General market news
- General market news
- Treasuries rallied last Wednesday after the Federal Reserve (Fed) announced that it was raising the fed funds rate by 0.25 percent. The yield on the 10-year was as low as 2.10 percent after the announcement before selling off to 2.17 percent on Friday. It opened at 2.14 percent this Monday. The 30-year yield, at 2.76 percent last Wednesday, has continued to stay near that level, opening at 2.78 percent on Monday. On the short end of the curve, the 2-year rallied after the announcement, then sold off, and has now stabilized around 1.32 percent.
- The S&P 500 and Dow Jones Industrial Average moved slightly higher last week, while the technology sell-off continued, leading the Nasdaq to a loss of 0.88 percent. Bond proxy stocks led the way, with the industrials, real estate, and utilities sectors among the top performers. Meanwhile, telecom followed technology as among the worst performers. Amazon (AMZN) bucked both poor technology sector performance and weak retail sales data last week. Its acquisition of Whole Foods Market (WFM) on Friday led to a 2.44-percent pop in the company’s share price. The move created ripples across the retail space, with many grocery chains losing ground on the news.
- The economic news last week was mixed. The week began with the release of Producer Price Index data, which came in slightly higher than expected. On a year-over-year basis, core inflation is up 2.1 percent, which is in line with the Fed’s 2-percent goal. Speaking of the Fed, as mentioned above, it raised rates by the expected 0.25 percent last week. This was seen as confirmation that the Fed is confident in the current economic expansion. Unfortunately, the rest of the news was less positive. Retail sales data disappointed, with a surprise decrease of 0.3 percent against expectations for an increase of 0.1 percent. Prior months’ data was revised upward, but the decrease was still unexpected. Much of the weakness in retail sales was attributed to lower gasoline prices. Business inventories also decreased slightly during the month. These two decreases caused economists to lower their forecasts for second-quarter gross domestic product growth. Finally, housing data disappointed again, following poor results in April. The National Association of Home Builders survey dropped to 67 against expectations to remain at 70. This is still a healthy number, but the surprising drop in sentiment is something worth watching. In addition to the decline in soft data, hard data showed weakness. Both building permits and housing starts declined for the month against expectations for increases. These declines are concerning given low supply and high demand.
|MSCI Emerging Markets||–1.41%||–0.05%||17.26%||28.72%|
|Fixed Income Index||Month-to-Date||Year-to-Date||12-Month|
|U.S. Broad Market||0.41%||2.69%||0.61%|
Source: Morningstar Direct
What to look forward to
In a slow week for economic news, there are just two reports on tap: existing home sales and new home sales.
The existing home sales report, released on Wednesday, is expected to show 5.55 million sales in May, down from 5.57 million in April. (Sales also declined from March to April.) A lack of homes for sale, rather than a lack of demand, is the primary reason for the decline; the supply of homes for sale is at its lowest level since records began in 1982. Given this lack of supply, there may be additional downside risk to the report.
The report on new home sales will be released on Friday. Here, sales are expected to bounce back from 569,000 in April to 600,000 in May, after a large drop from March to April. Developers continue to build new homes; therefore, new homes are more readily available than existing homes.
Overall, if the numbers come in as expected—even if the existing home sales number is weak—they will indicate continued strong demand and a healthy market.