment rate fell to 1.5%. The advance number for seasonally adjusted insured unemployment during the week ended September 10 was 2,113,000, a decrease of 36,000 from the previous week’s revised level.

Eye on the Week Ahead

The last week of September brings the final economic reports for August, including the GDP and personal income and outlays — both of which can move the markets.

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.

Fed Leaves Rates Unchanged

September 26th, 2016

As expected, the Federal Reserve’s (Fed) policymaking arm, the Federal Open Market Committee (FOMC), opted not to raise interest rates at the conclusion of its two-day policy meeting on Wednesday, September 21.

The FOMC did upgrade its assessment of the economy from its July statement, and noted that the case for an increase in the fed funds rate had strengthened. But it decided to wait for evidence of further progress toward its objectives. The FOMC statement said the Committee would continue to monitor global economic and financial developments. Fed Chair Janet Yellen and the FOMC statement noted that future rate hikes are dependent on the economy, labor market, and inflation tracking toward the FOMC’s forecasts.

The Fed dropped a strong hint to the markets that it is leaning toward raising rates in December. The FOMC’s language suggests to us that barring a very bad run of economic data between now and December, a surprise out of the U.S. presidential election or Brexit negotiations, an unexpected move from China, or a terrorist attack that disrupts economic activity for a long period of time, the Fed is likely to raise rates at the December FOMC meeting. One rate hike is not expected to cause a big disruption in financial markets, especially given the signal from the Fed; however, a pickup in volatility would not be surprising following several months of steady and solid gains for stocks.

These are unusual times with unconventional monetary policy. As always, we are here to help you understand the complex investing environment and will continue to keep you informed of relevant developments. If you have any questions, we encourage you to contact us.

Thank you for your continued trust and confidence.

Sincerely,
Westside Investment Management

Market Week: September 19, 2016

September 19th, 2016

The Markets (as of market close September 16, 2016)

Volatility in the markets reigned last week as each of the indexes listed here enjoyed gains early in the week, only to give most of them back by last week’s end. The Dow and S&P 500 closed last week only slightly ahead of their respective closing values from the previous week. While the small-cap Nasdaq finished the week up over 2.0% compared to the previous week, it too gave back plenty of gains from earlier in the week. The equities markets could be in for a ride, both domestically and abroad, as the Fed and the Central Bank of Japan are scheduled to meet later this week.

The price of crude oil (WTI) closed at $43.19 a barrel last week, down from $45.71 per barrel the previous week. The price of gold (COMEX) also fell, closing at $1,313.20 by late Friday afternoon, down from the prior week’s price of $1,331.80. The national average retail regular gasoline price decreased for the second consecutive week, falling to $2.202 per gallon on September 12, $0.021 lower than the prior week’s price and $0.173 below a year ago.

Market/Index

2015 Close

Prior Week

As of 9/16

Weekly Change

YTD Change

DJIA

17425.03

18085.45

18123.80

0.21%

4.01%

Nasdaq

5007.41

5125.91

5244.57

2.31%

4.74%

S&P 500

2043.94

2127.81

2139.16

0.53%

4.66%

Russell 2000

1135.89

1219.21

1224.78

0.46%

7.83%

Global Dow

2336.45

2442.56

2403.06

-1.62%

2.85%

Fed. Funds target rate

0.25%-0.50%

0.25%-0.50%

0.25%-0.50%

0 bps

0 bps

10-year Treasuries

2.26%

1.67%

1.69%

2 bps

-57 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

· Consumer prices rose 0.2% in August, facilitated by a 0.3% increase in the index less food and energy (the core index), which was the largest gain in that category since February. Over the last 12 months, the all items index has risen 1.1%, a larger increase than the 0.8% rise for the 12 months ended in July. Prices for medical care, shelter, and clothing increased in August. Major energy component indexes were mixed, with increases in the indexes for natural gas and electricity offsetting declines in the gasoline and fuel oil indexes. While it isn’t much, the increase in the Consumer Price Index for August shows some firming of inflationary pressure. However, price gains are still lagging compared to last August, when the all items index rose 1.1% and core prices increased 2.3%.

·
An indicator of inflationary trends, the Producer Price Index (a measure of the change in prices received by U.S. producers of goods and services) was unchanged in August, the U.S. Bureau of Labor Statistics reported. Final demand prices declined 0.4% in July and rose 0.5% in June. Prices for final demand less foods, energy, and trade services increased 0.3% in August after no change in July. For the 12 months ended in August, the index for final demand less foods, energy, and trade services moved up 1.2%, the largest rise since climbing 1.3% for the 12 months ended in December 2014. A closer look at the report reveals that the price index for services increased a scant 0.1%, while the price index for goods dropped 0.4%, which can be traced to a 1.6% fall in food prices.

· Following increases in June and July, retail sales in August fell. According to the Census Bureau, advance estimates of U.S. retail and food services sales for August were at a seasonally adjusted rate of $456.3 billion, a decrease of 0.3% from the previous month, but 1.9% above August 2015. Excluding autos, retail sales dropped 0.1% in August. Sales for online retailers fell 0.3% in August, compared to
July. A slowdown in consumer spending could impact the GDP for the quarter and the prospects of a Fed interest rate hike in September.

· The federal deficit grew to $107 billion in August, as total outlays ($338 billion) outpaced total receipts ($231 billion). For the fiscal year, which ends this month, the year-to-date deficit is $620.8 billion, compared to $530 billion over the same period last year. Year-to-date, total receipts are up 0.9% compared to last year, while total government expenditures have surged ahead by 13.6%.

· Industrial production decreased 0.4% in August after rising 0.6% in July. Manufacturing output also declined 0.4% in August, reversing its increase in July. Capacity utilization for the industrial sector decreased 0.4 percentage point in August to 75.5%, a rate that is 4.5 percentage points below its long-run (1972-2015) average.

· According to the latest report from the Bureau of Labor Statistics, both import prices and export prices fell in August compared to July. U.S. import prices declined 0.2% in August, after ticking up 0.1% in July. The August downturn was driven by lower fuel prices. Prices for U.S. exports decreased 0.8% in August following a 0.2% increase in July. The drop in import prices is another indication of weak
inflationary pressure.

· Consumers’ opinions of the economy this month haven’t changed from August, according to the University of Michigan’s Surveys of Consumers. The Index of Consumer Sentiment was 89.8 for September, the same as August. Consumers’ opinions of the current economic conditions regressed a bit in September. However, consumers remain reasonably optimistic about their future economic prospects.

· In the week ended September 10, the advance figure for seasonally adjusted initial unemployment insurance claims was 260,000, an increase of 1,000 from the prior week’s unrevised level. The advance seasonally adjusted insured unemployment rate remained at 1.6%. The advance number for seasonally adjusted insured unemployment during the week ended September 3 was 2,143,000, an increase of 1,000 from the previous week’s revised level.

Eye on the Week Ahead

The latest reports on the sales of new and existing homes hit the news this week. But the biggest event of the week is the FOMC meeting. Clearly a market-mover, speculation as to whether the Fed will increase interest rates in September has run the gamut from “no chance” to “definitely.” Even if the Committee holds off on hiking interest rates, investors will likely focus on comments from Committee members, particularly Chair Janet Yellen, as to the future of the current quantitative easing measures.

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: September 12, 2016

September 12th, 2016

The Markets (as of market close September 9, 2016)

Equities indexes rebounded early last week as lackluster economic reports in the labor and manufacturing sectors, coupled with a falling dollar, appear to be fueling speculation that the Fed won’t be raising interest rates following its meeting later this month. Energy shares made some positive headway early in the week, contributing to positive market returns.

However, by the close of the week, stocks and bonds posted their largest losses since the Brexit vote in June, as traders pulled an about-face, fearing that central banks would not continue further economic stimulus. First, the European Central Bank refused to commit to further stimulus. Then a few members of the Federal Reserve intimated that the time may be ripe for an interest rate increase.

By week’s end, the Dow had dropped over 400 points. Each of the indexes listed here (with the exception of the Global Dow) fell over 2.0%, led by the Russell 2000, which reversed the prior week’s gains with a fall in value of over 2.6%.

The price of crude oil (WTI) closed at $45.71 a barrel last week, up from $44.36 per barrel the previous week. The price of gold (COMEX) gained, closing at $1,331.80 by late Friday afternoon, up from the prior week’s price of $1,328.50. The national average retail regular gasoline price decreased for the first time in three weeks, falling to $2.223 per gallon on September 5, $0.014 lower than the prior week’s price and $0.214 below a year ago.

Market/Index

2015 Close

Prior Week

As of 9/9

Weekly Change

YTD Change

DJIA

17425.03

18491.96

18085.45

-2.20%

3.79%

Nasdaq

5007.41

5249.90

5125.91

-2.36%

2.37%

S&P 500

2043.94

2179.98

2127.81

-2.39%

4.10%

Russell 2000

1135.89

1251.83

1219.21

-2.61%

7.34%

Global Dow

2336.45

2463.98

2442.56

-0.87%

4.54%

Fed. Funds target rate

0.25%-0.50%

0.25%-0.50%

0.25%-0.50%

0 bps

0 bps

10-year Treasuries

2.26%

1.60%

1.67%

7 bps

-59 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

· The number of job openings increased to 5.9 million on the last business day of July, an increase of 228,000 from June, the U.S. Bureau of Labor Statistics reported. Most of the job gains occurred in the private sector, including professional and business services and durable goods manufacturing. The number of hires was 5.2 million in July, little changed from June.

· The Non-Manufacturing ISM® Report, which is based on a survey of the nation’s purchasing and supply executives, covers non-manufacturing industries including utilities, real estate, hotel and food services, education, and health care. The majority of survey respondents indicated that there has been a slowing in the level of business for their respective companies, as non-manufacturing business activity, new orders, employment, and prices each decreased in August from July. According to the report, the ISM® Non-Manufacturing Index (NMI®) fell to 51.4% in August from July’s reading of 55.5%. A reading over 50% indicates growth, so the non-manufacturing sector grew in August, but at a slower pace compared to the previous month.

· In the week ended September 3, the advance figure for seasonally adjusted initial unemployment insurance claims was 259,000, a decrease of 4,000 from the prior week’s unrevised level. The advance seasonally adjusted insured unemployment rate remained at 1.6%. The advance number for seasonally adjusted insured unemployment during the week ended August 27 was 2,144,000, a decrease of 7,000 from the previous week’s revised level.

Eye on the Week Ahead

Several key economic reports are released this week ahead of next week’s Federal Open Market Committee meeting. Inflationary trends may be gleaned from the perspective of both the seller (producer prices and retail sales) and the consumer (consumer prices).

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: September 6, 2016

September 6th, 2016

The Markets (as of market close September 2, 2016)

Trading continues to be light heading into the Labor Day weekend. Stocks finished modestly higher for the week, buoyed by last Friday’s favorable employment report. Of the indexes listed here, the small-cap Russell 2000 led the charge, gaining 1.11% by last week’s end and over 10% year-to-date.

The price of crude oil (WTI) closed at $44.36 a barrel last week, down from $47.33 per barrel the previous week.

The price of gold (COMEX) gained, closing at $1,328.50 by late Friday afternoon, up from the prior week’s price of $1,325.00. The national average retail regular gasoline price increased for the second consecutive week to $2.237 per gallon on August 29, $0.044 higher than the prior week’s price but $0.273 below a year ago.

Market/Index

2015 Close

Prior Week

As of 9/2

Weekly Change

YTD Change

DJIA

17425.03

18395.40

18491.96

0.52%

6.12%

Nasdaq

5007.41

5218.92

5249.90

0.59%

4.84%

S&P 500

2043.94

2169.04

2179.98

0.50%

6.66%

Russell 2000

1135.89

1238.03

1251.83

1.11%

10.21%

Global Dow

2336.45

2442.01

2463.98

0.90%

5.46%

Fed. Funds target rate

0.25%-0.50%

0.25%-0.50%

0.25%-0.50%

0 bps

0 bps

10-year Treasuries

2.26%

1.63%

1.60%

-3 bps

-66 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

·
The labor sector cooled a bit but remained solid in August, according to the Bureau of Labor Statistics. Total nonfarm payroll employment added 151,000 jobs in August, down from 275,000 in July. The unemployment rate remained at 4.9%, as the number of unemployed persons was essentially unchanged at 7.8 million. Job gains were robust in the services sector, particularly in food services and drinking places, which has added 312,000 new jobs over the year. The average workweek for all employees on private nonfarm payrolls decreased by 0.1 hour to 34.3 hours in August. Also for the month, average hourly earnings for all employees on private nonfarm payrolls rose
by $0.03 to $25.73. Over the year, average hourly earnings have risen by 2.4%.

·
Consumer income and expenditures rose in July, according to the latest report from the Bureau of Economic Analysis. Personal income and disposable personal income (after tax income) each increased 0.4% to $71.6 billion and $60.1 billion, respectively. Personal consumption expenditures climbed for the fourth straight month in July, jumping 0.3% to $42.0 billion. Excluding volatile food and energy components, the core personal consumption expenditures index (a preferred inflation gauge of the Fed) moved very little, gaining only 0.1% for the month. Year-on-year, the core PCE sits at 1.6%–still below the Fed’s target inflation rate of 2.0%.

·
Favorable news from the international trade sector as the goods and services deficit was $39.5 billion in July, down $5.2 billion from $44.7 billion in June, revised. July exports were $186.3 billion, $3.4 billion more than June exports. July imports were $225.8 billion, $1.8 billion less than June imports. The July decrease in the goods and services deficit reflected a decrease in the goods deficit of $5.3 billion to $60.3 billion and a decrease in the services surplus of $0.1 billion to $20.9 billion. Year-to-date, the goods and services deficit decreased $0.5 billion, or 0.2%, from the same period in 2015.

·
July was a good month in the manufacturing sector. New orders for manufactured goods increased $8.4 billion, or 1.9%, following two consecutive monthly declines. Shipments decreased $0.9 billion, or 0.2%, following four consecutive monthly increases. Inventories gained for the first time in a year–increasing $0.9 billion, or 0.1%.

·
The S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index, covering all nine U.S. census divisions, reported a 5.1% annual gain in June. The 20-City Composite Index reported a year-over-year gain of 5.1%, down from 5.3% in May.

·
According to the survey of manufacturing executives by the Institute for Supply Management, economic activity in the manufacturing sector contracted in August following five consecutive months of expansion, while the overall economy grew for the 87th consecutive month. The August Purchasing Managers’ Index registered 49.4%, a decrease of 3.2 percentage points from July’s PMI®. A reading of 50% or less indicates contraction. On the other hand, Markit’s U.S. manufacturing index for August showed growth, but at a slower pace, registering 52.0, compared to 52.9 in July–signaling weaker improvement in overall business conditions.

·
Consumer confidence improved in August over July as The Conference Board Consumer Confidence Index®, which had decreased slightly in July, increased in August. The index now stands at 101.1, compared to 96.7 in July. Consumers expressed more confidence in current business and labor market conditions in August, but weren’t too optimistic about future developments in those sectors.

·
In the week ended August 27, the advance figure for seasonally adjusted initial unemployment insurance claims was 263,000, an increase of 2,000 from the prior week’s unrevised level. The advance seasonally adjusted insured unemployment rate remained at 1.6%. The advance number for seasonally adjusted insured unemployment during the week ended August 20 was 2,159,000, an increase of 14,000 from the previous
week’s revised level.

Eye on the Week Ahead

The first full week of September doesn’t offer much in terms of economic reports. Trading is expected to be slow during the Labor Day week, as investors gear up for the fall and election season.

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 News

September 5th, 2016

The Markets

Oil prices fell at the beginning of last week amid rumors that Iraq may up its oil exports, prompting stocks to retreat. While stocks rallied midweek, they sunk by the close of trading last Friday following Federal Reserve Chair Janet Yellen’s intimation that short-term interest rates could be in line for an increase sooner rather than later. Of the indexes listed here, only the Russell 2000 didn’t lose ground. The Dow, S&P 500, and Nasdaq suffered their largest losses since the week of the Brexit vote in June.

Overseas, retail sales picked up in the UK in July as the weak pound (a result of the fallout from Brexit) may be attracting foreign consumers. China’s economic growth has clearly slowed as industrial production and retail sales weakened.

The price of crude oil (WTI) closed at $47.33 a barrel last week, down from $48.57 per barrel the previous week. The price of gold (COMEX) fell, closing at $1,325.00 by late Friday afternoon, down from the prior week’s price of $1,345.80. The national average retail regular gasoline price increased for the first time in the last 10 weeks to $2.193 per gallon on August22, $0.044 higher than the prior week’s price but $0.444 below a year ago.

Market/Index

2015 Close

Prior Week

As of 8/26

Weekly Change

YTD Change

DJIA

17425.03

18552.57

18395.40

-0.85%

5.57%

Nasdaq

5007.41

5238.38

5218.92

-0.37%

4.22%

S&P 500

2043.94

2183.87

2169.04

-0.68%

6.12%

Russell 2000

1135.89

1236.77

1238.03

0.10%

8.99%

Global Dow

2336.45

2455.47

2442.01

-0.55%

4.52%

Fed. Funds target rate

0.25%-0.50%

0.25%-0.50%

0.25%-0.50%

0 bps

0 bps

10-year Treasuries

2.26%

1.58%

1.63%

5 bps

-63 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

· With no Federal Open Market Committee meeting scheduled for August, the focus was on FOMC Chair Janet Yellen’s presentation at Jackson Hole, Wyoming, last week. The highlight of Yellen’s speech was her statement that, “in light of the continued solid performance of the labor market and our outlook for economic activity and inflation, I believe the case for an increase in the federal funds rate has strengthened in recent months.” Clearly, these remarks open the door to a rate increase as soon as next month, although Yellen cautioned that the ultimate decision would rest on incoming data, not the least of which is the latest jobs report out this week.

·
The gross domestic product increased at an annual rate of 1.1% in the second quarter of 2016, according to the second estimate released by the Bureau of Economic Analysis. Last month’s advance estimate had the second-quarter GDP increasing by 1.2%. In the first quarter, the GDP increased 0.8%. The increase in real GDP in the second quarter primarily reflected positive contributions from personal consumption expenditures (PCE or consumer spending) and exports that were partly offset by negative contributions from private inventory investment, residential fixed investment, state and local government spending and nonresidential fixed investment. Imports, which are a subtraction in the calculation of GDP, increased.

· Judging by the advance report on factory orders for July, manufacturers should be pretty busy in the coming months. According to the latest report from the Census Bureau, new orders for durable goods (expected to last at least three years) jumped 4.4% in July after falling 4.2% in June. Shipments increased by 0.2% for the month, while factory inventories, down for the past six months, gained 0.3% over June. Excluding aircraft and autos, core capital goods climbed a noteworthy 1.5%. While this is an advance report and final figures could differ, these figures point to the possibility that the manufacturing sector is picking up steam, contributing to overall economic growth.

· Sales of new single-family homes continued to expand in July, as the Census Bureau reported sales increased 12.4% compared to June. New home sales are 31.3% above July 2015. The median sales price of new houses sold in July 2016 was $294,600; the average sales price was $355,800. The seasonally adjusted estimate of new houses for sale at the end of July was 233,000. This represents a supply of 4.3 months at the current sales rate.

· Lack of inventory in many parts of the country is curtailing the sale of existing homes, according to the latest report from the National Association of Realtors®. Total existing home sales, which are completed transactions that include single-family homes, townhomes, condominiums, and co-ops, fell 3.2% to a seasonally adjusted annual rate of 5.39 million in July, down from 5.57 million in June. For only the second time in the last 21 months, sales are now below (1.6%) a year ago (5.48 million). With inventory at a premium, the lack of affordable homes for sale is discouraging prospective buyers despite low mortgage rates.

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The Markit Flash U.S. Manufacturing Purchasing Managers’ Index™ (PMI™) registered at 52.1 in August, down from July’s nine-month high of 52.9. A reading over 50 indicates improving business conditions. August saw a further upturn in overall business conditions, albeit at a slower rate than in July. Total new work rose at a slower pace and employment expanded at the weakest rate in four months. The euro area economy continued to expand at a steady pace in August, as the flash estimate of the Markit Eurozone PMI® inched up to a seven-month high of 53.3, up from 53.2 in July.

· The international trade deficit for July was $59.3 billion in July, a decrease of $5.2 billion compared to June. Exports of goods were up $2.9 billion, while imports dropped $2.4 billion.

· According to the University of Michigan’s Index of Consumer Sentiment, confidence eased back in late August to register a trivial decline to 89.8 from the July reading of 90.0. Less favorable personal financial prospects were largely offset by a slight improvement in the outlook for the overall economy.

· In the week ended August 20, the advance figure for seasonally adjusted initial unemployment insurance claims was 261,000, a decrease of 1,000 from the prior week’s unrevised level. The advance seasonally adjusted insured unemployment rate remained at 1.6%. The advance number for seasonally adjusted insured unemployment during the week ended August 13 was 2,145,000, a decrease of 30,000 from the previous week’s revised level.

Eye on the Week Ahead

Two important economic reports are out next week. Personal income and outlays focuses on consumer income and spending, and includes the personal consumption expenditures price index–a favored measure of inflation for the Fed. The week closes with the latest employment situation report, which can be a market mover.

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.

Oil Prices and Alternative Energy

September 3rd, 2016

The energy market hasn’t been much fun lately. As shown in the graph below, during 2014 and 2015, the price of oil (blue) and US energy companies (orange; as measured by the iShares Dow Jones US Energy Sector ETF) fell substantially, with energy company stocks down 32% and WTI crude oil prices plummeting 61%.

Fortunately for energy investors, lenders and energy company employees, both oil and energy stocks have recovered during 2016 (see second table). Since the beginning of the year, WTI crude oil is up 26% and oil stocks have risen about 14% (see graph below). But even after their recent price recovery, both oil and oil company stocks remain well below their highs of July, 2014. And with no shortage of news about the election, the Fed and other more interesting topics, energy has mostly fallen off investors’ radar.

Even more forgotten are the alternative energy companies that had gained favor when oil prices were high. Two subsectors of alternative energy in which we’re particularly interested are solar and wind. You might recognize companies such as Sunpower (NASDAQ: SPWR) and SolarCity (SCTY) in the solar sector, and wind energy players such as Vestas (OTC: VWDRY), Siemens (OTC: SIEGY) and General Electric (NYSE: GE).

Alternative energy companies prefer higher oil prices as well

Because conventional and alternative energy sources are economic substitutes, alternative energy companies are helped by higher oil and gas prices. When conventional energy is expensive, businesses and homeowners tend to seek out alternative energy sources that allow them to realize long-term savings.

Before oil prices started falling, alternative energy sources were gaining steam (pun intended) as their sustainability benefits were bolstered by potential cost savings over fossil fuels. However, with the spot price of oil still under $50, alternative energy is not as economically attractive as it was when oil was over $100. Yet continuing efficiency gains in both wind and solar are lowering costs and pushing down the breakeven price of alternative energy relative to fossil fuels.

The future for alternative energy

Regardless of short-term economics, sustainable sources of energy will continue to proliferate for a variety of reasons as the world continues to move away from fossil fuels. The current low price of oil is temporarily slowing the transition, but hardly derailing it. And once oil prices rebound to their equilibrium range (which we believe to be between $60 and $80 a barrel), the adoption of alternative energy sources will accelerate as they become ever more cost-competitive with fossil fuels.

We’re keeping a close eye on companies that will benefit from the rise of sustainable sources of energy and will keep you posted in future newsletters on the progress of companies involved with solar power, wind power and other forms of alternative energy. In the meantime, we are buying selectively in this space and waiting for signs that a true rebound is likely before committing more of your capital.

Enjoy Labor Day,

Best,

Dr. Ken Waltzer, MD, MPH, AIF®, CFA, CFP®

Managing Director, KCS Wealth Advisory

Laura Gilman, CFP®, PFP, MBA

Managing Director, KCS Wealth Advisory

Adam Bragman, CFA

Director of Investment Research, KCS Wealth Advisory