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.

·
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

Market Week: August 22, 2016

August 22nd, 2016

The Markets (as of market close August 19, 2016)

By the close of last Monday, the Dow, S&P 500, and Nasdaq each had reached record highs for the second time in the past week, only to retreat by Tuesday’s close. The dollar lost value against the euro, yen, and pound on the heels of a Federal Open Market Committee member’s suggestion that the Committee may increase the inflation target rate from its current 2.0%. If that is true, it may hint at the Committee’s reservations about the short-range outlook for the economy.

By midweek, the price of crude oil jumped a couple of dollars–but not enough to quell the slide of equities–as investors seemed to exercise caution while waiting for the minutes from the July FOMC meeting. Stocks rallied on Thursday as oil prices continued to climb. However, by the close of the market for the week, light trading saw the indexes listed here slip slightly, possibly over concerns that the Federal Reserve may raise rates before the end of the year.

The price of crude oil (WTI) closed at $48.57 a barrel last week, up from $44.69 per barrel the previous week. The price of gold (COMEX) climbed a bit, closing at $1,345.80 by late Friday afternoon, up from the prior week’s price of $1,341.70. The national average retail regular gasoline price decreased for the ninth week in a row to $2.149 per gallon on August 15, $0.001 under the prior week’s price and $0.567 below a year ago.

Market/Index

2015 Close

Prior Week

As of 8/19

Weekly Change

YTD Change

DJIA

17425.03

18576.47

18552.57

-0.13%

6.47%

Nasdaq

5007.41

5232.89

5238.38

0.10%

4.61%

S&P 500

2043.94

2184.05

2183.87

-0.01%

6.85%

Russell 2000

1135.89

1229.82

1236.77

0.57%

8.88%

Global Dow

2336.45

2445.34

2455.47

0.41%

5.09%

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%

1.51%

1.58%

7 bps

-68 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

· There’s a divergence of opinion among FOMC members as to the state of the economy and whether interest rates should be raised, according to the minutes from the July meeting. Generally, members agreed to continue to leave their options open pending additional economic information, particularly regarding jobs and inflation. The cost of borrowing can have a significant impact on the economy, affecting businesses and consumers. The Fed does not meet again until the end of September. From its last meeting in July, economic indicators have been mixed, so it’s anyone’s guess what course of action, if any, the Committee will adopt following its next meeting.

· Lately, inflationary pressures have been modest at best. Following mundane retail sales and producer price reports, last week’s Consumer Price Index was unchanged in July after rising each of the previous 4 months. Over the last 12 months, the CPI rose 0.8%. Energy prices dropped 1.6% from June after advancing each of the prior 4 months. The index for all items less food and energy increased a scant 0.1%–the smallest increase since March 2016.

· The Housing Market Index rose 2 points to 60 in August compared to July. An index reading over 50 indicates optimism over pessimism. Home builders are more confident about present sales and future sales in the single-family home market, but are concerned about a lack of traffic, particularly among first-time home buyers.

· New residential construction was not as robust in July as in prior months. According to the latest report from the Census Bureau, building permits and privately-owned housing completions were down in July from June, 0.1% and 8.3%, respectively. Housing starts, on the other hand, were up 2.1%. This report may be an outlier and data can be volatile, but the current information points to builders’ lack of confidence in the market for new home sales.

· The manufacturing sector may be showing signs of strengthening. According to the Federal Reserve’s latest report, industrial production rose 0.7% in July after moving up 0.4% in June. The advance in July was the largest for the index since November 2014. Manufacturing output increased 0.5% in July for its largest gain since July 2015. Capacity utilization for the industrial sector, a measure of how much factory capacity is in use, increased 0.5 percentage point in July to 75.9%, a rate that is 4.1 percentage points below its long-run (1972-2015) average.

· In the week ended August 13, the advance figure for seasonally adjusted initial unemployment insurance claims was 262,000, 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 6 was 2,175,000, an increase of 15,000 from the previous week’s revised level.

Eye on the Week Ahead

The latest reports on new and existing home sales are available next week. The second quarter GDP estimate comes out at the end of next week. It is not expected to change much from the July estimate, which showed a quarter-to-quarter change of only 1.2%.

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: August 16, 2016

August 16th, 2016

The Markets (as of market close August 12, 2016)

Talk of a possible cut in oil production following news of an informal meeting of OPEC next month sent energy stocks higher at the beginning of last week. The spike in both energy stocks and market indexes didn’t last long, however, as oil prices slumped by midweek, taking equities with them. Nevertheless, by last week’s end, stocks rallied to close at just about where they started. In fact, by last Thursday, the Dow, S&P 500, and Nasdaq had surged to all-time highs–the first time all three major indexes had done that on the same day since 1999.

The price of crude oil (WTI) closed at $44.69 a barrel last week, up from $41.98 per barrel the previous week. The price of gold (COMEX) remained at about the same price, closing at $1,341.70 by late Friday afternoon, $0.30 ahead of the prior week’s price of $1,341.40. The national average retail regular gasoline price decreased for the eighth week in a row to $2.150 per gallon on August 8, $0.009 under the prior week’s price and $0.479 below a year ago.

Market/Index

2015 Close

Prior Week

As of 8/12

Weekly Change

YTD Change

DJIA

17425.03

18543.53

18576.47

0.18%

6.61%

Nasdaq

5007.41

5221.12

5232.89

0.23%

4.50%

S&P 500

2043.94

2182.87

2184.05

0.05%

6.85%

Russell 2000

1135.89

1231.30

1229.82

-0.12%

8.27%

Global Dow

2336.45

2414.12

2445.34

1.29%

4.66%

Fed. Funds rate target

0.25%-0.50%

0.25%-0.50%

0.25%-0.50%

0 bps

0 bps

10-year Treasuries

2.26%

1.59%

1.51%

-8 bps

-75 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

· Some economic indicators in June showed inflationary trends moving upward, but that appears to have been a brief burst as producer prices fell 0.4% in July and retail sales remained unchanged from a month earlier. With July’s decrease in prices, the Producer Price Index moved down 0.2% for the prior 12 months. For the month, prices for services fell 0.3% and goods prices decreased 0.4%. The drop in the prices businesses pay for goods and services is the largest one-month decline since September 2015.

· According to the latest estimate from the Census Bureau, retail sales were essentially unchanged in July from June, where sales climbed 0.8%. Compared to July 2015, retail sales for goods and food services are up 2.3%. Excluding motor vehicles, retail sales actually fell 0.3%. Also in July, department store sales fell 0.5%, while online retail sales saw a 1.3% increase over the prior month. Gas prices dropped 2.7%, which could encourage consumers to increase spending on other goods and services in future months if gas prices remain subdued.

· Business productivity and efficiency dropped off in the second quarter, continuing the longest stretch of declines since 1979. Output increased 1.2% while hours worked jumped 1.8%, resulting in productivity decreasing 0.5%. From the second quarter of 2015 to the second quarter of 2016, productivity decreased 0.4%. Labor costs increased 2.0% in the second quarter of 2016, reflecting a 1.5% increase in hourly compensation and a 0.5% decline in productivity. This report reveals an unfavorable trend–Americans are working more hours but production is generally lagging, which might curb future wage and economic growth.

· There were 5.6 million job openings on the last day of June, according to the Job Openings and Labor Turnover report from the Bureau of Labor Statistics. Hires and separations were little changed in June from May at 5.1 million and 4.9 million, respectively. Within separations, the quits rate was 2.0% (2.9 million) and the layoffs and discharges rate was 1.1% (1.6 million). This report reflects continuing strength in the employment sector, with increasing hirings and enough worker confidence in the labor market to quit one job for another.

· The budget deficit for July was $112.8 billion, less than the July 2015 deficit of $149 billion. Through the first 10 months of the fiscal year, the deficit is $513.7 billion–about 10% higher than the deficit over the same period last year ($465.5 billion).

· The prices of imported goods continued to rise in July, moving up 0.1% following a 0.6% increase in June. Prior to July, import price increases were driven by rising fuel prices. In contrast, in July, nonfuel prices led the advance while fuel prices recorded a decrease. Nevertheless, import prices have fallen 3.7% over the last 12 months. Prices for exports rose 0.2% after increasing 2.4% over the 3 previous
months. However, for the last 12 months, export prices have declined 3.0%.

· Consumer confidence inched upward in early August as the Index of Consumer Sentiment rose from 90.0 to 90.4. While consumers were still skeptical about current economic conditions, they were generally upbeat about future economic growth.

· In the week ended August 6, the advance figure for seasonally adjusted initial unemployment insurance claims was 266,000, a decrease of 1,000 from the prior week’s revised level. The advance seasonally adjusted insured unemployment rate remained at 1.6%. The advance number for seasonally adjusted insured unemployment during the week ended July 30 was 2,155,000, an increase of 14,000 from the previous week’s revised level.

Eye on the Week Ahead

Next week’s reports include one of the most widely followed indicators of inflationary trends, the Consumer Price Index, which has not shown significant price increases in the past several months, remaining below the Fed’s target inflation rate of 2.0%. Another report, the Treasury’s Industrial Production Index, not only shows how much factories are producing, but it also measures how much factory capacity is in use. If factory utilization reaches full capacity, production may slow to where it can’t keep up with the demand for goods, which can lead to price increases and rising inflation.

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 Watch | August 2016

August 15th, 2016

This summer so far has been anything but quiet. Between the June Brexit vote, several headline-grabbing jobs reports, the winding path of oil prices, and all-time highs for stocks, there has been a lot of activity to absorb in these past couple of months. Not to mention that we are in the midst of a U.S. presidential election and the speculation that comes with it. Here are some of the highlights as we sift through the headlines and digest all the data.

To start, stocks have been on a roll lately. July saw a new all-time high for the S&P 500 (the first since May 2015) and a 3.7% gain for the month—putting the market on its first five-month winning streak in two years. Should stocks rise in August, one of the seasonally weakest months, it would mark the first six-month winning streak for stocks since early 2013.
In general, the U.S. economy has provided a favorable backdrop for stock market gains in July and early August. There is a strong backdrop for consumer spending, including an improving job market, low inflation and interest rates, rising home prices, and the seven-year bull market for stocks. During the second quarter, consumer spending posted its second highest quarterly growth since the end of the Great Recession. The 287,000 jobs created in June and 255,000 in July both handily topped economists’ expectations and recent trends.
One July data release that disappointed was second quarter 2016 gross domestic product (GDP). Real (inflation-adjusted) growth came in at an annualized rate of 1.2%, well below consensus expectations. But underperformance was largely driven by the inventory component, which pulled over 1% from second quarter GDP and will likely be reversed in the coming quarters.

Looking ahead, there are several potential market-moving events on the calendar. Central bank speculation will remain in high gear with the central bankers’ annual confab in Jackson Hole, Wyoming later this month. The Federal Reserve (Fed), European Central Bank (ECB), Bank of England (BOE), and Bank of Japan (BOJ) all meet in September. In its mid-July meeting, the Fed shored up the market’s confidence that the next rate hike was likely to come after the election, while markets expect the ECB, BOE, and BOJ to do more.

Oil also remains closely watched and may be influenced by reports of an OPEC meeting in late September. And with second quarter earnings season behind us, market participants will shift focus to the potential end of the earnings recession later this year.

All of this suggests a generally favorable backdrop for stocks, but not complacency. This bull market is one of the longest in history, stock valuations are above average, and August and September have been historically weak months. Through all of this, we must stay prepared for further stock market volatility. The good news is there do not appear to be signs that pronounced stock market weakness is coming, which means dips may be opportunities to buy. As this busy summer full of stock market action, central bank speculation, and political headlines continues into the fall, we must strive to maintain our long-term perspective, key to potential future success.

Westside Investment Management

Market Week: August 8, 2016

August 8th, 2016

The Markets (as of market close August 5, 2016)

Oil prices continued to fall early last week, sending large-cap indexes lower. As the week progressed, oil prices gained some momentum, as did U.S. stock indexes. On the heels of a favorable jobs report, stocks rebounded by the end of last week to post gains in each of the indexes listed here. Both the S&P 500 and Nasdaq reached record highs. The Dow gained more than 111 points over the prior week’s closing value. Bond prices fell due to lower demand, sending the yield on 10-year Treasuries up 15 basis points.

Abroad, Japan approved a $274 billion stimulus package in an attempt to spark the it’s languid economy. Part of
the package includes payment of about $147 to each of the approximately 22 million low-income Japanese. The immediate response from Japanese investors was underwhelming, as the Nikkei Stock Average dropped. The Bank of England cut interest rates for the first time since 2009 to 0.25% and adopted additional stimulus measures in an attempt to support the British economy during the period of adjustment following the vote to leave the EU.

Crude oil (WTI) prices continue to be volatile, falling below $40 during last week, until a moderate rally had the price close at $41.98 a barrel last week, up slightly from $41.38 per barrel the previous week. The price of gold (COMEX) dropped to $1,341.40 by late Friday afternoon, down from the prior week’s price of $1,357.90. The national average retail regular gasoline price decreased for the seventh week in a row to $2.159 per gallon on August 1, $0.023 under the prior week’s price and $0.530 below a year ago.

Market/Index

2015 Close

Prior Week

As of 8/5

Weekly Change

YTD Change

DJIA

17425.03

18432.24

18543.53

0.60%

6.42%

Nasdaq

5007.41

5162.13

5221.12

1.14%

4.72%

S&P 500

2043.94

2173.60

2182.87

0.43%

6.80%

Russell 2000

1135.89

1219.94

1231.30

0.93%

8.40%

Global Dow

2336.45

2411.26

2414.12

0.12%

3.32%

Fed. Funds rate target

0.25%-0.50%

0.25%-0.50%

0.25%-0.50%

0 bps

0 bps

10-year Treasuries

2.26%

1.45%

1.59%

14 bps

-67 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

· In another clear sign of a strengthening economy, the jobs report showed 255,000 new jobs were added in July, while the unemployment rate remained at a relatively low 4.9% (7.8 million unemployed). For the month, job gains occurred in professional and business services, health care, and financial activities. The average workweek for all employees on private nonfarm payrolls increased by 0.1 hour to 34.5 hours in July. In July, average hourly earnings for all employees on private nonfarm payrolls increased by $0.08 to $25.69. Over the year, average hourly earnings have risen by 2.6%. This report should be a boost to the stock market, which has been reacting to volatile oil prices and tepid earnings reports.

· For the third consecutive month, consumers had more to spend in June and they spent it, according to the Bureau of Economic Analysis. Compared to a month earlier, consumers’ income increased by 0.2%, disposable personal income (after taxes) also increased by 0.2%, while personal consumption expenditures (purchases of consumer goods and services) jumped 0.4%. As was the case in April and May, consumer spending outpaced income growth. Since consumers are spending more than they’re making, it stands to reason that they’re saving a little less given that the personal savings rate dipped from 5.5% in May to 5.3% in June. Inflationary pressures remain soft, as the personal consumption expenditures price index–a preferred inflationary measure of the Fed–increased only 0.1% in June from the prior month.

· According to the latest information from the Census Bureau, the goods and services trade deficit reached $44.5 billion in June–up $3.6 billion from May’s revised figures–due to a surge in consumer purchases of foreign goods. June exports were $183.2 billion, $0.6 billion more than May exports. June imports were $227.7 billion, $4.2 billion more than May imports. Year-to-date, the goods and services deficit decreased $5.8 billion, or 2.3%, from the same period in 2015. Exports decreased $54.2 billion, or 4.7%. Imports decreased $60.0 billion, or 4.3%.

· The seasonally adjusted Markit final U.S. Manufacturing Purchasing Managers’ Index™ (PMI™) registered 52.9 in July, up from 51.3 in the previous month. During the latest survey period, respondents noted improving business conditions evidenced by stronger rates of output and growth in new orders and employment.

· The July PMI® from the Institute for Supply Management also reported growth, but at a slower rate compared to the prior month. The PMI® registered 52.6%, a decrease of 0.6 percentage point from the June reading of 53.2%. An index reading over 50.0% indicates growth. According to the report, 12 of the 18 industries included in the survey reported an increase in new orders in July (same as in June), but only half of the 18 industries reported an increase in production in July (down from 12 in June).

· From the non-manufacturing sector (services, construction, mining, agriculture, forestry, and fishing and hunting) economic activity grew, but at a slower pace in July compared to June. The Non-Manufacturing Index was at 55.5%, down from June’s reading of 56.5%. Each of the index sub-components–non-manufacturing business activity, employment, and price–decreased with only new orders gaining in July over June, a sign that business activity may be picking up in the third quarter.

· In the week ended July 30, the advance figure for seasonally adjusted initial unemployment insurance claims was 269,000, an increase of 3,000 from the prior week’s level. The advance seasonally adjusted insured unemployment rate remained at 1.6%. The advance number for seasonally adjusted insured unemployment during the week ended July 23 was 2,138,000, a decrease of 6,000 from the previous week’s revised level.

Eye on the Week Ahead

Trading is expected to be light next week, as it has been for much of the summer. Two reports for July that are indicative of inflationary trends–retail sales and the Producer Price Index–come out at the end of next 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.

Market Week

August 6th, 2016

The Markets

The large-cap indexes cooled off a bit last week, particularly influenced by a somewhat disappointing GDP growth rate for the second quarter and lackluster earnings reports from some key companies. On the other hand, the tech-based Nasdaq and the small-cap Russell 2000 each posted weekly gains, with the Nasdaq leading the way among the indexes listed here. Treasury yields fell, with the benchmark 10-year Treasuries dropping 11 basis points by last week’s end, likely influenced by falling oil prices. Abroad, the eurozone seems to be recovering from the initial shock caused by the Brexit vote, as the second-quarter GDP expanded at a modest 1.2% (the same as the U.S. GDP), which is ahead of the first-quarter pace.

Crude oil (WTI) prices continue to fall, closing at $41.38 a barrel last week, down from $44.21 per barrel the previous week. The price of gold (COMEX) jumped to $1,357.90 by late Friday afternoon, up from the prior week’s price of $1,330.30. The national average retail regular gasoline price decreased for the sixth week in a row to $2.182 per gallon on July 25, $0.048 under the prior week’s price and $0.563 below a year ago.

Market/Index

2015 Close

Prior Week

As of 7/29

Weekly Change

YTD Change

DJIA

17425.03

18570.85

18432.24

-0.75%

5.78%

Nasdaq

5007.41

5100.16

5162.13

1.22%

3.09%

S&P 500

2043.94

2175.03

2173.60

-0.07%

6.34%

Russell 2000

1135.89

1212.89

1219.94

0.58%

7.40%

Global Dow

2336.45

2396.80

2411.26

0.60%

3.20%

Fed. Funds rate target

0.25%-0.50%

0.25%-0.50%

0.25%-0.50%

0 bps

0 bps

10-year Treasuries

2.26%

1.56%

1.45%

-11 bps

-81 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

· While the latest estimate of the gross domestic product isn’t particularly noteworthy, some of the underlying information bodes well for economic growth. The GDP grew at a 1.2% annualized rate in the second quarter, up slightly from the prior estimate of 1.1%. The annual growth rate for the GDP has been below 2.0% for the last three quarters. The final estimate of the first-quarter GDP showed a 0.8% annual rate of growth. On the plus side, consumer spending expanded at a rate of 4.2%–the highest growth rate since 2014. Spending for goods grew at a 6.8% rate, while spending on services expanded by 3%. The drawback to overall economic growth is on the business side of the GDP, which saw businesses scale back inventories and business investment.

· Following its July meeting, the Federal Open Market Committee noted that, while the labor market has continued to strengthen and economic activity has been expanding at a moderate rate, business fixed investment has been soft and inflation continues to run below the Committee’s 2.0% target rate. Against that backdrop, the Committee decided to maintain the target range for the federal funds rate at 0.25%-0.50%. The Committee does not meet again until mid-September.

· Demand for manufactured durable goods fell for the third consecutive month in June. Following May’s 2.8% decline, new orders for durable goods in June fell another $9.3 billion, or 4.0%–the largest decrease since August 2014. Shipments of durable goods were up 0.4%, unfilled orders fell 0.9%, and inventories decreased 0.2%. This information predates the Brexit vote, which further strengthened the dollar compared to the pound and euro, likely leading to continued weakening of foreign demand for U.S. manufactured goods.

· The housing market continues to expand as new home sales increased by 3.5% in June over the prior month. Compared to last year, the rate of new home sales is 25.4% above the June 2015 estimate. The median sales price of new houses sold in June 2016 was $306,700; the average sales price was $358,200. The seasonally adjusted estimate of new houses for sale at the end of June was 244,000. This represents a supply of 4.9 months at the current sales rate–well below the available supply of 5.5 months in June of 2015.

· Primarily curtailed by affordability and supply constraints, pending home sales based on contract signings remained relatively the same in June compared to the prior month. The Pending Home Sales Index inched up 0.2% for the month to 111.0 (110.8 in May), but is 1.0% higher than June 2015 (109.9).

· The S&P-Case-Shiller U.S. National Home Price NSA Index reported a 5.0% annual gain in May, the same as the prior month. According to the report, home prices continue to increase across the country, while sales of existing homes in May reached the highest monthly level since 2007.

· The United States continues to spend more on imports than it receives for exports as the trade deficit for June grew by $2.2 billion (3.7%) over May. Exports of goods were $120.2 billion, while imports were $183.5 billion, for a net trade deficit of $63.3 billion.

· Labor costs continue to expand as evidenced by the employment cost index, which increased 0.6% for the second quarter. Employee costs grew at the same rate in the first quarter, and are up 2.3% year-on-year. Wages and salaries increased 0.6%, while benefit costs jumped 0.5% for the second quarter (2.5% and 2.0%, respectively, year-on-year).

· Consumers remain slightly more positive about current business and labor market conditions, according to the latest Conference Board Consumer Confidence Index®. The index for July, at 97.3, is essentially the same as the June index of 97.4. However, respondents in the University of Michigan’s Surveys of Consumers were troubled by the Brexit vote, particularly those consumers in the top third in household income. Overall, the Index of Consumer Sentiment dropped a bit from 93.5 in June to 90.0 in July.

· In the week ended July 23, the advance figure for seasonally adjusted initial unemployment insurance claims was 266,000, an increase of 14,000 from the prior week’s level. The advance seasonally adjusted insured unemployment rate rose to 1.6%. The advance number for seasonally adjusted insured unemployment during the week ended July 16 was 2,139,000, an increase of 7,000 from the previous week’s revised level.

Eye on the Week Ahead

So far, the summer has been good for equities markets and most economic indicators. Two important reports are issued next week for the month of June: personal income and outlays and the employment situation. Personal income and outlays, offers information on consumer income, savings, and spending, which can offer a glimpse into the strength of the economy from the consumer’s perspective. June’s jobs report was encouraging following May’s disappointing information. This report often has a direct impact on the U.S. stock markets as Wall Street tends to pay particular attention to several pieces of information from this report, including the unemployment rate, the number of new jobs added, and wage information.

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: July 25, 2016

July 25th, 2016

The Markets (as of market close July 22, 2016)

The S&P 500 reached a record high last Friday as each of the indexes listed here posted marginal gains over the prior week. Equities have demonstrated a positive trend over the past several weeks. The Nasdaq eclipsed its previous high only to slip a bit by week’s end. While the indexes continue to forge ahead, overall trading has been light. Across the “pond” the UK’s economy has likely contracted in July, according to IHS Markit’s Purchasing Managers’ Index, which showed businesses responding to the uncertainty of Brexit by cutting output and payrolls.

Crude oil (WTI) closed at $44.21 a barrel last week, down from $46.28 per barrel the previous week. The price of gold (COMEX) fell to $1,330.30 by late Friday afternoon, dropping from the prior week’s price of $1,337.70. The national average retail regular gasoline price decreased for the fifth week in a row to $2.230 per gallon on July 18, $0.023 under the prior week’s price and $0.572 below a year ago.

Market/Index

2015 Close

Prior Week

As of 7/22

Weekly Change

YTD Change

DJIA

17425.03

18516.55

18570.85

0.29%

6.58%

Nasdaq

5007.41

5029.59

5100.16

1.40%

1.85%

S&P 500

2043.94

2161.74

2175.03

0.61%

6.41%

Russell 2000

1135.89

1205.31

1212.89

0.63%

6.78%

Global Dow

2336.45

2395.14

2396.80

0.07%

2.58%

Fed. Funds rate target

0.25%-0.50%

0.25%-0.50%

0.25%-0.50%

0 bps

0 bps

10-year Treasuries

2.26%

1.54%

1.56%

2 bps

-70 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

· June was a good month for new home construction as the number of building permits, housing starts, and new home completions each eclipsed their respective May totals. Building permits for housing units and single family homes were up 1.5% and 1.0%, respectively. Housing starts, marked by the beginning of construction, increased by 4.8% for all housing units and 4.4% for single family housing. Housing completions were 12.3% ahead of May (single-family completions gained only 3.7%). Increasing demand and low inventory have promoted home building, which may be a sign of economic growth.

· Sales of existing homes also improved in June, according to the National Association of Realtors®. Closings for existing homes (including single family homes, townhomes, condominiums, and co-ops) climbed 1.1% to an annual rate of 5.57 million from a downwardly revised 5.51 million in May. Over the last 12 months, existing home sales are up 3.0%–the highest level since 2007. According to the NAR, sustained job growth and lower mortgage rates are factors driving home sales. The median existing home price for all housing types in June was $247,700–up 4.8% from last June and 3.7% ahead of May’s median price. Available inventory remains an issue for homebuyers as it dipped 0.9% to 2.12 million, which is 5.8% lower than a year ago.

· Builders remained cautiously optimistic about the newly built, single-family home market in July, according to the latest survey from the National Association of Home Builders. The Housing Market Index, based on respondents’ feedback, fell 1 point to 59 from June’s index of 60. An index reading above 50 indicates generally favorable expectations.

· According to the Markit Flash U.S. Manufacturing PMI™, the Purchasing Managers’ Index™ was 52.9 in July, up from 51.3 in June. This reading signals solid improvement in overall business conditions, with the latest reading the strongest since October 2015. Manufacturing output, new orders, and employment continue to rise.

· In the week ended July 16, the advance figure for seasonally adjusted initial unemployment insurance claims was 253,000, a decrease of 1,000 from the prior week’s level. The advance seasonally adjusted insured unemployment rate dropped to 1.5%. The advance number for seasonally adjusted insured unemployment during the week ended July 9 was 2,128,000, a decrease of 25,000 from the previous week’s revised level.

Eye on the Week Ahead

This week is an important one for economic news. The FOMC meets and may consider raising interest rates based on the surging stock market, slowly advancing inflation, and the rebounding employment situation. Also, the latest figures on the second-quarter gross domestic product are released 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.

Market News

July 19th, 2016

The Markets

Stocks continued to surge for the third week in a row as each of the indexes listed here posted significant gains by last week’s end. The Dow gained almost 370 points and over 2.0%, and is substantially ahead of its 2015 closing value. The S&P 500 also pushed nearly 6.0% ahead of last year’s closing value. And the Nasdaq, which had yet to reach its year-end value, finally passed that mark after gaining almost 1.5%. Clearly moving past Brexit panic, the Global Dow gained over 3.0% on the week and is 2.5% past its 2015 closing value. As prices dropped, the 10-year Treasury yield rose nearly 20 basis points on the week.

Crude oil (WTI) closed at $46.28 a barrel last week, up from $45.21 per barrel the previous week. The price of gold (COMEX) fell to $1,337.70 by late Friday afternoon, down from the prior week’s price of $1,367.40. The national average retail regular gasoline price decreased for the fourth consecutive week to $2.253 per gallon on July 11, $0.038 under the prior week’s price and $0.581 below a year ago.

Market/Index

2015 Close

Prior Week

As of 7/15

Weekly Change

YTD Change

DJIA

17425.03

18146.74

18516.55

2.04%

6.26%

Nasdaq

5007.41

4956.76

5029.59

1.47%

0.44%

S&P 500

2043.94

2129.90

2161.74

1.49%

5.76%

Russell 2000

1135.89

1177.36

1205.31

2.37%

6.11%

Global Dow

2336.45

2318.79

2395.14

3.29%

2.51%

Fed. Funds rate target

0.25%-0.50%

0.25%-0.50%

0.25%-0.50%

0 bps

0 bps

10-year Treasuries

2.26%

1.36%

1.54%

18 bps

-72 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

· Businesses are paying more for goods and services as the Producer Price Index increased 0.5% in June, the largest increase in a year, according to the Labor Department. Higher energy costs pushed the increase. Since businesses usually pass on increases in the cost of goods and services, it’s likely consumer prices will increase as well, driving inflation upward.

· In fact, consumer prices did increase in June–just not at quite the same rate as producer prices. The Consumer Price Index rose 0.2%, following the same increase in May and a 0.4% gain in April. Over the last 12 months, the CPI has increased 1.0%. Excluding the volatile food and energy components, consumer prices still increased 0.2% in June and 2.3% from a year earlier.

· Consumers continue to spend as retail sales increased in June, jumping 0.6% from the previous month and 2.7% ahead of last June. This follows a 0.2% (downwardly revised) increase in May. Excluding autos and gas, household spending climbed 0.7% from May. Output excluding autos remained the same as the prior month. This report, coupled with increases in consumer and producer prices, provides optimism for the economy over the summer months.

· The manufacturing sector experienced a noticeable uptick in June, as industrial production increased 0.6% after falling 0.3% in May. Manufacturing output rose 0.4%, largely due to an increase in motor vehicle assemblies. June’s gain is the largest monthly increase since November 2014.

· The number of job openings decreased by 345,000 to 5.5 million on the last business day of May, according to the Job Openings and Labor Turnover Survey (JOLTS) report from the Bureau of Labor Statistics. April’s rate was 5.8 million. May’s job openings rate is the lowest of the year. The quits rate was unchanged at 2.0% as workers continue to remain at their present jobs. It’s important to remember that June’s employment situation report showed significant improvement on the labor front.

· U.S. import prices rose 0.2% in June from May, largely due to a spike in petroleum prices. Exports also increased in June, rising 0.8% following increases of 1.2% in May and 0.4% in April. The 2.4% rise in export prices for the second quarter of 2016 was the largest three-month advance in export prices since the index rose 2.7% between February and May 2011.

· The Treasury Department reported a $6.3 billion budgetary surplus in June, following May’s $52.5 billion deficit. However, over the first nine months of the fiscal year, the deficit is up almost 27%, at $400.9 billion, over the same period last year ($316.4 billion).

· Largely influenced by the immediate negative impact of the Brexit vote, the Index of Consumer Sentiment fell from 93.5 in June to 89.5 in July.

· In the week ended July 9, the advance figure for seasonally adjusted initial unemployment insurance claims remained level at 254,000, unchanged from the prior week’s level. The advance seasonally adjusted insured unemployment rate remained at 1.6%. The advance number for seasonally adjusted insured unemployment during the week ended July 2 was 2,149,000, an increase of 32,000 from the previous week’s revised level.

Eye on the Week Ahead

This week focuses on the housing sector as June’s reports on housing starts and existing homes sales are released. New home building slipped a bit in May, while existing home sales picked up. Overall, the housing market has been fairly strong with prices rising and inventory having a hard time keeping up with demand.

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