US Stocks were down slightly this week following several weeks of gains. Growth stocks outperformed value stocks largely based on Tech earnings announcements. The Federal Reserve met this week and left short term interest rates unchanged. However, the FED took a more optimistic view of the economy and said that near-term risks to the economic outlook have diminished and that the labor market strengthened. This increased the likelihood of a rate increase later this year. The Bank of Japan disappointed investors by announcing a stimulus package much smaller than expected. On Friday the Commerce Department released its first estimate of 2nd quarter growth at 1.2% while revising the 1st quarter’s growth rate from 1.1% to only 0.8% on an annualized basis. One silver lining in the 2nd quarter’s GDP report was that inventory drawdowns were significant which usually requires an increase in production in the following quarter. The other silver lining was that personal consumption rose by 4.2% helping to offset weak business spending. So far 63% of S&P 500 companies have reported earnings. The blended earings decline this quarter is 3.8%.
In the numbers this week.
- The Commerce Department reported
- Purchases of new single family homes increased 10.1% in the first half of 2016 from the same period last year. For the month of June sales increased 3.5%.
- Durable Goods orders declined 4.0% in June, much worse than expected. May’s durable goods orders were reversed down from a 2.3% decline to a 2.8% decline. The biggest declines in June were for volatile civilian aircraft and defense products. Orders for nondefense capital goods (a proxy for business spending) actually rose 0.2% in June.
- The first estimate of gross domestic product rose at a 1.2% rate in the second quarter much less than economist’s expectations. The first quarter’s GDP estimate was revised down from 1.1% to 0.8%.
- The Census Bureau reported that only 62.9% of households own their own home, the lowest percentage since 1965.
- S&P Case Shiller reported that home prices have risen 5% in May from a year ago, unchanged from the pace of increases in April from the previous year. The second quarter of 2016 was half a percent below the same quarter last year. The change over the past year is due largely to an increase in new households renting rather than fewer people owning homes. The housing market is constrained by rising prices and limited inventories.
- The National Association of Realtors reported that pending home sales rose 0.2% in June.
- The Labor Department reported
- First time claims for unemployment rose 14,000 to a seasonally adjusted 266,000. The four week moving average of claims fell 1,000 to 256,500.
- The employment-cost index grew a seasonally adjusted 0.6% in the second quarter, faster than the rate of inflation. From a year earlier total compensation costs rose 2.3%.
- Wages and salaries also rose 0.6% and benefit costs rose 0.5%.
- The U.S. Energy Information Administration reported in the prior week:
- Crude oil inventories rose 1.671MM barrels.
- Crude oil production rose 21,000 barrels.
- Gasoline inventories increased 452,000 barrels.
- Baker Hughes reported that the US oil drilling rig count rose 3 to 374, the fifth straight week of increases while gas rigs fell 2 to 86. Keep in mind that at its peak in October 2014 there were 1609 active oil drilling rigs.
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Loren C. Rex, CFP®, AIF® 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.