Key Market Data
|08/18/2017||08/25/2017||One Week Change||YTD||One Year|
|S&P 500 Index||2,425.55||2,442.25||+0.69%||+10.58%||+14.80%|
|MSCI EAFE Index||1,916.68||1,927.80||+0.58%||+17.32%||+16.97%|
|Barclays Capital U.S. Aggregate Bond Index||2,039.82||2,043.17||+0.16%||+3.38%||+0.30%|
|10-year Treasury Note Rate||2.195%||2.167%||-2.8 basis points||-27.8 basis points||+59.3 basis points|
- Orders for durable goods ex-aircraft rose 0.5% in July from June.
- Existing home sales fell 1.3% in July; new home sales dipped 9.4%.
- U.S. crude closed the week at $47.87; Brent finished at $52.41.
Mother Nature took center stage last week, beginning with a total eclipse that captivated Americans from coast to coast, and ending with Hurricane Harvey.
In between, the three major stock indexes shook off their recent doldrums to finish in the black, though trading volumes, as is often the case late in the summer, slowed, with both the New York Stock Exchange and the Nasdaq posting their quietest day of 2017 on Friday.
The debt ceiling
Early last week, President Donald Trump said he was willing to shut down the government if Congress did not finance his proposed border wall, one of his signature campaign promises. But Treasury Secretary Steven Mnuchin and Speaker of the House Paul Ryan (R, Wisconsin) both made it very clear they did not expect the government to shut down because of a battle over raising the debt ceiling, as it did in 2011, which resulted in the government’s credit rating being downgraded. Speaking in Kentucky on Monday alongside the Senate Majority Leader Mitch McConnell (R, Kentucky), Mnuchin said, “There is zero chance, no chance, we won’t raise the debt ceiling.” He had previously called for a “clean” bill, with no partisan measures attached, and on Monday added, “I think that everybody understands this is not a Republican issue, this is not a Democrat issue." He also, again, exhorted Congress to take care of the debt ceiling as soon as its members return to Washington in September from their summer recess, saying his “magic super Treasury powers” to keep the government running would be exhausted by the end of that month. And on Thursday, Ryan said, “We will pass legislation to make sure we pay our debts, and we will not hit the debt ceiling.”
Central bankers convene
The world’s leading central bankers descended on Jackson Hole, Wyoming, last week for the annual conference hosted by the Federal Reserve Bank of Kansas City. Investors were waiting on the words from two of the event’s star attractions, Janet Yellen, chairwoman of the Federal Reserve, and Mario Draghi, president of the European Central Bank, but both shied away from talking about fiscal policy and instead focused on regulation. Yellen spoke in defense of the Dodd-Frank Act passed after the financial crisis which the Trump administration has decried for restraining business growth. “Already, for some, memories of this experience may be fading,” she said, “memories of just how costly the financial crisis was and why certain steps were taken in response.” She continued, “Reforms have boosted the resilience of the financial system,” and, as a result, “banks are safer.” Yellen also said that “the core reforms we have put in place have substantially boosted resilience without unduly limiting credit availability or economic growth.” Some pundits opined that her remarks would cloud her chances for renomination once her term as chairwoman ends in February. Draghi sounded a similar note, saying, “There is never a good time for having lax regulation,” while warning that a “reversal would call into question whether the lessons of the crisis have indeed been learned.” Draghi also weighed in on protectionism, saying, “To foster a dynamic global economy, we need to resist protectionist urges.”
Responding to events in Venezuela, including the recent referendum that increased the power of President Nicolás Maduro and his party, which many international observers saw as rigged, the United States government imposed new sanctions against that nation by limiting its access to the American debt markets. The U.S. government stopped short of blocking imports of oil from Venezuela which some analysts believe would cripple its already reeling economy. Secretary Treasury Mnuchin, in announcing the step, said, “Maduro may no longer take advantage of the American financial system to facilitate the wholesale looting of the Venezuelan economy at the expense of the Venezuelan people.” Venezuela’s Foreign Minister Jorge Arreaza, speaking at the United Nations, said the sanctions were “the worst aggressions to Venezuela in the last 200 years, maybe.”
Existing home sales decline, but …
Existing home sales fell 1.3% in July to an annualized rate of 5.44 million, the National Association of Realtors reported, but the main reason for the drop was not a slowdown in purchasing but the lack of inventory: there is currently a 4.2-month supply of houses on the market compared to 4.8 months last July. Even so, sales were up 2.1% from a year earlier. Sales of new homes also fell in July, down 9.4% from the month before to an annual rate of 571,000 and were off 8.9% from July 2016.
Orders for durable goods fall, but …
Orders for durable goods declined 6.8% in July from June, but the decline was almost entirely the result of orders for aircraft and aircraft parts which had soared in May. Without that category, orders gained 0.5% in June and were 5.6% higher than they were a year earlier. Orders for core capital goods, excluding aircraft and defense, rose 0.4%, and shipments of core capital goods climbed a solid 1%, with June having been revised up from 0.1% to 0.6%. Together these numbers point to potentially strong business investment in the current quarter after an increase of 5.2% in the second quarter and 7.2% in the first. In other news, first time jobless claims for the week ending Aug. 19 were up 2,000 to 234,000; the four-week moving average, meanwhile, fell 2,750 to 237,750, its lowest level since May.
A look ahead
This week’s releases will include the latest on wholesale and retail inventories, the S&P CoreLogic Case-Shiller Home Price Index, pending home sales, personal consumption expenditures, vehicle sales, construction spending, consumer confidence, the Institute of Supply Management’s Manufacturing Index and the unemployment report for August – 180,000 jobs are expected to be added with the jobless rate remaining unchanged at 4.3%. In addition, the government will announce its second estimate of second-quarter growth, forecast to tick up from 2.6% to 2.7%. And the president will visit Missouri on Wednesday to promote his overhaul of the tax code.
Have a happy Labor Day.