Week in Review May 5, 2017
U.S stocks rose for the third straight week, with the S&P 500 and NASDAQ closing Friday at all-time highs, propelled by strong corporate earnings and a rebound in jobs.
NASDAQ was once again the best performer, rising 0.9% to close above 6100, while the S&P gained 0.7% to close at 2399. The Dow gained 0.3% to 21007, shy of its all-time closing high of 21115 reached on March 1. Treasury bond prices were lower for the third straight week, with the yield on the benchmark 10-year note rising seven basis points on the week to close at 2.35%, its highest level in nearly a month.
European stocks were up sharply for the second straight week, as polls showed Emmanuel Macron handily winning Sunday’s French presidential election over anti-European Union candidate Marine LePen. The Stoxx Europe 600 gained 1.9% after climbing 2.4% the previous week. The French CAC 40 rose more than 3% after gaining more than 4% the prior week. Asian markets were mostly lower except in Japan, where the Nikkei 225 rose for the third straight week; the index is up 6% over that time. Despite an up day on Friday, crude oil prices continued to drop, falling more than 6% to end the week at about $46.40 a barrel for U.S. crude, their lowest level in a year.
U.S. job growth rebounded sharply in April. Nonfarm payrolls grew by 211,000, up from March’’s downwardly revised total of 79,000, which was originally reported at 98,000. The unemployment rate dipped to 4.4%, the lowest in nearly 10 years, although the labor participation rate fell to 62.9%. Wages grew 0.3% for the month and by 2.5% compared to the year earlier, which was a little lower than expected.
In addition to the jobs report, there were several other important economic indicators released during week. Personal consumption expenditures were unchanged in March for the second straight month, the weakest two-month stretch in more than two years. The same report said personal income rose 0.2%, down from the prior month’s 0.3% increase. The personal consumption expenditures index, the Federal Reserve’s preferred measure of inflation, fell 0.2%, the first decline in more than a year, while the core index, which excludes food and energy, fell 0.1%, the first decrease since September 2001. Auto sales continued to slow, falling 4.7% in April to 1.43 million vehicles. The Institute for Supply Management’s purchasing managers’ indexes for April came in mixed. The manufacturing index fell unexpectedly to 54.8, nearly two points below expectations and down from March’s 57.2 reading. But the non-manufacturing index, which covers most of the economy, rose more than two points to 57.5, ahead of forecasts; the new orders component jumped 4.3 points to 63.2, its highest level in nearly 12 years. Elsewhere, factory orders for March rose a weaker than expected 0.2%, and construction spending fell 0.2%, well below estimates.
Given the recent weakness in the U.S. economy, it wasn’t much of a surprise that the Fed took no action at its May 2-3 monetary policy meeting. However, in its post-meeting announcement, the Fed said it believed the growth slowdown in the first quarter was “likely to be transitory,” indicating that it still intends to stick to its plan to raise interest rates two more times this year, although it did not explicitly say so. The Fed’s next meeting is June 13-14.
Reports/dates/facts/links worth paying attention to over the next week:
1. May 10: U.S. Treasury budget report for April.
2. May 11: Weekly unemployment claims; producer price index for April.
3. May 12: Consumer price index for April; retail sales for April; University of Michigan consumer sentiment index for May, first reading.