Market Commentary - Week ending August 30, 2019

Market Data 9-04-2019

In the markets:

U.S. Markets:  U.S. stocks had their best week in nearly three months as investors appeared more confident that a trade deal would be reached between the U.S. and China.  After four consecutive weeks of selling the Dow Jones Industrial Average rebounded 3.0% and closed at 26,403. The technology-heavy NASDAQ Composite added 2.7% finishing at 7,962.  By market cap, the large cap S&P 500 added 2.8%, while the mid cap S&P 400 and small cap Russell 2000 each rose 2.4%.  

International Markets:  Most international markets also rebounded a bit from recent weeks of selling.  Canada’s TSX rose 2.5% and the United Kingdom’s FTSE gained 1.6%. On Europe’s mainland, France’s CAC 40 added 2.9%, Germany’s DAX rose 2.8%, and Italy’s Milan FTSE surged 4.2% for the week.  In Asia, China’s Shanghai Composite finished down -0.4%, while Japan’s Nikkei ended essentially flat down just -0.03%. As grouped by Morgan Stanley Capital International, emerging markets gained 2.9% while developed markets rose 2.0%.  

Commodities:  Gold had its first down week in five as the equities markets recovered.  The precious metal gave up half a percent, closing at $1529.40 an ounce. Silver surged last week, climbing 5.3% and closing at $18.34 an ounce.  Energy retraced some of last week’s loss by adding 1.7% and closing at $55.10 per barrel. The industrial metal copper, viewed by analysts as a barometer of global economic health due to its wide variety of industrial uses, rebounded 0.9%.

August Summary:  For the month of August, the Dow fell -1.7%, the NASDAQ -2.6%, and the S&P 500 -1.8%.  The smaller cap S&P 400 and Russell 2000 indexes retreated a much deeper -4.4% and -5.1%, respectively. Canada’s TSX managed a slight gain of 0.2%, but all other major international indexes finished the month down.  The UK’s FTSE retreated -5%, while France’s CAC 40 and Germany’s DAX gave up -0.7% and -2.1%, respectively. China’s Shanghai Composite fell -1.6% and Japan’s Nikkei finished down -3.8%. Emerging markets retreated -3.8% and developed markets lost -1.9%.  Gold and silver were the big winners in August, rising 6.4% and 11.8% in August, respectively, while oil and copper ended the month down -5.9% and -4.4%.

U.S. Economic News:  The number of Americans seeking first-time unemployment benefits rose slightly last week but remained near multi-decade lows.  The Labor Department reported jobless claims rose by 4,000 to 215,000, nearly matching economists’ estimates of 214,000. The less-volatile monthly average of new claims ticked down by 500 to 214,500.  Both readings remain near 50-year lows. Continuing claims, which counts the number of people already receiving benefits, climbed by 22,000 to 1.7 million. These claims are also near a more than 40-year low.  Thomas Simons, senior money market economist at Jefferies LLC stated in a note to clients, “The labor market remains tight and solid, layoff activity is light and there is no evidence in the economic data that suggests that these conditions will change any time soon.”

Home prices are rising at their slowest pace in almost seven years, according to the latest S&P CoreLogic Case-Shiller 20-city home price index.  The index fell from an annual rate of growth of 2.4% to 2.1%. That’s down from an annual rate of 6.3% just one year ago. Of the 20 cities surveyed, 17 still posted increases but most were quite small.  Over the past year, prices have risen the fastest in Phoenix and Las Vegas, up 5.8% and 5.5%, respectively. Seattle was the only city to have prices actually decline, down -1.3%. More broadly, the Case-Shiller nationwide home index showed prices were up 3.1% in June from the same time last year, down 0.2% from the previous month.  

The number of homes in which a contract has been signed but not yet closed fell in July, following two months of gains.  The National Association of Realtors (NAR) reported its index of pending home sales plunged -2.5% last month, far exceeding economists’ expectations of just a -0.3% decline.  All four regions of the country saw a decline in contract signings, with the West experiencing the largest declines. In the Northeast sales fell -1.6%, while in the South sales were down -2.4%.  In the Midwest sales declined -2.5% and in the West sales were off -3.4%. Compared to the same time last year, contract signings were down -0.3%. Lawrence Yun, the NAR’s chief economist wrote, “Economic uncertainty is no doubt holding back some potential demand, but what is desperately needed is more supply of moderately priced homes.”

The Commerce Department reported that orders for manufactured goods expected to last at least three years, so-called “durable goods”, jumped last month, led by airplane manufacturers.  Orders for commercial aircraft surged 47.8%, predominantly due to Boeing. Overall, orders for durable goods rose 2.1% in July, exceeding the consensus forecast of a 0.9% increase. Excluding the transportation sector, however, “core” orders were actually down -0.4%, their biggest drop since March.  Ian Shepherdson, chief economist at Pantheon Macroeconomics stated after the release, “No bottom yet for core orders.”

American consumers remain very confident in the U.S. economy despite the lingering trade dispute with China.  The Conference Board reported its closely followed survey of consumer confidence fell -0.7 point to 135.1 in August.  Economists had predicted the index would plunge to 127.8 as the trade dispute between the U.S. and China hit financial markets earlier this month and sent interest rates plunging.  The index remained near its post 2008 recession peak of 137.9 set last October. The present situation index component, which measures how consumers feel about the economy “right now”, rose to 177.2 from 170.9.  However the index which looks out over the next six months – the expectations index - appeared to reflect more worry as it slipped 5.4 points to 107. Lynn Franco, senior director of economic indicators at the board stated, “While other parts of the economy may show some weakening, consumers have remained confident and willing to spend.”

Americans increased their spending in July as households purchased a broad range of goods and services.  The Commerce Department reported that consumer spending, which accounts for more than two-thirds of U.S. economic activity, rose 0.6% last month following a 0.3% gain in June.  Economists had expected a gain of 0.5%. In the details, spending on goods surged 0.9% as Americans spent more in July on new cars and trucks, especially recreational vehicles. Spending on services increased 0.5%.  The increase in consumer spending in July was largely sourced from savings as personal income edged up just 0.1%, the smallest rise since last September.

The U.S. economy grew a bit slower in the spring than originally reported due to slowing exports and weaker corporate investment.  The Commerce Department reported gross domestic product (GDP), the official scorecard for the economy, expanded at a 2% annual pace from April to June.  The government had initially estimated the U.S. had expanded at a 2.1% rate. GDP had slowed from a 3.1% gain in the first three months of the year. In the details, while consumer spending was stronger than originally reported (upped from 4.4% to 4.7%), the level of inventories declined and exports fell even more sharply, down -5.8%.  Most other figures in the report were little changed. The government revises GDP twice after the original release to incorporate the latest data.

Nathaniel Hoskin

Written by Nathaniel Hoskin

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