Week in Review September 22, 2017
U.S. stocks were little changed last week, a week after recording one of their best performances of the year.
Both the Dow and S&P 500 had modest gains, rising 0.4% and 0.1%, respectively, while NASDAQ lost 0.3%. But small cap stocks continued to rebound. The Russell 2000 gained 1.4% a week after climbing 2.3%, raising its year-to-date increase to 6.9%; a month ago, the index was barely break-even for the year. Still, the index badly trails the big-cap indexes YTD. NASDAQ leads the way with a 19.4% gain, followed by the Dow with 13.1% and the S&P up 11.8%.
Despite new threats in the region from North Korea, Japan’s Nikkei 225 rose for the second consecutive week, the first time that has happened in more than three months. The index gained 1.9% after climbing 3.3% the prior week. The Shanghai composite index was largely unchanged for the week after S&P Global Ratings cut the country’s credit rating to A+ from AA-minus, noting that “a prolonged period of strong credit growth has increased China’s economic and financial risks.” European stocks were slightly higher, as the Stoxx Europe 600 gained 0.7%. Sovereign bond prices were weaker, both in the U.S. and abroad, with rates slightly higher on the long end. The U.S. Treasury’s benchmark 10-year note ended the week at 2.25%, up five basis points on the week.
As expected, the Federal Reserve left interest rates unchanged at its monetary policy meeting on Wednesday and said it would begin the slow unwinding of its $4.5 trillion bond portfolio next month. The process would begin by letting $6 billion of Treasury bonds and $4 billion of mortgage-backed securities to mature each month without reinvesting the principal. Regarding rates, the Fed indicated that it was on track to raise the federal funds rate one more time this year, likely in December, and three more times in 2018. “The basic message here is U.S. economic performance has been good,” Fed Chair Janet Yellen said in her post-meeting press conference. “We believe the recovery is on a strong track.”
Most of the week’s economic reports concerned housing, which came in mixed, although some of the negative results were due to Hurricane Harvey. Sales of existing homes fell 1.7% in August to an annual rate of 5.35 million units, the lowest level in a year, although some of the decline was due to Harvey, which battered the Houston area. On a year-on-year basis, sales are up only 0.2%. A lot of that weakness is due to high prices, which have risen about twice as fast as incomes. On the new construction front, housing starts fell a modest 0.8% to 1.18 million, although that beat forecasts as single-family starts, the biggest category, rose 1.6%. Permits, a leading indicator, rose 5.7%. The National Association of Home Builders’ confidence index for September fell three points to 64, although that was also negatively affected by Harvey. Elsewhere, the Conference Board’s index of leading economic indicators for August climbed 0.4%, ahead of expectations. The Fed reported that American household net worth rose by $1.7 trillion in the second quarter to $96.2 trillion, the seventh straight quarterly increase. Liabilities rose a modest $146 billion to $15.2 trillion; the ratio of liabilities to net worth is now at its lowest level since 2000.
Reports/dates/facts/links worth paying attention to over the next week:
1. September 25: Chicago Fed national activity index for August.
2. September 26: New home sales for August; S&P Corelogic Case-Shiller home price indexes for July; Conference Board consumer confidence index for September; Federal Reserve Chair Janet Yellen addresses the National Association for Business Economics in Cleveland.
3. September 27: Pending home sales for August; durable goods orders for August.
4. September 28: Weekly unemployment claims; second quarter GDP, second and final revision.
5. September 29: Personal income and outlays for August; University of Michigan consumer sentiment index for September, second reading.