Stocks broke their four-week winning streak, closing mixed after the release of a surprisingly low estimate of second-quarter economic growth. For the week, the S&P 500 lost 0.07%, the Dow fell 0.75%, the NASDAQ grew 1.22%, and the MSCI EAFE added 2.36%.
The preliminary estimate of Q2 Gross Domestic Product (GDP) growth showed that the economy grew a paltry 1.2% last quarter versus the 2.6% growth expected. Investors were understandably disappointed as they had hoped for a resurgence after a slow first quarter. Professional economists were also surprised. The New York Fed had forecasted GDP growth of 2.1% and the Atlanta Fed had predicted 2.3% growth. Why the surprise?
Digging deeper into the data, we find that the disappointment came from an unexpected fall in business inventories. On the positive side, the drop may boost future economic growth as businesses rebuild their stockpiles. Consumer spending was strong, growing 4.2% over the previous 12 months, and accounting for nearly all the GDP growth we saw.
So, though the headline number was a letdown, the underlying trends in consumer spending, labor market growth, and higher savings rates could set up a banner third and fourth quarter.
During last week's Federal Open Market Committee meeting, the Federal Reserve's monetary policy makers voted to hold rates steady, surprising no one. Citing recent economic data, the central bank said that "near-term risks to the economic outlook have diminished," setting the stage for the next rate hike.
Will rates increase in September? December? Or will the Fed wait until 2017? We don't know. Wall Street bets on future rate hikes suggest that most traders don't think the Fed will move until December if they don't wait until 2017.
On the positive side, the Fed seems confident enough in economic growth to cut back on stimulus. On the negative side, speculation around the timing of future rate hikes will continue to be a major market theme this year and may stoke additional volatility.
This week, investors will be watching Friday's July labor market release and digesting more corporate earnings reports. We'll keep you informed.
Monday: PMI Manufacturing Index, ISM Manufacturing Index, Construction Spending
Tuesday: Motor Vehicle Sales, Personal Income and Outlays
Wednesday: ADP Employment Report, ISM Non-Manufacturing Index, EIA Petroleum Status Report
Thursday: Jobless Claims, Factory Orders
Friday: Employment Situation, International Trade
Notes: All index returns exclude reinvested dividends, and the 5-year and 10-year returns are annualized. Sources: Yahoo! Finance, S&P Dow Jones Indices, and Treasury.gov. International performance is represented by the MSCI EAFE Index. Corporate bond performance is represented by the SPUSCIG. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly.
Weekly jobless claims rise. The number of Americans filing claims for new unemployment benefits rose by 14,000, but the underlying trend still shows strength in the labor market.
Consumer sentiment drops in July. A measure of how consumers feel about the U.S. economy slipped as worries about the Brexit and the presidential election weighed on Americans.
June new home sales surge. Sales of new single-family homes rose to the highest levels in nearly 8-1/2 years. Sales were up 25.4% over June 2015, indicating that the housing market may be gaining momentum.
Durable goods plunge in June. Orders for long-lasting manufactured goods dropped, indicating weak overseas demand is affecting U.S. factories. Economists had predicted a 1.4% decline over June, but orders for goods like aircraft, appliances, and machinery actually fell 4.0%.
These are the views of 4th River Financial Group, and not necessarily those of the named representative, and should not be construed as investment advice. Neither the named representative nor the Investment Advisor gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your financial advisor for further information.
Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.
Diversification does not guarantee profit nor is it guaranteed to protect assets.
The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.
The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ. The DJIA was invented by Charles Dow back in 1896.
The Nasdaq Composite is an index of the common stocks and similar securities listed on the NASDAQ stock market and is considered a broad indicator of the performance of stocks of technology companies and growth companies.
The MSCI EAFE Index was created by Morgan Stanley Capital International (MSCI) that serves as a benchmark of the performance in major international equity markets as represented by 21 major MSCI indexes from Europe, Australia and Southeast Asia.
The Dow Jones Corporate Bond Index is a 96-bond index designed to represent the market performance, on a total-return basis, of investment-grade bonds issued by leading U.S. companies. Bonds are equally weighted by maturity cell, industry sector, and the overall index.
The S&P US Investment Grade Corporate Bond Index contains US- and foreign issued investment grade corporate bonds denominated in US dollars. The SPUSCIG launched on April 9, 2013. All information for an index prior to its launch date is back teased, based on the methodology that was in effect on the launch date. Back-tested performance, which is hypothetical and not actual performance, is subject to inherent limitations because it reflects application of an Index methodology and selection of index constituents in hindsight. No theoretical approach can take into account all of the factors in the markets in general and the impact of decisions that might have been made during the actual operation of an index. Actual returns may differ from, and be lower than, back tested returns.
The S&P/Case-Shiller Home Price Indices are the leading measures of U.S. residential real estate prices, tracking changes in the value of residential real estate. The index is made up of measures of real estate prices in 20 cities and weighted to produce the index.
The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.
Google Finance is the source for any reference to the performance of an index between two specific periods.
Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.
Past performance does not guarantee future results.
You cannot invest directly in an index.
Consult your financial professional before making any investment decision.
Fixed income investments are subject to various risks including changes in interest rates, credit quality, inflation risk, market valuations, prepayments, corporate events, tax ramifications and other factors.
By clicking on these links, you will leave our server, as they are located on another server. We have not independently verified the information available through this link. The link is provided to you as a matter of interest. Please click on the links below to leave and proceed to the selected site.
- http://www.cmegroup.com/ [Accessed July 31, 2016]