Monthly Archives: August 2015

Market Insights 8/31/2015

Oil Surges Higher, Volatility Continues

In a now familiar volatile fashion, U.S. equities finished the final trading day of a turbulent month lower.

Stocks did close well above the worst levels of the session as crude oil prices continued a sharp rally amid a reduced output estimate from the U.S. government and with OPEC recommencing its willingness to talk with other producers to achieve equilibrium in the oil market.

Treasuries and the U.S. dollar were lower and gold was slightly higher, while Fed Vice Chairman Stanley Fischer relayed some relatively hawkish comments in a speech on Saturday.

The Markets…

The Dow Jones Industrial Average declined 115 points (0.7%) to 16,528

The S&P 500 Index lost 17 points (0.8%) to 1,972, the S&P 500 lost a little more than 6% on the month, it’s worst monthly decline since May 2012 when the S&P 500 gave back 6.4%. YTD the S&P 500 is down nearly 4%.

The Nasdaq Composite fell 52 points (1.1%) to 4,777

In moderately heavy volume, 1.1 billion shares were traded on the NYSE and 1.8 billion shares changed hands on the Nasdaq

WTI crude oil surged $3.98 to $49.20 per barrel and wholesale gasoline jumped $0.10 to $1.50 per gallon

The Bloomberg gold spot price added $1.84 to $1,135.45 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—decreased 0.3% to 95.86

August regional manufacturing activity mixed

The Chicago Purchasing Managers Index showed Midwest activity slowed but remained in expansion territory (above 50), declining to 54.4 in August from 54.7 in July, and versus the Bloomberg expectation of a slight decline to 54.5.

The Dallas Fed Manufacturing Index surprisingly fell to -15.8 for August from July’s unrevised -4.6 level, though economists had forecasted an improvement to -4.0, with a reading below zero denoting contraction.

Treasuries gave up early gains and finished lower, with the yield on the 2-year note ticking 2 basis points higher to 0.74%, the yield on the 10-year note increasing 3 bps to 2.21% and the 30-year bond rate gaining 4 bps to 2.95%, respectively.

Tomorrow’s U.S. economic calendar will be focused on August manufacturing activity with the release of Markit’s final Manufacturing PMI Index, forecasted to remain at the preliminary level of 52.9 but down from the 53.8 reading posted in July. Also we will get the ISM Manufacturing Index, expected to dip to 52.5 from 52.7 in July.

Europe mostly lower and Asia mixed on Fed uncertainty and China concerns

The European equity markets traded mostly to the downside, with comments from Federal Reserve Vice Chairman Stanley Fischer at the Central Bank’s annual gathering over the weekend in Jackson Hole, Wyoming, appearing to keep some expectations for a September rate hike intact. Also, continued volatility in China remained a drag on global sentiment, while the European Central Bank monetary policy decision looms on this week’s horizon. In economic news, German retail sales rose more than expected in July, and the eurozone consumer price inflation estimate for this month came in a bit stronger than anticipated. The euro was modestly higher versus the U.S. dollar, while bond yields in the region gained ground. Finally, The U.K. markets were closed for a holiday.

France’s CAC-40 Index was down 0.5%, Germany’s DAX Index decreased 0.4%, Spain’s IBEX 35 Index fell 0.9%, and Italy’s FTSE MIB Index declined 0.2%, while Switzerland’s Swiss Market Index traded 0.5% higher.

Stocks in Asia finished mixed with China’s volatility continuing, while Fed September rate hike uncertainty persisted following comments over the weekend at the Central Bank’s annual symposium in Jackson Hole, Wyoming. In mainland China, stocks pared losses but finished lower with traders grappling with whether the government’s efforts to try to stabilize the markets will be enough to stem the recent tumble. The move came ahead of tonight’s August reports on manufacturing and services sector activity. Japanese equities fell as strength in the yen weighed on export stocks, while a report showed the nation’s industrial production unexpectedly fell in July to exacerbate sentiment. Indian securities declined ahead of a read on the country’s 2Q GDP after the closing bell, which showed the nation’s growth slowed more than expected to a 7.0% year-over-year pace of expansion, from 7.5% in 1Q and compared to the 7.4% rise that was expected. Stocks in Australia dropped ahead of tonight’s monetary policy decision from the Reserve Bank of Australia. However, South Korean equities ticked higher as some strength in automakers helped push the index into positive territory in late-day action.

Market Insights 8/28/2015

Stocks Finish Volatile Week Mixed

U.S. equities finished the regular session mixed in some choppy action, but traded in the tightest one-day range of this unusually volatile week.

Crude oil prices rallied for a second-straight day to help boost the energy sector, however, continued Fed rate hike uncertainty ahead of Saturday’s speech by Fed Vice Chairman Fischer may have weighed on broader market sentiment.

Treasuries were mixed, while the U.S. dollar and gold were higher.

The Markets….

The Dow Jones Industrial Average declined 15 points (0.1%) to 16,640

The S&P 500 Index added 1 point (0.1%) to 1,989

The Nasdaq Composite was 16 points (0.3%) higher at 4,828

In heavy volume, 1.0 billion shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq

WTI crude oil surged $2.66 to $45.22 per barrel, wholesale gasoline added $0.07 to $1.40 per gallon

The Bloomberg gold spot price increased by $9.65 to $1,134.65 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.5% higher at 96.13

Markets were higher for the week, as the DJIA increased 1.1%, the S&P 500 Index gained 0.9% and the Nasdaq Composite Index advanced 2.6%

July personal income and spending rise, while consumer sentiment slips

Personal income was 0.4% higher month-over-month in July, matching the Bloomberg forecast, while June’s 0.4% increase was unrevised. Personal spending rose 0.3% m/m in July, below expectations of a 0.4% increase, while June’s 0.2% gain was adjusted to a 0.3% advance. The July savings rate as a percentage of disposable income rose to 4.9% from the downwardly revised 4.7% posted in June. The PCE Deflator was up 0.1% m/m, in line with forecasts, with the prior month’s 0.2% increase unadjusted. Compared to last year, the deflator was 0.3% higher, matching expectations. Excluding food and energy, the PCE Core Index was higher by 0.1%, in line with expectations, and the index was 1.2% higher y/y, below estimates of a 1.3% increase.

The final August University of Michigan Consumer Sentiment Index was revised lower to 91.9 from the preliminary level of 92.9, and compared to the forecast of a slight upward revision to 93.0. The index was also down from the 93.1 level in July. The downward revision came as both components pertaining to current economic conditions and the economic outlook were adjusted lower, and both were down versus July. The 1-year inflation projection was unrevised at 2.8%, in line with the projection in July, while the 5-10 year inflation outlook was unrevised at 2.7% but down from 2.8% in the month prior. The unexpected decline in sentiment suggests the recent global market volatility likely is hampering consumer confidence.

Treasuries were mixed, with the yield on the 2-year note rising 3 basis points (bps) to 0.72%, the yield on the 10-year note flat at 2.19%, and the 30-year bond rate declining 1 bp to 2.91%.

European stocks show late-day resiliency, Asia mostly higher

The European equity markets posted a late-day rally to close mixed, though the Stoxx Europe 600 Index posted a gain for the week that saw ramped up global volatility to foster some wild swings. The late resiliency came as oil & gas issues rallied amid the continued sharp recovery for crude oil prices. However, the Fed conference in Jackson Hole, Wyoming, culminating with Vice Chairman Stanley Fischer’s speech on Saturday, may have kept conviction contained as the markets grapple with Fed rate hike uncertainty that has ramped up this week amid the heightened volatility.

The euro was lower versus the U.S. dollar, while bond yields in the region mostly lost ground. In economic news, German consumer price inflation came in flat m/m in August, versus the 0.1% dip that was forecasted, while U.K. 2Q GDP growth came in at a 0.7% quarter-over-quarter pace of expansion, matching forecasts.

Stocks in Asia finished mostly higher with global sentiment being soothed by a second session of strong gains in mainland Chinese stocks, along with yesterday’s extended rally in the U.S., which came courtesy of a stronger-than-expected 2Q GDP report. China’s Shanghai Composite Index jumped 4.8%, despite a report showing industrial profits fell in July, amid continued speculation that the government intervened in the currency markets to stabilize the yuan and stepped up stock purchases to try to stem the recent tumble in the nation’s markets. The index posted a gain of more than 10% over the past two sessions but remains sharply lower on the week. Stocks in Japan rallied with the yen’s continued pullback from its recent jump bolstering gains for the equity markets and overshadowing an unexpected decline in July household spending. In other Japanese economic news, consumer price inflation came in above forecasts and retail sales rose more than expected for last month.

WEEKLY RECAP: Bulls win out despite major volatility fallout

U.S. stocks managed to post gains for the week that saw global market volatility spike. The bears took control on Monday and Tuesday, with the former seeing the Dow drop intra-day by more than 1,000 points as China continued to tumble along with emerging market currencies to pummel sentiment. Fed rate hike ambiguity also ramped up on the global volatility, while divergent comments from some members of the Central Bank regarding a September rate hike exacerbated the uncertainty. However, the bulls battled back as the week matured, courtesy of the Chinese markets rebounding sharply on reports that the government was stepping up stock purchases and intervening in the currency markets to try to stabilize the yuan. Moreover, a decisive recovery in crude oil prices, a stronger-than-expected U.S. 2Q GDP report and growth for a second-straight month in domestic durable goods orders helped foster a dramatic rebound.

At WT Wealth Management we continue to preach that the steps for successful investing remain the same despite the current turmoil. We do not believe the extreme volatility in global stock and commodity markets is a sign of a global recession. Instead, we feel it was one more irrational and emotional miss-step the markets always take when confronted with bad news and economic uncertainty.

THE WEEK AHEAD: Fed uncertainty likely to ramp up next week

Next week, Fed uncertainty is likely to continue to influence market action, with Saturday’s comments from Fed Vice Chairman Stanley Fischer at the Central Bank’s annual gathering in Jackson Hole, Wyoming, poised to garner heightened scrutiny. Also, the domestic economic calendar is loaded with key reports as the September Fed meeting looms on the horizon, headlined by Friday’s August nonfarm payroll release. The labor report will be preceded by August manufacturing and services reports from the ISM and Markit, U.S. auto sales, the Fed’s Beige Book and factory orders.

As a result of recent events, we believe the Fed is less likely to raise short-term rates in September, as the Fed typically takes global financial conditions into consideration, and is more likely to hold off on a rate increase as long as markets are highly volatile.

Other key domestic reports slated for next week include: construction spending, ADP’s employment change release, the final 2Q nonfarm productivity and unit labor costs, as well as the trade balance.

Market Insights 8/27/2015

Equities Continue Surge Higher

U.S. equities finished the regular session solidly higher as a morning rally was met with another round of volatile afternoon trading on the heels of some upbeat domestic data that showed economic output increased more than expected.

Additionally, reads on pending home sales and regional manufacturing fell shy of forecasts and weekly jobless claims declined. Treasuries were mostly flat, gold was lower, crude oil prices rallied by 10% and the U.S. dollar advanced.

The Markets…

The Dow Jones Industrial Average rallied 369 points (2.3%) to 16,655

The S&P 500 Index jumped 47 points (2.4%) to 1,988

The Nasdaq Composite surged 115 points (2.5%) to 4,813

In heavy volume, 1.2 billion shares were traded on the NYSE and 2.3 billion shares changed hands on the Nasdaq

WTI crude oil surged $3.96 to $42.56 per barrel, wholesale gasoline jumped $0.10 to $1.33 per gallon

The Bloomberg gold spot price lost $1.30 to $1,122.82 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—increased 0.7% to 95.76

Jobless claims decline more the forecasts, 2Q GDP growth revised higher than expected

Weekly initial jobless claims declined by 6,000 to 271,000 last week, below the 274,000 Bloomberg estimate, as the prior week’s figure was unrevised at 277,000. The four-week moving average rose by 1,000 to 272,500, while continuing claims increased by 13,000 to 2,269,000, north of the forecasted 2,248,000 level.

The second look (of three) at 2Q Gross Domestic Product, the broadest measure of economic output, showed a quarter-over-quarter annualized rate of growth of 3.7%, revised upwardly from the 2.3% expansion reported in the first report. This compared to the forecast of a favorable revision to a 3.2% rate of expansion. 1Q GDP expanded by an unrevised 0.6%. Personal consumption came in at a 3.1% gain for 2Q, from the 2.9% increase previously reported, in line with expectations. Personal consumption grew by an unrevised 1.8% in 1Q. The stronger-than-expected GDP figure was attributed to upward adjustments to nonresidential fixed investment, private inventory investment, state and local government spending, and personal consumption, while imports were revised lower.

On inflation, the GDP Price Index was revised to a 2.1% gain, above forecasts of an unrevised 2.0% increase, while the core PCE Index, which excludes food and energy, was unadjusted at a 1.8% rise, matching expectations.

Pending home sales increased 0.5% month-over-month in July, versus the projected 1.0% rise, and following the upwardly revised 1.7% decrease registered in June. Compared to last year, sales were 7.2% higher last month, versus forecasts of an 8.3% rise. Pending home sales reflect contract signings and are used as a gauge of the pipeline of existing home sales, which unexpectedly rose in July and sit at the highest rate in over eight years.

Treasuries were mixed following the data, with the yields on the 2-year and 10-year notes rising 1 basis point (bp) to 0.68% and 2.19%, respectively, while the 30-year bond rate dipped 1 bp to 2.93%.

Tomorrow, the U.S. economic calendar will deliver the latest personal income and spending report, forecasted to show income rose 0.4% m/m during July, matching the increase posted in June, while spending is anticipated to have grown 0.4% m/m after rising 0.2% the month prior. Also, the final University of Michigan Consumer Sentiment Index for August will be released, with economists forecasting a slight improvement to 93.0 from the preliminary level of 92.9. In central bank action, the Federal Reserve will continue its annual Jackson Hole Summit.

Europe rebounds sharply, Asia higher

The European equity markets rallied broadly, led by oil & gas stocks, courtesy of yesterday’s sharp rebound in the U.S., which halted a six-day slide and was the largest rally since 2011. The jump in the U.S. came on an upbeat durable goods orders report and commentary from a Fed official suggesting a “less compelling” case to raise interest rates in September. Today’s upbeat U.S. economic data, headlined by a stronger-than-expected 2Q GDP revision, added to upbeat global sentiment, along with a rally for Chinese stocks after falling sharply for the past five sessions. With today’s rally, Europe’s Stoxx 600 Index erased its weekly loss and is now modestly higher.

In economic news in the region, French business and manufacturing confidence both improved for August, while Spain’s 2Q GDP growth was unrevised at a 1.0% q/q pace of expansion. The euro traded lower versus the U.S. dollar, while bond yields in the region were mixed.

Stocks in Asia finished broadly higher after the sharp rebound in the U.S. yesterday and as Chinese stocks posted a sizeable gain courtesy of a late-day rally. China’s Shanghai Composite Index rallied to halt its largest five-day rout since 1996, per Bloomberg, and the Hong Kong Hang Seng Index was also nicely higher. Both indexes rallied in late-day action bolstered by reports that the nation’s state-controlled funds resumed stock purchases and the People’s Bank of China took action in the currency markets to stabilize the yuan. An advance for Japanese equities was aided by the yen continuing to give back some of its recent rally to help export-related stocks, and as Bank of Japan Governor Kuroda stood by the central bank’s 2.0% inflation target. Finally, socks in Australia, South Korea and India finished to the upside.

All Is Better After U.S. Economy Looks Stronger After Revised to GDP Report

The U.S. economy looks much more vigorous in the second quarter than previously thought, as a report released Thursday showed businesses got off the sidelines and spent some money.

The acceleration in business investment, if it’s sustained, could add to the economy’s momentum in the months ahead. The data show why the Federal Reserve is considering hiking interest rates at its next meeting in September.

The U.S. economy grew at a faster 3.7% annual pace in the second quarter, up from the initial estimate of growth at a 2.3% clip, the Commerce Department said Thursday.

Economists polled by MarketWatch forecast gross domestic product would be revised up to 3.3%, but business investment was stronger than expected. The government estimated last month that gross domestic product expanded at a seasonally adjusted 2.3% clip from April to June.

Consumer spending, the main driver of U.S. economic activity, led the way as usual. Outlays were revised up to 3.1% from 2.9% in the second quarter after a tepid 1.8% gain in the first three months of the year. What’s more, newly revised figures from the Commerce Department show that businesses invested at an even faster rate.

Businesses increased investment by 3.2% increase of a drop of 0.6%, with spending on structures such as office buildings rising by 3.1% instead of a drop of 1.6%. One reason businesses might have invested more: Corporate profits jumped an estimated 2.4% in the second quarter after declining by 5.8% in the first quarter.

It’s not clear this pace can be sustained. For instance, state and local government spending was boosted to 4.3% from 2.0%, the fastest pace since 2001. Economists don’t think this will last.

The value of inventories, which adds to GDP, increased by $121.1 billion in the second quarter instead of a previously estimated $110.0 billion. This is expected to subtract from growth in the third and fourth quarter.

But real final sales to private domestic purchasers, a measure of activity without inventories, saw a stronger upward gain than many economists expected, from 2.5% to 3.3%.

Economists polled by MarketWatch forecast the U.S. will grow at a 2.8% pace in the July-September quarter. But that was before this week’s financial market volatility.

Inflation as measured by the PCE price index rose at a 2.2% annual rate.

William Dudley, the president of the New York Fed, said Wednesday that recent economic data has been pretty positive. He indicated that he had been at least very close to backing a rate hike at the Fed’s Sept. 16-17 meeting. However, recent financial market turmoil has complicated the U.S. central bank’s plans. Dudley told reporters the steep market declines had made a rate increase “less compelling.”

It may be months before economists will know whether this week’s stock sell-off is an economically important shock.

The key to the monetary policy stance in the near term will not be past growth or inflation performance, but the outlook for both. Given the recent financial market volatility and the lingering anxiety about global growth, the outlook for both is now more uncertain and tilted to the downside, especially for inflation. This will provide the pretext for the Fed to take a pass on raising rates in September,” he added.

Market Insights 8/26/2015

Traders Tally Huge Gains, Though Some Uncertainty Remains

One of the strongest point advances ever for U.S. stocks formed on the heels of a solid domestic durable goods orders report, though a volatile theme remained as China announced additional measures in hopes of relinquishing its recent equity market turmoil.

Treasuries were lower following the domestic data, as were gold and crude oil prices, while the U.S. dollar advanced.

The Markets…

The Dow Jones Industrial Average surged 619 points (4.0%) to 16,286

The S&P 500 Index jumped 73 points (3.9%) to 1,941

The Nasdaq Composite rallied 191 points (4.2%) to 4,698

In heavy volume, 1.3 billion shares were traded on the NYSE and 2.6 billion shares changed hands on the Nasdaq

WTI crude oil declined $0.71 to $38.60 per barrel, wholesale gasoline lost $0.06 to $1.23 per gallon

The Bloomberg gold spot price fell $16.66 to $1,123.82 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—increased 0.7% to 95.24

Durable goods orders come in stronger than expected

Durable goods orders gained 2.0% month-over-month in July, compared to the Bloomberg estimate of a 0.4% decrease, with June’s 3.4% gain being revised to a 4.1% rise. Ex-transportation, orders grew 0.6% m/m, topping forecasts of a 0.3% gain, and June’s 0.8% increase was favorably revised to a 1.0% rise. Orders for non-defense capital goods excluding aircraft, considered a proxy for business spending, jumped 2.2%, compared to the projected 0.3% increase, and following the upwardly revised 1.4% increase in the month prior, from an initially reported gain of 0.9%. Solid declines in orders for aircraft and parts were met with a noticeable gain in motor vehicles, along with growth in demand for manufacturing, communications equipment, electrical equipment and appliances.

This was the second-straight monthly gain for the volatile report, suggesting U.S. manufacturing continues to grow and the persistent expansion in the auto industry indicates growing confidence among consumers. We believe the solid sentiment among manufacturers is encouraging in the face of the impact on the sector from the rout in commodities.

The MBA Mortgage Application Index ticked 0.2% higher last week, after gaining 3.6% in the previous week. The modest rise came as a 1.0% decline in the Refinance Index was more than offset by a 1.7% increase for the Purchase Index, while the average 30-year mortgage rate decreased 3 basis points (bps) to 4.08%.

Treasuries were lower, with the yield on the 2-year note rising 5 bps to 0.68%, the yield on the 10-year note increasing 11 bps to 2.18%, and the 30-year bond rate advancing 14 bps to 2.94%.

Tomorrow, the U.S. economic calendar will bring the second look (of three) at 2Q Gross Domestic Product (GDP), projected to show growth of an annualized 3.2% quarter-over-quarter pace, an increase from the initial read of 2.3% and after registering a contraction of 0.2% in 1Q. Some housing data will also be presented with pending home sales expected to show the pipeline for existing home sales to have risen by 1.0% m/m during July, following the 1.8% decline seen in June.

Additionally, tomorrow’s domestic docket will include the release of weekly initial jobless claims, expected to have decreased to a level of 275,000 from 277,000. Rounding out the day, the Kansas City Fed Manufacturing Activity Index is forecasted to have improved to a level of -4 for August from the -7 registered in July, with a reading below zero denoting contraction. Finally, the Federal Reserve’s annual Jackson Hole Summit will continue tomorrow with Fed Vice Chair Stanley Fischer slated to give a speech.

European decline amid heightened global volatility, Asia mixed

The European equity markets finished lower, giving back some of yesterday’s solid rebound, which was the best daily gain since 2011, per Bloomberg, courtesy of the rate cuts in China. Stocks briefly moved into positive territory amid the rebound in the U.S., bolstered by the stronger-than-expected read on durable goods orders, though the downside pressure in China and ensuing global market volatility continued to thwart conviction. Additionally, the euro traded lower versus the U.S. dollar and bond yields in the region moved mostly to the downside.

The U.K. FTSE 100 Index dropped 1.7%, France’s CAC-40 Index was down 1.4%, Germany’s DAX Index and Spain’s IBEX 35 Index decreased 1.3%, Italy’s FTSE MIB Index declined 0.8%, and Switzerland’s Swiss Market Index fell 2.4%.

Stocks in Asia finished mixed with some markets cheering the interest rate and bank required reserve ratio cuts out of China after yesterday’s sharp drop, though volatility remained as traders grapple with the effectiveness of the easing measures on stemming the country’s equity market tumble. Also, the volatility came following the late-day slide in the U.S. markets yesterday. For analysis of the global market volatility amid the turmoil in China and other emerging markets.

China’s Shanghai Composite Index and the Hong Kong Hang Seng Index finished lower, with both indexes swinging between gains and losses during the session. However, Japanese equities rebounded to rally sharply with the yen giving back some of its recent jump that has been bolstered by the uneasy global sentiment, while Australian and South Korean stocks were also higher. Finally, Indian equities declined ahead of tomorrow’s expiration of derivatives contracts and as banking stocks saw some pressure.

Market Insights 8/25/2015

Dramatic Reversal for Stocks

In the wake of yesterday’s rout, U.S. equities began the day sharply higher, getting a boost from China’s announcement to cut interest rates and lower the required reserve ratio for its banks. However, the rally was fleeting, as stocks lost steam in the final hour of trading to tumble into negative territory.

Treasuries and gold were noticeably lower amid a plethora of mixed domestic economic data, while the U.S. dollar rebounded and crude oil prices were mixed.

The Markets…

The Dow Jones Industrial Average fell 205 points (1.3%) to 15,666

The S&P 500 Index lost 26 points (1.4%) to 1,868

The Nasdaq Composite declined 20 points (0.4%) to 4,507

In heavy volume, 1.3 billion shares were traded on the NYSE and 2.6 billion shares changed hands on the Nasdaq

WTI crude oil rose $1.07 to $39.31 per barrel, wholesale gasoline lost $0.02 to $1.29 per gallon

The Bloomberg gold spot price fell $14.80 to $1,138.80 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—jumped 1.3% to 94.55

Heavy dose of mixed economic data

New home sales rose 5.4% month-over-month in July, to an annual rate of 507,000 units from June’s downward revised 481,000 unit pace, and compared to the Bloomberg forecast of a 510,000 rate. The median home price declined 1.9% y/y, but was 3.0% higher m/m at $285,900. The supply of new home inventory dipped to 5.2 months at the current sales pace. Sales in the Northeast, South and West were higher m/m and y/y, while declining m/m and coming in flat y/y in the Midwest. New home sales are considered a timely indicator of conditions in the housing market as they are based on contract signings instead of closings.

The Consumer Confidence Index rose to 101.5 in August—the highest since January—from an upwardly revised 91.0 in July and compared to the estimate of 93.4. Components pertaining to expectations of business conditions and sentiment toward the present situation both improved. Also, on employment, the labor differential—consumers’ appraisal of jobs being “plentiful” minus being “hard to get”—rose to 0.0 from -7.5 last month.

The preliminary Markit U.S. Services PMI Index declined to 55.2 in August from 55.7 in July, and compared to the forecasted decrease to 55.1, with a reading above 50 denoting expansion.

The 20-city composite S&P/Case-Shiller Home Price Index showed a gain in home prices of 5.0% y/y in June, below the estimate of a 5.1% increase. M/M, home prices were lower by 0.1% on a seasonally adjusted basis for June, versus forecasts calling for a 0.1% gain.

The Richmond Fed Manufacturing Activity Index fell to 0 in August from the unrevised 13 in July, and compared to the expected decline to 10, with a reading of zero the demarcation point between expansion and contraction.

Treasuries were solidly lower, as the yield on the 2-year note rose 3 basis points to 0.60%, while the yields on the 10-year note and the 30-year bond jumped 9 bps to 2.09% and 2.82%, respectively.

Tomorrow, the U.S. economic calendar will likely be highlighted by the release of durable goods orders for July, with the volatile headline figure projected to decline 0.4% m/m, after jumping 3.4% in June. Excluding transportation, orders are expected to rise 0.3% after gaining 0.8% in the month prior. The component of the report that may garner the bulk of the attention is nondefense capital goods orders excluding aircraft, as it is used as a gauge of business spending and are forecasted to grow 0.3% after rising 0.9% in June.

European market rebounds sharply, Asia mixed but China tanks again

The European equity markets rebounded sharply from the worst trading session since the financial crisis, led by the technology and basic materials sectors on the heels of an upbeat German business confidence and M&A chatter. Also, gains were bolstered by the announcement in China after the markets extended their rout that the People’s Bank of China cut its benchmark interest rates and the banking sector’s required reserve ratio.

In economic news, German business confidence unexpectedly rose for August, while the nation’s final read on 2Q GDP showed a 0.4% quarter-over-quarter pace of growth, in line with forecasts and a slight acceleration from the 0.3% rate of expansion posted in 1Q. The euro was solidly lower versus the U.S. dollar after yesterday’s jump, while bond yields in the region mostly gained ground.

Stocks in Asia finished mixed as the rout in the mainland Chinese markets continued, with the nation’s Shanghai Composite Index extending the steepest four-day drop since 1996, per Bloomberg, and falling below the 3,000 level for the first time in eight months. After the trading day ended, the People’s Bank of China cut its benchmark lending and deposit rates for the fifth time since November and lowered the banking sector’s required reserve ratio.

Japanese equities tumbled in highly volatile trading with volume more than twice the average, per Bloomberg, as the yen continued to rally overnight amid the unnerved global mood. The index overcame steep early losses and moved into positive territory during the day only to fall back solidly below the flatline in late-day action. However, stocks in Hong Kong, South Korea, and India advanced, while the Australian market was the standout winner, led by strength in financials.

Market Insights 8/24/2015

Epic Battle Between Bulls and Bears

The U.S. equity markets experienced gyrations on a grand scale in today’s session, beginning with the Dow’s opening face-plant of more than 1,000 points, to rally back to within 200 points of the flatline, only to lose that mojo and finish with solid losses.

The global chaos ensued amid persistent global growth and emerging market currency concerns, as well as heightened Fed rate hike uncertainty.

Treasuries were mixed amid a dormant domestic economic calendar, while the U.S. dollar, crude oil and gold prices were lower.

The Markets…

The Dow Jones Industrial Average plunged 588 points (3.6%) to 15,871

The S&P 500 Index plummeted 78 points (3.9%) to 1,893

The Nasdaq Composite dropped 180 points (3.8%) to 4,526

In heavy volume, 1.6 billion shares were traded on the NYSE and 3.2 billion shares changed hands on the Nasdaq

WTI crude oil declined $2.21 to $38.24 per barrel, wholesale gasoline lost $0.07 to $1.31 per gallon

The Bloomberg gold spot price decreased $6.60 to $1,152.80 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 1.6% lower at 93.50

Economic calendar empty, heats up tomorrow

Treasuries finished mixed after paring gains that came from the continued global uneasiness, while the U.S. economic calendar was void of any major releases today. The yield on the 2-year note declined 4 basis points to 0.58% and the yield on the 10-year note dipped 2 bps to 2.01%, while the 30-year bond rate was 2 bps higher at 2.74%.

This week’s U.S. economic calendar will provide a plethora of key reports to likely add fuel to the Fed rate debate. Tomorrow, Markit will deliver its preliminary Services PMI Index for August, expected to inch lower to a level of 55.5 from the 55.7 posted in July, which will be accompanied by Consumer Confidence, which is expected to rise to a level of 94.0 during August from the 90.9 in July. Reports from the housing front tomorrow will include new home sales, with economists forecasting an increase to an annual rate of 516,000 units for July from the 482,000 registered in June, and the S&P/Case-Shiller Home Price Index, expected to show a 5.2% year-over-year increase of home prices within the 20-city composite, and a 0.1% month-over-month rise on a seasonally-adjusted basis. Rounding out the day will be the Richmond Fed Manufacturing Index, forecasted to fall to a level of 10 during August from the 13 posted the month prior.

Other key U.S. reports for this week include: durable goods orders, the second look at 2Q GDP, personal income and spending and the final August University of Michigan Consumer Sentiment Index.

Europe and Asia tumble as global sell-off intensifies

The European equity markets fell broadly, with the global sell-off ramping up as the Chinese markets continue to tumble to exacerbate global growth concerns and preserve the flared-up U.S. Fed rate hike uncertainty. Global financial markets endured their worst week of the year this past week amid concerns over slowing economic growth and currency woes in China and other emerging markets, among other reasons.

At times like these it is easy to start thinking short term, but keep in mind that the foundations of investing success are well established (have a plan, keep a close eye on expenses, stay diversified, and make sure your portfolio composition is lined up with your tolerance for risk and the timetable for when you’ll need to start drawing down the portfolio). Oil & gas and basic materials stocks were the leading decliners in the region, while the euro rallied versus the U.S. dollar.

Stocks in Asia finished sharply lower across the board as the rout in Chinese stocks continued, keeping global sentiment stymied. China’s Shanghai Composite Index fell by the largest daily percentage drop since 2007, with the index giving up gains for the year as economic growth and liquidity concerns lingered, along with uneasiness regarding the country’s move a couple weeks ago to begin to devalue its currency.

The drop came despite the announcement over the weekend that the nation’s pension funds managed by local governments can invest in the stock market for the first time, suggesting traders were disappointed that the government did not announce stronger measures, such as further rate cuts, to try to stabilize the markets. As such, stocks in India, Hong Kong, Australia and South Korea all traded solidly lower. Also, Japanese equities sold off, as the accompanying strength in the yen on the unnerved global sentiment exacerbated the pressure on the nation’s equity markets. For analysis of the impacts on the markets from the turmoil in China and other emerging markets.

Market Insights 8/21/2015

Stocks Fall on Worries of China and the Fed

U.S. equities joined steep global declines as festering concerns about the slowdown in growth for China accompanied uncertainty regarding the timing of the initial Fed rate hike to weigh heavily on investor sentiment.

The Dow logged losses of over 500 points to close in technical correction territory, while intraday crude oil prices dipped below $40 for the first time since early 2009. Treasuries were higher along with gold, while the U.S. dollar was sharply lower.

The Markets…

The Dow Jones Industrial Average tumbled 531 points (3.1%) to 16,460

The S&P 500 Index dropped 65 points (3.2%) to 1,971

The Nasdaq Composite plummeted 171 points (3.5%) to 4,706

In heavy volume, 1.3 billion shares were traded on the NYSE and 2.7 billion shares changed hands on the Nasdaq

WTI crude oil declined $0.87 to $41.45 per barrel, wholesale gasoline added $0.01 to $1.54 per gallon

The Bloomberg gold spot price increased by $7.05 to $1,159.25 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 1.1% lower at 94.97

Markets were sharply lower for the week, as the DJIA declined 5.8%, the S&P 500 Index lost 5.7% and the Nasdaq Composite Index decreased 6.8%

Manufacturing report suggests growth in the sector unexpectedly decelerated

The preliminary Markit U.S. Manufacturing PMI Index for August declined to 52.9 from July’s 53.8 level, where economists surveyed by Bloomberg had expected it to remain, though a reading above 50 denoting expansion. Markit said the index hit the lowest level since October 2013 as output, new orders and employment all expanded at slower rates this month, while input cost inflation picked up fractionally, but remains well below the survey average.

Treasuries were higher, with the yield on the 2-year note decreasing 3 basis points to 0.62%, the yield on the 10-year note declining 2 bps to 2.04% and the 30-year bond rate dipping 1 bp to 2.74%.

Europe falls, Asia broadly lower as China data dampens the global mood further

Stocks in Asia posted another broad-based decline amid the recent global sell-off as Fed rate hike uncertainty added to global growth concerns amid the heightened volatility in China. A disappointing read on Chinese manufacturing output exacerbated sentiment to extend the pressure on the markets. The preliminary August Caixin/Markit China PMI Manufacturing Index fell to 47.1 from 47.8 in July, and compared to the 48.2 level that economists had projected. A reading below 50 denotes contraction and this would be the lowest level for the index since March 2009, per Bloomberg, fostering uncertainty regarding the impact of the Chinese government’s support measures aimed at combating slowing growth and volatility in the currency markets. China’s Shanghai Composite Index and the Hong Kong Hang Seng Index were solidly lower.

China’s move on its currency last week has rattled markets, but we don’t think it’s the start of a currency war, and it may signal that the slowdown in manufacturing has been too rapid and a rebalancing is in order at the expense of consumer spending. We hope that this is part of a “herky-jerky” path to freer markets.

The Chinese uneasiness continued to spill over to other markets in the region, with major equity indexes in Australia, South Korea and India finishing lower. Finally, the dampened global sentiment and ensuing strength in the yen fostered a 3.0% drop for Japan’s Nikkei 225 Index, despite a preliminary report showing growth in the nation’s manufacturing activity accelerated in August.

WEEKLY RECAP: U.S. stocks get caught in global sell off

U.S. stocks were not spared from the global rout in the equity markets for the week, with growth concerns being exacerbated by disappointing Chinese manufacturing data and heightened volatility for currencies, notably in the emerging markets. Fed rate hike uncertainty flared-up to bolster the volatility with dovish minutes from the Central Bank’s July meeting dampening expectations of a rate liftoff next month. The Dow tumbled to near correction territory from its all-time closing high, while the S&P 500 fell to negative levels for the year after dropping the most in the final two sessions of the week since 2011.

The sell-off came despite some upbeat housing data, with existing home sales unexpectedly rising, homebuilder sentiment improving and Dow member Home Depot Inc. offering upbeat guidance. Retailers remained in focus amid a plethora of earnings reports out of the sector, but Dow member Wal-Mart Stores Inc. missed expectations and lowered its guidance. Oil prices continued to plunge, with WTI crude oil briefly falling below the $40 per barrel mark for the first time since 2009. Treasuries rallied—with the 10-year yield falling to flirt with the 2.00% mark—along with gold prices, while the U.S. dollar pulled back.

We are more cautious in the near term but we don’t think the bull market is in danger of ending. It’s a time to understand your personal risk tolerance and realize a loss is never a loss until you sell that psoition.

THE WEEK AHEAD: Heavy dose of data on tap for next week

Next week’s U.S. economic calendar will provide a plethora of key reports to likely add fuel to Fed rate debate. Markit will deliver its preliminary Services PMI Index on Tuesday, which will be accompanied by new home sales and Consumer Confidence, while durable goods orders, the second look at 2Q GDP, and personal income and spending will round out the week.

The combination of tighter Fed policy, declining bond yields and rising volatility presents a challenge for fixed income investors. We feel now may be a good time to revisit your fixed income allocation to make sure that your bond holdings are consistent with your risk tolerance and investment time horizon.

Other key U.S. reports for next week include: the S&P/Case-Shiller Home Price Index and the final August University of Michigan Consumer Sentiment Index.

Internationally next week: China—industrial profits. Japan—household spending, Consumer Price Inflation (CPI), and retail sales. Europe—German 2Q GDP, CPI and business sentiment reports, U.K. consumer confidence and 2Q GDP.

Market Insights 8/20/2015

Markets Collapse Under Global Unease

U.S. equities were not immune from the pressure seen in the global markets, as stocks finished solidly lower amid concerns surrounding China, the relentless drop in commodities, a flare-up in Fed rate hike worries, and renewed uncertainty toward Greece.

Treasuries were mixed in the midst of the uneasiness, as well as a divergent economic docket, while gold was solidly higher and crude oil prices and the U.S. dollar finished lower.

The Markets…

The Dow Jones Industrial Average tumbled 358 points (2.1%) to 16,991

The S&P 500 Index was 44 points (2.1%) lower at 2,036

The Nasdaq Composite plunged 142 points (2.8%) to 4,877

In moderately-heavy volume, 905 million shares were traded on the NYSE and 2.1 billion shares changed hands on the Nasdaq

WTI crude oil inched $0.05 higher to $41.32 per barrel and wholesale gasoline lost $0.03 to $1.53 per gallon

The Bloomberg gold spot price jumped $24.50 to $1,152.30 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.4% lower at 95.97

Housing sales and regional manufacturing output top forecasts

Existing-home sales in July unexpectedly rose, growing 2.0% month-over-month to a 5.59 million annual rate—remaining at the highest pace since February 2007—10.3% above the pace a year ago and compared to the Bloomberg forecast of a decline to a 5.43 million pace. June’s figure was adjusted slightly downward to a 5.48 million unit rate. The median existing-home price was 5.6% above a year ago at $234,000. Single-family home sales were higher m/m and y/y, while multi-family sales declined m/m but were up y/y. Sales gains in the South and West more than offset a decline in the Northeast and flat sales in Midwest.

The National Association of Realtors (NAR) noted that steady job growth and the prospect of higher rates and home prices down the road is encouraging more households to buy now. However, the NAR added that some markets reported “slower foot traffic in July in part because of low inventory and concerns about the continued rise in home prices without commensurate income gains.” Housing remains a bright spot and should bolster the U.S. economy further. The recent surge in household formations and the U.S. homeownership rate likely having overshot on the downside, suggest many of the excesses from the height of the housing boom have corrected.

The Conference Board’s Index of Leading Economic Indicators (LEI) declined 0.2% m/m in July, versus the projected 0.2% growth, and June’s gain was unrevised at a 0.6% gain. The component pertaining to building permits weighed on the index, more than offsetting positive contributions from the yield curve and jobless claims.

Weekly initial jobless claims rose by 4,000 to 277,000 last week, above the 271,000 estimate, as the prior week’s figure was revised downward by 1,000 to 273,000. The four-week moving average increased by 5,500 to 271,500, while continuing claims decreased by 24,000 to 2,254,000, south of the forecasted 2,265,000 level.

The Philly Fed Manufacturing Index improved to 8.3 in August from 5.7 in July, and compared to the increase to 6.5 that was forecasted, with a reading above zero denoting expansion.

Not caring about the FED’s blatant signals on rates; Treasuries were mixed, as the yield on the 2-year note rose 2 basis points to 0.67%, while the yield on the 10-year note dropped 5 bps to 2.07% and the 30-year bond rate fell 7 bps to 2.75%.

Tomorrow’s economic calendar will be light, with the only item of note being the preliminary Markit Manufacturing PMI Index, with economists forecasting a level of 54 for August, slightly higher than the 53.8 posted in July.

Europe and Asia see pressure on China concerns and Fed uncertainty

The European equity markets finished broadly lower amid continued global growth concerns as heightened volatility for the Chinese markets persisted. Also, yesterday’s afternoon release of the July policy meeting minutes from the U.S. Federal Reserve fostered some uncertainty regarding the timing of the first rate hike to add to global volatility. Commodity-related stocks have taken a beating amid the heightened global uneasiness. In economic news, German wholesale price inflation came in flat m/m in July, while U.K. retail sales in July missed expectations on a headline basis, while sales excluding autos and gas rose in line with expectations. After the close of business in Europe, Greek Prime Minister Tsipras announced that he would step down and called for early elections in the troubled nation.

Stocks in Asia finished broadly lower as some Fed rate hike uncertainty joined festering concerns about the persistent downside volatility in the Chinese markets, with economic, liquidity and currency uneasiness continuing to be a drag on sentiment despite the government continuing to support the markets. Japanese equities traded lower with the yen strengthening to exacerbate the pressure on export related issues, while South Korea’s markets posted its fourth-straight losing session, and resource related stocks came under pressure to lead Australian stocks lower.

Market Insights 8/19/2015

Stock Lower from Fed Minutes

U.S. equities shot upward following the release of the Federal Open market Committee’s minutes from its July meeting, but the move was temporary, as stocks finished back near their lows on weakness in energy stocks amid the continued tumble in crude oil prices and festering concerns over China.

Treasuries gained ground in the wake of the Fed report, and as consumer price inflation came in slightly cooler than expected, while gold was higher and the U.S. dollar fell.

The Markets…

The Dow Jones Industrial Average tumbled 163 points (0.9%) to 17,349

The S&P 500 Index declined 17 points (0.8%) to 2,080

The Nasdaq Composite was 40 points (0.8%) lower at 5,019

In moderate volume, 834 million shares were traded on the NYSE and 1.8 billion shares changed hands on the Nasdaq

WTI crude oil fell $1.85 to $41.27 per barrel and wholesale gasoline lost $0.09 to $1.56 per gallon

The Bloomberg gold spot price rose by $16.42 to $1,134.13 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.7% lower at 96.37

Consumer price inflation cooler than expected, mortgage apps rise, Fed minutes released

The Consumer Price Index (CPI) was up 0.1% month-over-month (m/m) in July, below the Bloomberg forecast of a 0.2% gain, while June’s 0.3% rise was unrevised. The core rate, which strips out food and energy, ticked 0.1% higher m/m, south of expectations of a 0.2% increase, and compared to June’s unrevised 0.2% rise. Y/Y, prices were higher by 0.2% for the headline rate, in line with forecasts, while the core rate was up 1.8%, matching expectations. June’s y/y figures showed an unrevised 0.1% gain and an unadjusted 1.8% rise for the headline and core rates respectively.

The MBA Mortgage Application Index rose 3.6% last week, after ticking 0.1% higher in the previous week. The gain came as a 7.2% jump in the Refinance Index more than offset a 1.1% decline for the Purchase Index, while the average 30-year mortgage rate decreased 2 basis points to 4.11%.

The big news of the day were the minutes from the Federal Open Market Committee’s (FOMC) July 28-29 policy meeting showed that although conditions for an initial rate hike were “approaching”, Fed officials felt that “they would need to see more evidence that economic growth was sufficiently strong and labor markets conditions had firmed enough for them to feel reasonably confident that inflation would return to the Committee’s longer-run objective over the medium term,” As well, participants “generally viewed the risks to the outlook for domestic economic activity and the labor market as nearly balanced,” while also noting that downward pressure on prices from the fall in energy costs and a stronger dollar “would prove to be temporary.”

As noted previously, he indication from the Fed that the pace of rate hikes will be slow and methodical could allow stock market valuations to improve through time rather than price. And as we’ve noted in the past, historically, slow tightening cycles have been quite a bit more rewarding to the stock market than fast cycles.

Treasuries moved higher following the Fed minutes, as the yield on the 2-year note declined 8 bps to 0.65%, the yield on the 10-year note decreased 7 bps to 2.12%, and the 30-year bond rate dropped 5 bps to 2.81%.

Tomorrow’s highlight of the domestic economic calendar will likely be the release of July existing home sales, with the broadest measure of U.S. home sales projected to decline 1.1% m/m to an annual rate of 5.43 million units. So far the expected pick-up for U.S. economic growth has been tepid, but housing remains a bright spot and should bolster the economy further. Also, a slow and steady second half economic acceleration gives flexibility to the Fed and provides a path for stocks to move higher responsibly.

As well, weekly initial jobless claims will be reported, forecasted to tick lower to a level of 271,000 from the 274,000 the week prior, while the Index of Leading Economic Indicators is expected to have risen by 0.2% for July following the 0.6% gain in June, as well as the Philly Fed Manufacturing Index, projected to increase to 6.8 in August from the 5.7 level in July, with a reading above zero denoting expansion.

China concerns pressure Europe, Asia

European equity markets finished mostly to the downside ahead of today’s release of the July meeting minutes from the Federal Reserve in the U.S., while economic, liquidity and currency concerns toward China continued to hamper sentiment, hampering basic materials stocks. However, Greek stocks have overcome early losses and finished modestly higher after the German parliament voted in favor of the nation’s third bailout program. The euro traded higher versus the U.S. dollar, while bond yields in the region were mostly lower. In economic news, eurozone construction output fell in June, while the region’s current account surplus widened for the month.

The U.K. FTSE 100 Index dropped 1.9%, France’s CAC-40 Index and Italy’s FTSE MIB Index were down 1.8%, Germany’s DAX Index fell 2.1%, Spain’s IBEX 35 Index decreased 1.1%, and Switzerland’s Swiss Market Index declined 1.4%, while Greece’s Athens SE Index rose 0.3%.

Stocks in Asia finished mixed ahead of today’s look at the Federal Reserve’s July meeting, while volatility continued for mainland Chinese markets as traders grappled with economic growth concerns, along with liquidity and currency uneasiness. Mainland equities overcame intra-day losses to finish higher, while Hong Kong’s markets finished to the downside. Japanese equities fell, as the festering concerns toward China overshadowed a report showing the nation’s exports grew more than anticipated for July, while shares in South Korea suffered on the heels of a report showing the nation’s wholesale price inflation fell by 4.0% y/y last month, an accelerated drop from the 3.6% decline posted in June. Meanwhile, markets in India and Australia advanced amid a rebound in banking stocks and oil & gas issues.

Earnings and Company News

Target Corp. reported 2Q earnings-per-share ex-items of $1.22, above the $1.11 FactSet estimate, with revenues rising 2.8% year-over-year (y/y) to $17.4 billion, mostly in line with expectations. 2Q same-store sales grew 2.4% y/y, slightly north of the estimated 2.3% gain. TGT raised its full-year earnings guidance.

Lowe’s Companies announced 2Q EPS of $1.20, below the $1.24 expectation, as revenues grew 4.5% y/y to $17.4 billion, versus the forecasted $17.3 billion. Quarterly same-store sales rose 4.3% y/y, topping the estimated 3.7% increase. LOW reaffirmed its full-year guidance.

Hormel Foods posted fiscal 3Q profits ex-items of $0.56 per share, two cents above forecasts, as revenues declined 4.0% y/y to $2.2 billion, versus the expected $2.3 billion. The company raised its full-year earnings outlook.