Investors were in a good mood last week as the bulls wrestled back control of the stock market, lifting some of the major market averages to new closing highs. For the first time in a few weeks, a broad-based advance has continued over more than a couple of days, opening the door for small-cap stocks to reassert a leadership role. Historically, the stock market performs best when small companies are leading, something we haven’t seen since January of this year.
This past week, Federal Reserve President, Janet Yellen, gave her semiannual monetary policy statement before the House Financial Services Committee. There were no major policy revelations, with her testimony comprised primarily of direction from recent FOMC statements. This included how rate hikes would continue at a gradual pace over the coming years, and that tapering of the Fed’s balance sheet will begin sometime this year. She also commented on inflation being held down by unexpected factors to include cell phones, drugs, and gasoline. The Fed believes that eventually inflation will rise, due to our current high level of employment. She also noted that the global economy has improved.
This week 70 of the S&P 500’s largest companies will disclose their earnings for the second quarter. Not only will this give investors a glimpse at each corporation’s individual profits, but will begin to paint a broader picture of the strength of the U.S. economy. With Washington focused on healthcare reform the next couple of weeks, Wall Street will be focused on earnings.
Laif Meidell, CMT
We hope you have a great week,
Pat Meidell, Laif Meidell and Heidi Foster
Weekly Economic Update
INFLATION PRESSURE WEAKENS
The Consumer Price Index was unchanged in June, according to the Bureau of Labor Statistics. That left its yearly advance at only 1.6%, nearly half a point below the Federal Reserve’s target (the core CPI was up 1.7%). After the announcement, some economists and market strategists wondered whether the Fed would rethink its plans for a third interest rate hike in 2017. The Producer Price Index rose 0.1% in June, leaving its yearly increase at 2.0%.1,2
RETAIL SALES, CONSUMER SENTIMENT INDEX DECLINE
For the second month in a row, households scaled back their retail purchases – retail sales were down 0.2% in June following a 0.1% May decline. Core sales fell 0.2% after a May retreat of 0.3%. The University of Michigan’s preliminary July consumer sentiment index lost 2.0 points off its final June mark to a reading of 93.1.1,2
A projection of rising demand and news of a pipeline shutdown in Nigeria sent the price of light sweet crude 5.2% higher in a week. WTI crude settled at $46.54 on the NYMEX Friday, its best close since July 3.3
DOW ENTERS RECORD TERRITORY AGAIN
Friday, the Dow 30 notched its third straight record close: 21,637.74. At the same time, the S&P 500 also settled at a new record of 2,459.27. The Nasdaq Composite finished Friday’s market day at 6,312.47, a half-percent away from its all-time peak. For the week, the Dow rose 1.04%; the S&P, 1.41%; the Nasdaq, 2.59%.4,5
Monday’s earnings parade includes announcements from BlackRock, Charles Schwab, J.B. Hunt, and Netflix. On Tuesday, Wall Street examines earnings from Bank of America, CSX, Comerica, Goldman Sachs, Harley-Davidson, IBM, Johnson & Johnson, Lockheed Martin, TD Ameritrade, and UnitedHealth Group. Wednesday sees data on June housing starts and building permits, plus earnings from American Express, Fidelity National Financial, Morgan Stanley, Northern Trust, Qualcomm, T-Mobile, U.S. Bancorp, United Rentals, and W.W. Grainger. A new weekly initial claims report arrives Thursday, plus earnings news from Abbott Labs, Alliance Data Systems, American Airlines Group, BB&T, BoNY Mellon, Capital One, Cintas, eBay, E*TRADE, GATX, KeyCorp, Microsoft, NCR, Nucor, Philip Morris, Sherwin-Williams, Skechers, Snap-On, Travelers Companies, Union Pacific, Visa, and Whirlpool. On Friday, Colgate-Palmolive, Fifth Third Bancorp, General Electric, Honeywell International, Regions Financial, Schlumberger, and SunTrust Banks present earnings.