Week in Review June 9, 2017
U.S. stocks closed mixed for the week, with big technology stocks selling off sharply Friday afternoon.
The tech-heavy NASDAQ index dropped 1.8% on Friday to end the week down 1.5%, its biggest weekly decline this year, as Apple, Microsoft, Facebook and Alphabet (Google) all fell more than 3% Friday and Amazon dropped more than 2.5%. The sector was arguably due for some profit-taking, with NASDAQ up more than 15% so far this year even after the week’s loss. By comparison, the Dow, which gained 0.3% for the week, is up 8.9% this year while the S&P 500, which fell 0.3% last week, is up 9.6%.
European stocks were higher Friday but mostly lower for the week as the “snap” U.K. parliamentary elections ended with no party achieving a majority, possibly throwing the Brexit negotiations into disarray. The Stoxx Europe 600 was down 0.6% for the week after rising 0.3% Friday, while the British FTSE 100 rose 1% on Friday to wipe out earlier losses, closing the week with a marginal loss. The gain in British stocks was largely attributable to a drop in the pound against the dollar and the euro, which makes U.K. products cheaper abroad. Despite more evidence of stronger economic growth in the euro zone, European Central Bank President Mario Draghi said it was still too early for the bank to start easing its economic stimulus measures. Eurostat revised upward its first-quarter growth estimate for the currency zone to 1.9% from 1.7%, the fastest rate in two years. Despite that upbeat news, “the economic expansion has yet to translate into stronger inflation dynamics,” Draghi said. “Therefore a very substantial degree of monetary policy accommodation is still needed.” That helped boost the price of peripheral sovereign bond prices and lower yields by double digits. In Asia, the Shanghai composite rose 1.7%, its best weekly gain in three months.
The Federal Reserve’s monetary policy committee is expected to raise short-term interest rates by 25 basis points at its meeting this week, although that still might not be a sure thing. The minutes of the Fed’s May meeting said it might “soon be appropriate” to raise rates, with “soon” largely interpreted to mean “June.” But that was largely contingent on whether economic reports “came in about in line with expectations.” May’s unexpectedly weak jobs report, which followed a string of other lackluster reports, may give the Fed a reason to hold off. The results of the British election and its effect on the U.K.’s exit from the European Union may also enter into the Fed’s decision. The Fed meeting ends at 2:00 P.M. EST on Wednesday, which will be followed by Fed Chair Janet Yellen’s press conference and updated Fed economic forecasts. Treasury bond prices were weaker for the week, with yields rising about five basis points.
There were only a few economic reports released last week. The Institute for Supply Management’s non-manufacturing index for May came in almost exactly at the consensus estimate, at 56.9, although that was down from the previous month’s 57.5. Factory orders for April fell 0.2%, also in line with estimates, although March’s figure was sharply revised upward to an even 1% increase. The Fed’s Flow of Funds report said total U.S. household net worth rose $2.3 trillion in the first quarter to a record $94.8 trillion, with gains in stock prices accounting for $1.3 trillion of the increase and higher home prices adding $500 billion. Household debts, by contrast, rose by a relatively modest $46 billion. The World Bank said it expects the global economy to grow by 2.7% this year and 2.9% next year, largely driven by emerging-market countries.
Reports/dates/facts/links worth paying attention to over the next week:
1. June 12: U.S. Treasury budget report for May.
2. June 13: Federal Open Market Committee meeting begins in Washington, D.C.; producer price index for May.
3. June 14: Consumer price index for May; retail sales for May; FOMC meeting ends at 2:00 P.M., followed by announcement, release of new Fed economic forecasts, and press conference by Fed chair Janet Yellen.
4. June 15: Weekly unemployment claims; industrial production for May; Philadelphia Fed business outlook survey for June; Empire State manufacturing survey for June.
5. June 16: Housing starts for May; University of Michigan consumer sentiment index for June, first reading.