Week in Review May 12, 2017
In contrast to all the noise coming out of Washington, Wall Street was pretty quiet this week, with the major stock indexes closing narrowly mixed.
NASDAQ continued to move higher for a fourth straight week, gaining 0.3%, while both the Dow (-0.5%) and the S&P 500 (-0.3%) were down modestly, ending three-week winning streaks. NASDAQ, propelled higher by big tech stocks like Apple, Amazon and Google, is now up 13.7% in price on the year, well ahead of the Dow (+5.7%) and the S&P (+6.8%). Small-cap stocks continued to lag the big-cap indexes, as the Russell 2000 fell 1%, lowering its year-to-date gain to 1.9%. Bond yields were lower by 1-2 basis points on the week.
Foreign stocks continued to outperform their American counterparts, at least in local currency terms. European stocks were up for the third straight week, although their gains were more modest this week. The Stoxx Europe 600 gained another 0.3% after rising more than 4% over the previous two weeks; during the week the index hit its highest level since August 2015. The European Commission raised its forecast for euro zone economic growth to 1.7% this year and 1.8% in 2018. Nevertheless, European Central Bank President Mario Draghi told the Dutch Parliament that "it is too early to declare success" and that the ECB has no intention of reducing its asset-purchase program in the near future. Asian stocks were mostly higher except in mainland China. Japan’s Nikkei 225 gained another 2.3% and is up 6.5% over the past four weeks. The Shanghai composite index, which fell 0.6%, is down slightly for the year, in contrast to the 14.3% gain in the Hong Kong Hang Seng index, which rose another 2.8% on the week.
Last week’s reports showed a rebounding U.S. economy in April following a slow couple of months. Retail sales rose 0.4% in April, the biggest gain in three months, although the increase was slightly weaker than the 0.6% rise Wall Street was looking for. The increase was helped by a 0.7% rebound in auto sales following three straight down months. The Commerce Department also upwardly revised March to show a 0.1% gain and February to a more modest 0.2% decline. Inflation also rebounded in April. The consumer price index rose 0.2% after falling 0.3% in March, while producer prices rose 0.5%, the biggest one-month gain in more than five years. The U.S. government ran a $182 billion budget surplus in April, up from the previous year’s $106 billion; the Treasury usually runs a surplus in April due to increased tax collections. The first reading of the University of Michigan’s consumer sentiment index for May came in at 97.7, up slightly from 97.0 at the end of April.
Reports/dates/facts/links worth paying attention to over the next week:
1. May 15: Empire State manufacturing survey for May; National Association of Home Builders index for May.
2. May 16: Housing starts for April; industrial production for April.
3. May 18: Weekly unemployment claims; leading economic indicators for April; Philadelphia Fed business outlook survey for May.