General market news
- After being as high as 2.39 percent, the yield on the 10-year Treasury moved lower late last week, opening at 2.30 percent on Monday. Some weaker-than-expected economic data, combined with what seemed to be more dovish comments from Federal Reserve (Fed) Chair Janet Yellen, helped push rates lower. The 30-year yield remains below 3 percent at 2.89 percent, and the 2-year is back below 1.4 percent, the lowest it has been since 2009.
- The Nasdaq Composite regained its leadership position last week following a post-July 4 slump. It led the three major U.S. indices with a gain of 2.59 percent. The S&P 500 and Dow Jones Industrial Average gained 1.42 percent and 1.04 percent, respectively. Markets reacted positively to Yellen’s semiannual testimony before Congress and her remarks that lower levels of inflation may lead the Fed to raise rates more slowly in the future.
- The technology and energy sectors performed best on the week. Technology benefited from the Fed’s pro-growth stance, while energy benefited as oil prices recovered to $46.35 per barrel. The worst-performing sectors were telecom and financials. Despite beating earnings estimates, big bank stocks JPMorgan Chase, Wells Fargo, and Citigroup all fell. A lower net interest income forecast from JPMorgan, a revenue miss for Wells Fargo, and lower net income for Citigroup were seen as reasons for the decline. As earnings season shifts into high gear this week, we could see an increase in market volatility.
- In economic news, we saw a number of data points surrounding inflation last week. On Thursday, Producer Price Index data came in slightly weaker than expected. The core figure, which excludes more volatile energy and food prices, increased 0.1 percent against expectations of a 0.3-percent gain. Year-over-year, prices have increased 1.9 percent against expectations for 2.1-percent growth. On Friday, Consumer Price Index data also came in slightly weaker than expected. Core prices grew 0.1 percent month-over-month against expectations for 0.2-percent growth. Year-over-year, this measure remained at 1.7 percent.
- Retail sales data for June also came in worse than expected despite continued high levels of confidence. Both the headline and core figures disappointed, declining slightly against expectations for modest growth. Continued consumer optimism has failed to translate into consistent sales growth, so this measure will bear watching.
|MSCI Emerging Markets||4.60%||3.99%||23.29%||24.12%|
|Fixed Income Index||Month-to-Date||Year-to-Date||12-Month|
|U.S. Broad Market||–0.40%||2.36%||–0.51%|
What to look forward to
This week is a quiet one for economic news, with only housing data on tap.
On Tuesday, the National Association of Home Builders industry confidence survey will be released. It’s expected to increase from 67 to 68. This is a very high level of confidence, not far off the 12-year high of 71 set in March of this year. If it comes in as expected, the result would suggest that industry confidence continues to be supported by low levels of available inventory and high demand.
Housing starts, released on Wednesday, are expected to ratify that confidence, rising from 1.092 million in May to 1.18 million in June. This would represent only a partial rebound from the drop in May, but there is some downside risk, as building permit issuance has declined recently. Housing starts are actually down on a year-to-year basis, so a significant bounce back would be a positive indicator for the economy as a whole.