Volatility returned to the markets this past week after seeing relatively low volatility for much of the past year. US stocks see-sawed and ended the week lower with the tech heavy NASDAQ index seeing significant losses. Foreign stocks generally had smaller losses.
Many conflicting signals came out of the world’s central banks. On Monday Minneapolis Federal Reserve President, Neel Kashkari, said the FED should not be raising interest rates as wage and inflation data does not show any sign the economy is near overheating. On Wednesday Federal Reserve Chair, Janet Yellen, stated that asset valuations were “somewhat rich” while Vice Chair, Stanley Fischer pointed out rising stock valuations, thin corporate bond spreads and very low values of volatility indices were indicative of increased risk taking. However, he acknowledged leverage has not reached extreme levels. Canada and the UK both signaled possible rate increases in the coming months. European Central Bank president Mario Draghi gave an upbeat speech on Tuesday which traders judged as a prelude to the end of ECB asset purchases but on Wednesday senior officials at the ECB expressed concerns that the markets misjudged his comments and ignored that he asked for persistence and patience with ECB policy.
Much data was released this week:
- The S&P CoreLogic Case-Shiller home price index rose 5.5% in May from a year ago, down from 5.6% in April.
- The Commerce Department reported:
- Durable goods orders decreased 1.1% in May. The drop was mostly due to a 30.8% decline in military aircraft orders and 11.7% drop in civilian aircraft and parts. For the first five months of 2016 durable goods orders were up 2.8% from last year. Excluding transportation durable goods orders rose 0.1% in May. The slowness in durable goods orders was attributed to businesses waiting for tax reform on more ambitious capital spending programs.
- The median sales price for new homes in May was $345,800.
- Gross domestic product for the first quarter, originally estimated at 0.7% was revised up for a second time now to a 1.4% increase.
- The FED’s preferred measure of inflation, the personal-consumption expenditures index fell 0.1% in May. The core PCE inflation, excluding volatile food and energy prices, was up only 0.1% in May and is only 1.4% above a year ago, well below the FED’s target of 2.0%. The slower inflation numbers were attributed to declines in gasoline, cellphone plans and smaller than expected increases in drug prices.
- Personal income rose 0.4% in May, mainly due to an increase in dividend payments.
- Wage growth was 0.1% in May.
- The personal savings rate increased to 5.5%, the highest in eight months.
- The International Monetary Fund projected growth in the U.S. will decrease to only 1.7% in the next five years. The fund said it could no longer assume that the Trump administration will be able to provide both tax cuts and higher infrastructure spending. The fund also cited slow productivity growth despite advancements in technology as well as tighter immigration and an aging workforce.
- The Labor Department reported first time claims for unemployment rose 2,000 to a seasonally adjusted 244,000. The four-week moving average of claims fell 2,500 to 242,250.
- The Energy Information Administration’s Weekly Petroleum Data report is attached.
- The Energy Information Administration reported
- Weekly field production of crude oil fell 100,000 barrels per day in the prior week. The decline was attributed to a tropical storm hitting the gulf states.
- Natural gas in storage rose 46 Bcf last week from the prior week.
- Baker Hughes reported that oil drilling rigs declined by 2 to 756. Gas drilling rigs rose 1 to 184.
- The National Association of Realtors reported that pending home sales fell 0.8% in May largely due to supply.
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Loren C. Rex, CFP®, AIF®, MA Erik Smith
Generations Financial Planning & Wealth Management 269-441-4143
77 E. Michigan Ave, Suite 140
Battle Creek, MI 49017
Carrie Fuce, Assistant 269-441-4091
Toll Free: 800-513-8180
Visit our Website: www.genfinplan.com
Registered Representative of and securities offered through Cambridge Investment Research, Inc., a Broker/Dealer, Member FINRA/SIPC. Investment Advisor Representative, Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Cambridge and Generations Financial Planning & Wealth Management are separate companies and are not affiliated.
These are the opinions of Loren Rex and Erik Smith and are not necessarily those of Cambridge, are for informational purposes only, and should not be construed or acted upon as individualized investment advice.