Week in Review August 18, 2017
Despite suffering one of their worst one-day losses in three months on Thursday, U.S. stocks ended the week with relatively modest declines, although they did finish in the red for the second week in a row.
On Thursday, the Dow lost 1.2% while the S&P 500 fell 1.5% and NASDAQ dropped 1.9% following the terrorist attack in Spain. But thanks to increases earlier in the week, the Dow finished the week down only 0.8% while the S&P and NASDAQ both lost 0.6%. After losing more than 1% the prior week, the major indexes rebounded to start the week, but then started to fall around midday on Wednesday. President Trump’s controversial comments about the events in Charlottesville, VA, which dominated the media and political headlines all week, rattled investors, worried that the president’s agenda of tax reform and infrastructure spending may be in jeopardy. There was also a rumor that Gary Cohn, the chief White House economic advisor, was considering resigning, a story that proved false. The bond market was turbulent most of the week but ended pretty much where it began the week. Foreign stocks were mostly higher following big losses the prior week.
The strongest retail sales report of the year led the week’s economic reports. Sales rose 0.6% in July, the biggest one-month increase since December and well above the 0.3% rise the Street was expecting. The previous two months’ figures were likewise adjusted upward, with June now showing a 0.3% increase versus a 0.2% decline originally reported, while May was revised to unchanged from a 0.1% decline. Other reports were mixed. Leading economic indicators rose for the seventh consecutive month in July; the 0.3% increase was in line with estimates but down from June’s 0.6% rise. Industrial production rose 0.2%, a little weaker than expected after climbing 0.4% the prior month. The increase was held down by a 3.6% drop in auto production, which fell for the third straight month. Housing indicators were mixed. The National Association of Home Builders’ confidence index rebounded to 68 in August, but the housing starts report for July didn’t seem to justify that optimism. Overall, starts fell 4.8% to an annual rate of 1.155 million, below expectations, while permits, a forward indicator, fell 4.1%.
If it’s August, it’s Jackson Hole time. Later this week the Federal Reserve Bank of Kansas City will host its annual economic policy symposium at the Wyoming resort. Janet Yellen announced last week she will be speaking at the conference, which could be her last appearance as Fed chair; her term ends next February unless she is reappointed by President Trump. The Fed, which doesn’t meet again until next month, last week released the minutes of its July monetary policy meeting, which showed that its members are divided on the timing of the next interest rate increase, mainly over inflation. That makes a rate hike in September look doubtful. There was more agreement on beginning the process of unwinding the Fed’s $4.5 trillion bond portfolio soon.
Reports/dates/facts/links worth paying attention to over the next week:
1. August 21: Chicago Fed national activity index for July.
2. August 23: New home sales for July.
3. August 24: Weekly unemployment claims; existing home sales for July; the Kansas City Federal Reserve Bank kicks off its annual economic policy symposium in Jackson Hole, Wyoming.
4. August 25: Durable goods orders for July.