General market news
- The yield on the 10-year Treasury slowly ground its way back to 2.22 percent last week before selling off on Friday. It opened early Monday at 2.27 percent. The 30-year yield behaved similarly over the past week, moving back to 2.79 percent on Friday before opening at 2.84 percent on Monday. The 2-year yield stayed in the tight range of 1.34 percent to 1.35 percent over the past seven days.
- The U.S. markets were mixed last week. The Dow Jones Industrial Average led the way, posting a 1.22-percent gain as it cleared the 22,000 level. The Nasdaq Composite lagged, posting a weekly loss of 0.34 percent. The S&P 500 Index fell between the two, ticking up by 0.23 percent. The U.S. dollar weakened last week as the euro reached an 18-month high. This move provided support for commodity prices, as oil topped $50 per barrel at the beginning of the week. But it later declined, leading to poor performance for the energy sector as a whole. Materials and health care also struggled while financials, utilities, and industrials had strong showings.
- Company earnings reports continued to come in strongly. Apple (AAPL) moved up by more than 5 percent following its announcement of stronger-than-expected iPhone sales. Tesla (TSLA) stock also moved higher after it reported that losses came in lower than expected. Meanwhile, investors continue to focus on the rollout of Tesla’s new Model 3 as the company enters what chief executive Elon Musk refers to as “manufacturing hell.”
- Like the markets, the economic data released last week was also mixed, with declining business confidence offset by stronger-than-expected jobs data. On Tuesday, the ISM Manufacturing Index increased slightly, as expected. But the Nonmanufacturing Index, released later in the week, declined by more than expected. Despite the decline, this measure is still in healthy expansionary territory at levels that have historically been consistent with gross domestic product growth of 3 percent.
- The week ended with better-than-expected jobs data. The economy added 209,000 new jobs in July, and the headline figure from June was revised up. The underlying data was also positive, with the unemployment rate dropping to a 16-year low. Additionally, average hourly earnings growth ticked up to 2.5 percent year-over-year. Given low unemployment levels, wage growth is expected to accelerate in the second half of the year.
What to look forward to
After a busy week, the only major economic report we’ll see this week will deal with consumer prices. It will be released on Friday.
Headline consumer price inflation, including food and energy, is expected to rise by 0.2 percent for July, up from flat in June. On an annual basis, headline inflation is expected to rise to 1.8 percent, up from 1.6 percent. These numbers would still be below the Federal Reserve’s (Fed) inflation target of 2 percent per year, but a rebound would be considered healthy.
Core prices, which exclude food and energy, are also expected to increase by 0.2 percent for July, up from an increase of 0.1 percent in June. On an annual basis, core inflation is expected to remain steady at 1.7 percent.
There appears to be more upside than downside risk to these numbers. So, although there are concerns about low inflation dropping even lower, prices will likely moderate if these reports come in as expected. This, in turn, would make the Fed more likely to start reducing its balance sheet in September.
Authored by the Investment Research team at Commonwealth Financial Network.
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