General market news
- The yield on the 10-year Treasury opened at 2.23 percent on Monday. This was up from last Thursday’s low of 2.17 percent but considerably lower than its recent high of 2.42 percent. The yield on the 30-year Treasury opened at 2.90 percent, down from 3.04 percent last week. The 2-year yield was at 1.28 percent, up from last week’s low of 1.22 percent but down from the recent high of 1.33 percent.
- All three major U.S. indices were down slightly for the week. The Nasdaq Composite declined the most, moving down by 0.55 percent, followed by 0.32-percent losses on the S&P 500 and Dow Jones Industrial Average. Volatility, which had been muted, returned last week. The CBOE Volatility Index (VIX) spiked to a high of 15.59 after being as low as 9.56 just a week earlier. Much of the volatility was driven by political uncertainty. Brazil has another presidential scandal on its hands. Michel Temer, who became president after Dilma Rousseff was impeached, is now under investigation by Brazil’s Supreme Court for bribery allegations. This news led Brazilian markets down by more than 10 percent. The U.S. also has its share of political uncertainty, as a special counsel has been appointed to investigate Russia’s interference in the 2016 presidential election and other improper contact with the Trump administration. This investigation will continue to take the wind out of the sails of the new administration’s efforts to pass tax and health-care reform.
- Last week’s economic news focused on the housing market, and it was largely disappointing. The week began on a bright note, with the National Association of Home Builders Housing Market Index coming in above expectations and rising near post-recession highs. This measure of home-builder sentiment is often seen as a leading indicator for the housing market, and increasing confidence bodes well for future growth.
- The good news ended there, however, as home-builder optimism failed to translate into faster construction. Housing starts and building permits data disappointed, as both measures decreased against expectations for modest gains. Although these decreases were surprising, strong homebuyer demand, low supply, and home-builder optimism indicate that this slowdown in starts and permits was likely temporary.
| Equity Index | Week-to-Date | Month-to-Date | Year-to-Date | 12-Month |
| S&P 500 | –0.32% | 0.08% | 7.24% | 19.23% |
| Nasdaq Composite | –0.55% | 0.77% | 13.58% | 30.75% |
| DJIA | –0.32% | –0.34% | 6.35% | 22.41% |
| MSCI EAFE | 1.03% | 3.22% | 13.80% | 20.13% |
| MSCI Emerging Markets | –0.63% | 1.92% | 16.13% | 30.83% |
| Russell 2000 | –1.09% | –2.28% | 1.22% | 26.67% |
Source: Bloomberg
| Fixed Income Index | Month-to-Date | Year-to-Date | 12-Month |
| U.S. Broad Market | 0.44% | 2.05% | 1.46% |
| U.S. Treasury | 0.34% | 1.72% | –0.19% |
| U.S. Mortgages | 0.32% | 1.45% | 0.96% |
| Municipal Bond | 0.92% | 3.25% | 0.69% |
Source: Morningstar Direct
What to look forward to
This week offers a look at the housing market, what the Fed was thinking at its last meeting, and whether businesses are continuing to invest.
First up on Tuesday is the New Home Sales report. The report is expected to show a slight drop, from 621,000 sales in March to 615,000 in April, due to a limited supply of less expensive homes, which sell more quickly. Such a small decline, after strong gains in February and March, would not be a concern.
The Existing Home Sales report, released on Wednesday, is also expected to show a slight decline, from 5.71 million sales in March to 5.65 million in April. In this case, any decline would be due to a lack of supply. On a seasonally adjusted basis, the number of single-family homes for sale is at its lowest level since records started in 1982. There simply are not enough homes available for sale, despite strong demand. Here again, though, such a small decline would be nothing to worry about.
Also on Wednesday, the minutes from the Federal Open Market Committee’s last meeting will be released. Although these minutes are often out of date by the time they are released, there has been little public comment since the meeting, so they might provide useful guidance on the prospect of a June rate hike. In particular, we may learn whether officials are more concerned about the low unemployment rate or the drop in core inflation.
Finally, on Friday, we’ll see the Durable Goods Orders report for April. It is expected to show a 1.8-percent decline, after gaining 0.9 percent in March, on a sharp drop in commercial aircraft orders. Such orders are extremely volatile, so even if they decline, it will not necessarily be a bad indicator. Core orders, which exclude transportation, are expected to increase by 0.4 percent in April after a flat result in March. This is slower growth than in past months, but it would still be a healthy result.