Market Commentary - Week ending July 26, 2019

In the markets:

U.S. Markets:  U.S. stocks rebounded from last week’s losses and turned higher as the large-cap S&P 500 and technology-heavy NASDAQ Composite surged to record highs.  The Dow Jones Industrial Average retraced some of last week’s decline rising 38 points to finish the week at 27,192. The NASDAQ Composite rallied 183 points to 8,330, a gain of 2.3%.  By market cap, the large cap S&P 500 rose 1.7%, while the mid cap S&P 400 and small cap Russell 2000 rose 2.4% and 2.0% respectively.

International Markets:  Canada’s TSX rose 0.3% while across the Atlantic the United Kingdom’s FTSE gained 0.5%.  On Europe’s mainland France’s CAC 40 rose 1.0% while Germany’s DAX added 1.3% and Italy’s Milan FTSE rose 0.9%.  In Asia, China’s Shanghai Composite added 0.7% and Japan’s Nikkei added 0.9%. As grouped by Morgan Stanley Capital International, developed markets were essentially flat at -0.02%, while emerging markets were off -0.4%.

Commodities:  Gold took a break from its recent rally by closing down -0.5% to $1419.30 an ounce.  Silver continued to rally for a third consecutive week, adding 1.3% and finishing the week at $16.40 per ounce.  Crude oil finished the week fractionally up as West Texas Intermediate gained 0.8% to close at $56.20 per barrel.  The industrial metal copper, viewed by analysts as a barometer of global economic health due to its wide variety of uses, finished the week down -2.5%.

U.S. Economic News:  The Labor Department reported the number of Americans applying for first-time unemployment benefits last week fell by 10,000 to 206,000--its lowest level in more than three months.  Economists had estimated new claims would total a seasonally-adjusted 218,000. The less-volatile monthly average of new claims declined a smaller 5,750 to 213,000. Continuing claims, which counts the number of people already receiving benefits, fell by 13,000 to 1.68 million.  That number is near its lowest level since the early 1970’s.

Sales of previously owned homes slipped 1.7% last month, reflecting the continued weakness in the U.S. housing market despite a sharp drop in mortgage rates.  The National Association of Realtors reported existing homes sold at a 5.27 million annualized pace last month, down from the 5.36 million pace in May. Economists had expected a smaller decline to a 5.33 million rate.  Compared to the same time last year, sales are down 2.2%. Although sales are down, prices are up. The median selling price in June rose 4.3% to $285,700 from the same time last year. By region, sales increased 1.5% in the Northeast and 1.6% in the Midwest.  Sales were down 3.4% in the South and off 3.5% in the West. Jennifer Lee, senior economist at BMO Capital Markets noted that the results, while not spectacular—weren’t necessarily bad either. Lee stated “The housing sector is struggling to break higher despite lower borrowing costs and steady income growth.  Given the alternative — think of 2009 — steadyish growth isn’t that bad.”  

After two consecutive months of declines new home sales rebounded last month by rising 7%, the Commerce Department reported.  The annual sales pace for new single-family homes rose to 646,000 in June. Economists had expected a sales rate of 657,000. New home sales peaked at a high of 693,000 in March.  Over the past year, sales were 4.5% higher than the same time last year. The median sales price was $310,400 in June, slightly lower than the same time last year. At the current sales pace, it would take 6.3 months to exhaust the available supply—slightly above the six months generally considered to be an evenly balanced housing market.

Manufacturing in the U.S. expanded at its slowest pace in almost 10 years as weakness from Europe and Asia appears to have hit U.S. shores.  Economists say ongoing trade disputes are exacerbating the problem. Research firm IHS Markit reported its manufacturing Purchasing Managers’ Index slid 0.6 points to 50 this month, marking its lowest level since September of 2009.  The index number of 50 is the cutoff point between expansion and contraction. However, a similar survey of the much larger services side of the economy rose to a three-month high of 52.2. Some 80% of Americans work in the service sector.  Chris Williamson, chief business economist at IHS Markit addressed the apparent dichotomy stating, “The overall picture of modest growth conceals a two-speed economy, with steady service sector growth masking a deepening downturn in the manufacturing sector.”

Orders for goods expected to last at least 3 years, so-called ‘durable goods’, rebounded for the first time in three months, the Commerce Department reported.  Orders for long-lasting manufactured goods rose 2% last month, higher than the 0.7% increase economists had expected. Stripping out transportation, orders rose a smaller 1.2%.  Analysts often look at orders minus vehicles and planes as transportation can be especially volatile month to month. Almost all of the major categories saw orders increase. The only major category to suffer a decline was defense, which dropped 32%.  A key measure of business investment, known as core orders, rose 1.9% to mark its biggest gain in almost a year and a half. Chief economist Chris Low of FTN Financial stated, “Weak business/fixed investment is the economy’s primary vulnerability, and this report suggests it is not nearly as vulnerable as it appeared a month ago.”

The country’s Gross Domestic Product slowed to 2.1% in the second quarter, but the growth was still better than Wall Street estimates of a 2.0% gain.  The Commerce Department reported tariffs and a global slowdown weighed on the U.S. economy as the GDP slowed from the first quarter’s 3.1% growth. Analysts noted the underlying numbers looked good and appeared to lessen fears of a recession that have been much of the talk among economists and policymakers at the Federal Reserve.  Michael Arone, chief investment strategist at State Street Global Advisors stated, “The recession talk was always overstated. The economic data continue to suggest that the economy isn’t near recession, at least in the next year or so.” President Trump deemed the report “not bad” and noted that growth was continuing despite what he considers overly tight monetary policy from the Federal Reserve.

Nathaniel Hoskin

Written by Nathaniel Hoskin

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