Week in Review April 21, 2017
U.S. stocks seemed headed for a third straight week of losses on Wednesday but the mood changed after Treasury Secretary Steven Mnuchin expressed confidence that the Trump Administration would get a tax reform package enacted this year, boosting the major averages into the green for the week.
Tech and small-cap stocks were the best performers, with NASDAQ climbing 1.8% for the week to close near an all-time high and small-cap indexes up well over 2%. The S&P 500 gained 0.9% for the week while the Dow rose 0.5%. The Dow’s gain was muted by disappointing earnings results from two of its highest-priced components, Goldman Sachs and IBM, which have a disproportionate effect on the index. So far this year, NASDAQ is up nearly 10% in price, nearly twice the gain in the S&P 500 and well ahead of the Dow’s 4.0% increase.
The bond market moved in the opposite direction of stocks, with yields falling to their lowest levels since early November early in the week before moving back up by the end of the week. The yield on the Treasury’s benchmark 10-year note fell below 2.17% on Tuesday, its lowest level since November 10, before closing Friday at 2.25%, little changed from the prior week. Foreign stocks were mostly lower. European stocks were down about 0.5% for the week on concerns about Sunday’s French election, which was preceded by a terrorist attack in Paris on Thursday. Asian stocks were mostly lower except in Japan, as the U.S. standoff with North Korea persisted. Oil prices dropped more than 7% on the week, with U.S. crude closing Friday below $50 for the first time since late March.
Most of the week’s economic reports dealt with housing and came in mixed. On the positive side, existing-home sales rebounded sharply last month, climbing 4.4% to an annual rate of 5.71 million, the strongest pace in over 10 years, after falling nearly 4% the previous month. At the same time, the median sales price rose 6.8% versus a year earlier to $236,400. Housing starts fell nearly 7% to 1.215 million units, the weakest number since last November, with both single-family and multifamily sectors down. Building permits, however, a forward indicator, rose 3.6%. Also in the new-home category, the National Association of Home Builders’ housing market index fell three points in April to a still-healthy reading of 68.
In the broader economy, the Federal Reserve’s Beige Book said economic activity increased in each of its 12 districts between mid-February and the end of March, “with the pace of expansion equally split between modest and moderate.” The report was very positive about the employment market, which it described as “tight.” Most districts said employers had “more difficulty filling low-skilled positions, although labor demand was stronger for higher skilled workers.” Some companies had “more difficulty retaining workers” while “worker shortages and increased labor costs were restraining growth in some sectors.” Leading economic indicators remained strong, rising 0.4% last month after climbing 0.5% in February. Industrial production rose 0.5%, well above the prior month’s 0.1% gain. Looking broader still, the International Monetary Fund raised its global growth forecast for this year to 3.5%, which would be the strongest rate in the past five years. It still expects the American economy to grow by 2.3%, up from 1.6% last year.
Reports/dates/facts/links worth paying attention to over the next week:
1. April 24: Chicago Fed national activity index for March.
2. April 25: New home sales for March; S&P Corelogic Case-Shiller home price indexes for April; Conference Board consumer confidence index for April.
3. April 27: Weekly unemployment claims; pending home sales index for March; durable goods orders for March.
4. April 28: First quarter GDP, first estimate; University of Michigan consumer sentiment index for April, second reading.