ETF Investor Guide for August 2016

The August Issue of the ETF Investor Guide is NOW AVAILABLE!   Links to the August Data Files have been posted below. Market Perspective:  Stocks Remain at Record Highs Equities […]

Market Perspective for August 22, 2016

The U.S. Federal Reserve will host its annual Jackson Hole economic symposium in Wyoming this week, highlighted by Fed Chair Janet Yellen’s remarks scheduled for Friday.  This year’s conference theme is titled “Designing Resilient Monetary Policy Frameworks for the Future.” The Jackson Hole symposium has historically revealed a number of key monetary policies.  Former Fed Chairs, Ben Bernanke and Alan Greenspan have both used past symposiums to signal major policy shifts.

Yellen may signal a course change regarding interest rates at this meeting, as her predecessors have done before. Currently, investors are only pricing in a 12 percent chance of a September rate hike, with December odds at 50 percent. The 10-year treasury bond yield has hovered in an ever-tightening range between 1.60 and 1.50 percent, but hawkish statements in Jackson Hole could push it higher.

Flash PMIs for various nations will be out this week. New homes sales for July will be released on Tuesday, followed by existing home sales on Wednesday. Durable goods orders and core capital goods orders for July are due out on Thursday. The latest GDP estimate for the prior quarter will be out on Friday. Economists expect a growth rate revision of 1.2 percent to 1.1 percent.

The most recent University of Michigan Consumer Confidence figures and the Advance Goods Trade Balance will also be released on Friday. Economists expect a $63 billion trade deficit. Currently, the Atlanta Federal Reserve’s GDP Now Model predicts GDP growth will exceed 3.5 percent in the third quarter.

Though 95 percent of the S&P 500 have reported, the retail sector remains in the spotlight. Big box consumer electronics giant Best Buy (BBY) will report on Tuesday. The company is expected to post year-over-year declines in earnings and revenues as it continues to face pressure from online retailers. Fashion retailer Express, Inc. (EXPR) will report on Wednesday, while Dollar General (DG) and Dollar Tree (DLTR) are scheduled to report Thursday. While DG marginally missed estimates last quarter, analysts expect better results due to increased same-store sales. Analysts believe DLTR will benefit from its acquisition of Family Dollar, forecasting positive earnings and revenue growth. Tiffany (TIF) is expected to post a slight increase in earnings and revenue over last quarter on Thursday as well. In addition to retail data, technology stalwart Hewlett-Packard (HPQ) will also report this week.

Crude oil prices topped out at $49 last week. After bottoming at $39 a barrel on August 2, West Texas Intermediate Crude advanced 25 percent over 10 of the next 13 trading days. Sentiment shifted again on Monday as oil slid to $47. SPDR Energy (XLE) also dipped over 1 percent in Monday trading.

Market Perspective for August 19, 2016

The late-summer slow season is upon us as traders and investors vacation in the run-up to Labor Day. Indexes hit new all-time highs during the week, though performance was largely flat following the release of the Fed’s July meeting minutes. Strong earnings reports from select retailers and surging energy prices supported the markets despite mixed economic data.

Although some policymakers advocated for an imminent interest rate hike, the Federal Reserve committee agreed once again to delay, citing a need for further data. On Tuesday, New York Federal Reserve President William Dudley endorsed a stronger economy in the second half of the year. Atlanta Federal Reserve president Dennis Lockhart echoed those sentiments, stating his confidence in an accelerating economic trend that could warrant a 2016 rate hike.

West Texas Intermediate (WTI) rose more than 10 percent this week in response to another weekly oil inventory drawdown and bullish traders continued squeezing oil shorts out of the market. The rally boosted shares of oil and gas companies such as Exxon Mobile (XOM), Chevron (CVX) and ConocoPhillips (COP), and the Energy Select Sector SPDR (XLE) gained 3 percent. With oil once again approaching $50 per barrel, there was less default pressure on loans in the energy space, benefiting the high-yield market.

A weaker U.S. dollar strengthened oil prices and boosted commodities. The 10-year U.S. treasury yield increased slightly, providing a slight headwind for dividend funds without overweight energy exposure. Rate-sensitive utilities and real estate struggled against rising rates, while banking shares moved higher.

Home Depot (HD) and Wal-Mart (WMT) both delivered strong earnings this week. Clothing retailer American Eagle Outfitters (AEO) also beat analysts’ expectations. These reports overshadowed weaker news from Lowe’s (LOW) and Target (TGT). Cisco (CSCO) also disappointed investors and announced it would lay off 8 percent of its global workforce as part of a restructuring effort.

The Consumer Price Index (CPI) was unchanged as lower gasoline prices moderated inflation. U.S. industrial production increased 0.7 percent in July, well ahead of expectations. Housing starts unexpectedly jumped to a five-month high. The Philly Fed survey came in higher than consensus estimates, offsetting the weaker-than-expected Empire State survey. U.S. Capacity Utilization was slightly higher than estimates. Thursday’s lower-than-expected weekly unemployment claims figures reinforced the strong labor market conditions. Reports from Asia indicate the Bank of Japan (BoJ) was likely to engage in further monetary easing in the near future, following a substantial decrease in Japanese trade data.

 

Investor Guide to Vanguard Funds for August 2016

The August issue of the Investor Guide to Vanguard Funds is NOW AVAILABLE!   The August Data files have been posted below. Market Perspective: Stocks Push Higher as Employment Improves […]