Your Weekly Update for Monday, July 1, 2019
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Mike Elerath
National Social Security Advisor
Bill Roller
Chartered Financial Analyst
Certified Financial Planner
Chartered Market Technician
NMLS #107972
Summary
Markets were up last week. The Dow Jones Industrial Average rose 2.41% to 26,719.13. The S&P500 ended up 2.20% to 2,950.46, and the Nasdaq Composite finished up 3.01% to 8,031.71. The annual yield on the 30-year Treasury was unchanged at 2.59%.
Economic data for the week included a little-changed GDP report for Q1, mixed housing results and consumer confidence readings, yet a weaker durable goods report.
U.S. equity markets generally lost ground last week, while foreign equities earned small positive returns. Bonds were generally positive as rates continued to tick downward in keeping with dovish central bank language. Commodities were mixed, with crude oil gaining an additional few percent on the week, offsetting lower prices in agriculture.
Economic Notes
(0) The final reading for first quarter GDP came in at an unaltered 3.1%, despite some estimates for another tenth or so increase from the last release. Personal consumption growth was lowered by about a half-percent to 0.9%. However, capex spending was revised up by several percent to over 4% quarter-over-quarter, primarily due to strength in the non-residential structure and intellectual property components; residential investments, exports, imports and government spending also were revised upward by a bit as well. PCE inflation was revised up by about a tenth of a percent for the quarter, to about 1.7% on a year-over-year basis and staying below the Fed target, which continues to be a possible catalyst for rate cuts this year.
Estimates for Q2 GDP for the most part have been wavering in the 1.5-2.0% range for much of the quarterānowhere near the strength of Q1. The Atlanta Fedās GDPNow puts the current estimate similarly near 1.5%, while the New York Fedās generally more conservative Nowcast is down to 1.3%, as exports and manufacturing have fallen off recently.
(0) The May report of personal income showed a gain of 0.5%, beating expectations of 0.3% Personal spending came in at 0.4%, which was a tenth of a percent below consensus forecast; however, the prior month was revised by a significant 0.3%. The kept the personal saving rate unchanged at 6.1%. Year-over-year, personal income and spending are both up over 4%, in keeping with general growth trends after a hiccup earlier in the year. The PCE price index for the month rose 0.2% on a rounded basis on both a headline and core level, matching expectations, while year-over-year PCE inflation came in at 1.5% and 1.6% for core and headline, respectively.
(-) Durable goods orders for May fell by -1.3%, which was a bit worse than the median forecast of -0.3%. However, as it often is, the headline figure was led by the outsized impact of aircraft orders (in May, a decrease of -23%). On the core side, removing the more volatile components, core capital goods orders rose 0.4% for the month, which beat expectations of 0.1%. Core capital goods shipments also exceeded expectations, rising 0.7% on the month.
(-) The advance May goods trade balance increased by -$3.6 bil. to -$74.5 bil. in May, wider than the -$71.8 bil. median forecasted deficit. The differential was driven by a larger rebound in goods imports over exports, with higher trade amounts in the categories of autos, industrial supplies and capital goods.
(0/-) The S&P Case-Shiller home price index of 20 key U.S. cities was unchanged in April, despite expectations for a 0.1% increase. Prices rose in three-quarters of the cities, led by Boston, San Francisco and Los Angeles, which were each up over a half-percent, while prices in Seattle declined by just over a half-percent. On a year-over-year basis, the national index remains up 2.5%, which is a decelerated rate from this time last year, when the 12-month rate of change was over 6%.
(+) The April FHFA house price index, on the other hand, which covers a broader swath of locations beyond urban, rose 0.4%, beating expectations calling for a gain of 0.2%. Regionally, the Mountain and KY/TN/MS/AL segments rose over a percent on the month, while the upper Great Plains states fell by a half-percent. The year-over-year price growth rate remained high and rising, at 5.3%.
(-) New home sales for May fell by -7.8% to a seasonally-adjusted rate of 626k, which was below the 684k expected, and included mixed revisions for several prior months. On a regional basis, sales in the West were down by -36%, while those in the South region rose by 5%. Over the past year, national new home sales remain down nearly -4%, which continues to be indicative of the mixed nature of the current housing market.
(0/+) Pending home sales for May rose 1.1%, just above expectations of 1.0%. From a regional level, pending sales gains in the Midwest and Northeast of over 3% offset declines in the West of -2%. While a peripheral indicator from a long-term perspective, it does offer positive color on likely movements in existing home sales over the next few months.
(-) The Conference Boardās index of consumer confidence for June fell by -9.8 points to 121.5, below expectations of a lesser decline to 131.0, and the lowest reading in about two years. Both the assessments of current conditions and expectations for the future each declined during the month, while the labor differential that measures job availability fared slightly better, albeit also negative.
(+) The final June reading of the Univ. of Michigan index of consumer sentiment ticked 0.3 of a point higher to 98.2, beating expectations of a flat 97.9 reading. The current conditions component of the survey fell by over a half-point, which was made up by a +0.7 improvement in future expectations. Inflation expectations for the coming year rose a tenth of a percent to 2.7%, as did those for the next 5-10 years to 2.3%, to reverse recent lows.
(-) Initial jobless claims for the Jun. 22 ending week ticked higher by 10k to 227k, above the 220k level expected.Ā Continuing claims for the Jun. 15 week also rose, by 22k, to 1.688 mil., which was above the 1.665 mil. level expected. No anomalies were reported, with the largest moves taking place in the largest states, as usual. This indicates that the layoff environment remains very low/benign.
Market Notes
| Period ending 6/28/2019 | 1 Week (%) | YTD (%) |
| DJIA | -0.45 | 15.40 |
| S&P 500 | -0.27 | 18.54 |
| Russell 2000 | 1.16 | 16.98 |
| MSCI-EAFE | 0.65 | 14.03 |
| MSCI-EM | 0.15 | 9.22 |
| BBgBarc U.S. Aggregate | 0.43 | 6.11 |
| U.S. Treasury Yields | 3 Mo. | 2 Yr. | 5 Yr. | 10 Yr. | 30 Yr. |
| 12/31/2018 | 2.45 | 2.48 | 2.51 | 2.69 | 3.02 |
| 6/21/2019 | 2.11 | 1.77 | 1.80 | 2.07 | 2.59 |
| 6/28/2019 | 2.12 | 1.75 | 1.76 | 2.00 | 2.52 |
U.S. stocks generally lost ground most of the week, as investors nervously looked ahead to the weekend G-20 summit, where the U.S.-China trade negotiations are again taking center stage. However, the administration has kept expectations tempered by noting that a broad deal was unlikely in this forum (as it turned out, a ācease fireā was called over the weekend, with a halt in the implementation of additional tariffs for now). Comments by Fed officials, pulling back in market expectations by some of a rate cut of up to a half-percent by next month, also appeared to disappoint financial markets. By sector, financials and materials earned positive returns of over a percent, while oddly on a down week, defensives utilities, healthcare and consumer staples all lost over a percent each. Small caps also bucked the trend of broader U.S. large cap weakness by gaining a percent.
Foreign regions all generally gained ground for the week, with Europe and the U.K. outperforming the other groups slightly, with more optimism on a G-20 trade deal. In emerging markets, strength in Asia and Turkey offset weakness in Latin American nations Brazil and Mexico.
U.S. bonds earned slight positive returns as interest rates ticked down a few basis points across the middle of the treasury yield curve. Investment-grade corporates outperformed treasuries slightly, although high yield trailed with a negative week. With a little-changed dollar, foreign developed market debt gained a bit, although emerging market bonds experienced the best week of any fixed income assetāwhether in USD or local currency form.
Commodities were mixed as strength in energy and industrial metals was offset by falling prices for agricultural products. In energy, natural gas prices rose 6%, while the price of crude oil climbed againālast week by 2% to $58.50/barrelāas tensions persist with Iran in the Persian Gulf and OPEC members agreed to extend production cuts by at least another six months, placing a floor on prices.
Mortgage Rates
Sam Khater, Freddie Macās chief economist, says, āWhile the industrial and trade related economic data continues to dominate the news, the drop in mortgage rates over the last two months is already being felt in the housing market. Through late June, home purchase applications improved by 5% compared to the previous month. In the near-term, we expect the housing market to continue to improve from both a sales and price perspective.ā
The 30-year fixed-rate mortgageĀ (FRM) averaged 3.73% with an average 0.5 point for the week ending June 27, 2019, down from last week when it averaged 3.84%. A year ago at this time, the 30-year FRM averaged 4.55%.
The 15-year FRMĀ averaged 3.16% with an average 0.5 point, down from last week when it averaged 3.25%. A year ago at this time, the 15-year FRM averaged 4.04%.
The 5-year Treasury-indexed hybrid adjustable-rate mortgageĀ (ARM) averaged 3.39% with an average 0.4 point, down from last week when it averaged 3.48%. A year ago at this time, the 5-year ARM averaged 3.87%.
Through our relationship with Prestige Home Mortgage in Vancouver, Washington we originate residential and reverse mortgages. Check us out at https://beaconrrwa.com and our affiliated websites atĀ https://reverse-mortgages.us and https://socialsecurityquestionsanswered4u.com.
Sources: Ryan Long, CFA, FocusPoint Solutions, American Association for Individual Investors (AAII), Associated Press, Barclays Capital, Bloomberg, Citigroup, Deutsche Bank, FactSet, Financial Times, Goldman Sachs, JPMorgan Asset Management, Marketfield Asset Management, Morgan Stanley, MSCI, Morningstar, Northern Trust, Oppenheimer Funds, PIMCO, Standard & Poorās, StockCharts.com, The Conference Board, Thomson Reuters, T. Rowe Price, U.S. Bureau of Economic Analysis, U.S. Federal Reserve, Wall Street Journal, The Washington Post. Index performance is shown as total return, which includes dividends, with the exception of MSCI-EM, which is quoted as price return/excluding dividends. Performance for the MSCI-EAFE and MSCI-EM indexes is quoted in U.S. Dollar investor terms.
The information above has been obtained from sources considered reliable, but no representation is made as to its completeness, accuracy or timeliness. All information and opinions expressed are subject to change without notice. Information provided in this report is not intended to be, and should not be construed as, investment, legal or tax advice; and does not constitute an offer, or a solicitation of any offer, to buy or sell any security, investment or other product. FocusPoint Solutions, Inc. is a registered investment advisor.
Notes key: (+) positive/encouraging development, (0) neutral/inconclusive/no net effect, (-) negative/discouraging development.