Week in Review August 25, 2017
All three major U.S. equity indexes finished in the green last week, the first time that’s happened in over a month.
The Dow, S&P 500 and NASDAQ rose 0.7%, 0.8% and 0.8%, respectively. It was the S&P’s first weekly gain in three weeks and the first for NASDAQ in the past five. Still, NASDAQ leads by a wide margin in year-to-date gains, up 17.3% compared to 12.2% for the Dow and 10.6% for the S&P. Small-cap stocks, as measured by the Russell 2000, were up 1.3% for the week, the first time that index has beaten the three big-cap indexes on a weekly basis since the end of June. Still, the index badly lags the other three indexes; it’s up just 1.5% so far this year. European stocks were little changed on the week while Asian stocks were mostly higher. Hong Kong’s Hang Seng index rose another 3% last week to raise its YTD increase to nearly 27% in local currency terms.
Federal Reserve Chair Janet Yellen disappointed some investors on Friday for failing to say much about monetary policy in her speech at the Kansas City Fed’s annual symposium in Jackson Hole, Wyoming. Rather, she defended federal government reforms to shore up the banking system following the global financial crisis and warned against rolling them back, a key goal of the Trump administration and Republicans in Congress. “The balance of research suggests that the core reforms we have put in place have substantially boosted resilience without unduly limiting credit availability or economic growth,” she said. Yellen’s failure to address interest rates put a damper on the dollar, which dropped against other leading currencies. The euro, for example, jumped more than 1% against the dollar after her speech to close above $1.19, a level it hasn’t seen since the end of 2014. U.S. Treasury bonds were mostly higher on the week at the long end, with the benchmark 10-year note closing at 2.17%, its lowest level in two months and down two basis points on the week.
Home sales were weaker in July. Sales of existing homes, by far the biggest category, fell 1.3% to an annual rate of 5.44 million, the lowest rate this year. “Nearly all Realtors across the country are reporting that the inventory shortage is limiting sales potential,” said Lawrence Yun, the chief economist of the National Association of Realtors, which reports the figures. If anything, he said, “the housing shortage has intensified.” There were 9% fewer homes on the market in July than a year earlier. Sales of new homes were even worse, falling 9.4% to an annual rate of 571,000, well below expectations of about 610,000. The drop was somewhat offset by upward revisions to the two previous months by a total of 33,000. More broadly, durable goods orders dropped 6.8% in July, skewed by a big decline in aircraft orders, which are usually volatile. Excluding transportation, orders were up 0.5%, and core capital goods orders rose 0.4%. The Chicago Fed’s national activity index was basically unchanged for July.
Reports/dates/facts/links worth paying attention to over the next week:
1. August 29: Conference Board consumer confidence index for August; S&P Corelogic Case-Shiller home price indexes for June.
2. August 30: ADP national employment report for August; second quarter GDP, first revision.
3. August 31: Weekly unemployment claims; personal income and outlays for July; pending home sales for July.
4. September 1: Employment situation for July; Institute for Supply Management manufacturing composite index for August; construction spending for July; motor vehicle sales for August.