Week in Review July 28, 2017
The major U.S. equity indexes finished mixed for the second week in a row, although this time the Dow registered a gain while the other two finished in the red.
The Dow gained 1.2% for the week, closing at an all-time high of 21830. NASDAQ lost 0.2% and the S&P 500 had a fractional loss. European stocks were also mixed, with Germany’s DAX down 0.6% but the major French, Spanish and Italian indexes up for the week. Overall, the broad-based Stoxx Europe 600 lost 0.5%. Likewise, Asian stocks were mostly higher except in Japan. Bonds, which had strong price gains the previous two weeks, sold off last week, raising yields. The benchmark 10-year Treasury note ended the week at 2.29%, up five basis points. But the yield on the three-month T-bill fell nine bps, widening spreads. In commodities, crude oil prices jumped sharply, with the U.S. benchmark climbing nearly 9% to end the week at just below $50 a barrel, its highest level since the end of May.
As expected, the Federal Reserve left interest rates unchanged at its July 25-26 meeting. The Fed also held back on beginning its “balance sheet normalization program,” i.e., trimming its $4.5 trillion securities portfolio, although it said it planned to start the process “relatively soon,provided that the economy evolves broadly as anticipated.” The vote was unanimous. In an interview with the Wall Street Journal, President Trump said Janet Yellen “is in the running, absolutely” for another term as Fed chair. “I like her; I like her demeanor,” he said. “I think she’s done a good job. I’d like to see rates stay low. She’s historically been a low-interest-rate person.” He also said National Economic Council director Gary Cohn is also being considered, as are “two or three” others.
Despite the turmoil in Washington and the lack of legislative progress on health insurance and tax reform, economic growth rebounded in the second quarter, the first full quarter of Donald Trump’s presidency. The first estimate of GDP growth came in at an annual rate of 2.6%, in line with Street forecasts and up from the first quarter’s downwardly revised 1.2% rate. Elsewhere, the Chicago Fed’s national activity index climbed back into positive territory in June to 0.13, up from May’s downwardly revised -0.30 reading. Durable goods orders climbed a better-than-expected 6.5% in June, but they were heavily skewed by a 131% jump in civilian aircraft orders. Ex-transportation, however, orders were up only 0.2%, less than expected, while core capital goods actually fell 0.1%.
Housing sector and consumer attitude indicators were mixed. New-home sales rose 0.8% in June to an annual rate of 610,000, in line with estimates, but sales of existing homes, which make up most of the market, fell 1.8%. The median price of a home rose 6.5% from a year earlier to $263,800, another new record. Two measures of consumer confidence continued to diverge. The Conference Board’s consumer confidence index rose nearly four points in July to 121.1, its second highest level since 2000, below only March’s reading of 124.9. But the University of Michigan’s consumer sentiment index ended the month at 93.4, up slightly from its mid-month reading but down from June’s 95.1.
Reports/dates/facts/links worth paying attention to over the next week:
1. July 31: Pending home sales for June.
2. August 1: Motor vehicle sales for July; personal income and outlays for June; Institute for Supply Management manufacturing composite index for July; construction spending for June.
3. August 2: ADP national employment report for July.
4. August 3: Weekly unemployment claims; ISM non-manufacturing index for July; factory orders for June.
5. August 4: Employment situation for July.