The following economic awareness entry is based on short-term events and therefore should not be taken as information towards making investment decisions, which are of a long-term nature. It is only meant to provide clarity regarding current economic events, as there is often a large degree of incorrect information dispersed through the media or other sources.
The Fed reported during the week that the largest U.S. banks passed the stress test evaluating their financial soundness. The test results indicate that banks have the capital structures to withstand difficult economic times. In addition, the results gave banks a green light to pay shareholders dividends and engage in share buybacks.
Other Market News
Q1 Gross Domestic Product Numbers Go Up: The Q1 GDP estimate improved to 1.4% on an annualized basis. Previous estimates were 1.2% and 0.7%. Consumer spending was also revised upward to 1.1% from previous estimates of 0.6% and 0.3%.
Durable Goods Orders Fall: Weakening commercial aircraft sales contributed to a 1.1% fall in May's durable goods orders. Core capital goods also fell 0.2%, surprising expectations for a 0.5% increase.
Consumer Confidence and Sentiment Rise: Consumer confidence exceeded expectations by 2 points in June as individuals who reported that jobs are difficult to find fell by 0.3%. The Consumer Sentiment Index rebounded in the second half of June to 95.1, but remains less than May's 97.1 reading.
Pending Home Sales Weaken: Despite an expected 0.5% gain, pending home sales dropped 0.8% in May. The 3-month run of slowing sales suggests a weakening housing sector.
Home Price Index Softens: The Home Price Index fell from an annual increase of 5.9% to 5.7% year-over-year. This index reflects monthly changes in housing prices over 20 metropolitan regions. San Francisco, Boston, and Cleveland all reported lower housing price data.
Oil Prices Climb: Although oil prices ended last Friday at $46.04 a barrel, oil closed the first half of the year down 14%, its weakest performance since 1998. Ongoing concerns about an oversupplied market continue to influence investors despite a dip in U.S. production slowing the bearish outlook.
Import/Export Data Modestly Brightens: Imported goods dropped to $193 billion and exports improved to $127.1 billion in May. While the $65.9 billion difference remains significant, this quarter's goods gap is averaging $66.5 billion a month.
The Dollar Drops: Though marginally recovering on Friday, the U.S. dollar reported its largest quarterly decline in almost 7 years against other major currencies.
The Week Ahead
U.S. markets closed on Tuesday for the July 4th holiday. During the shortened trading week, the markets will look at manufacturing indices, motor vehicle sales, and employment data reports. As the data becomes available, investors will focus on how Q2 numbers roll out and what might be developing for the rest of the year.
As you reflect on this data and the week ahead, feel free to contact us should questions arise. We are here to serve your complete financial goals and help you navigate your investing choices.
Monday: ISM Manufacturing Index, PMI Manufacturing Index, Motor Vehicle Sales, Construction Spending
Wednesday: Factory Orders
Thursday: ADP Employment Report, ISM Non-Mfg Index
Friday: Employment Situation
Notes: All index returns (except S&P 500) exclude reinvested dividends, and the 5- year and 10-year returns are annualized. The total returns for the S&P 500 assume reinvestment of dividends on the last day of the month. This may account for differences between the index returns published on Morningstar.com and the index returns published elsewhere. International performance is represented by the MSCI EAFE Index. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly.
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Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.
Diversification does not guarantee profit nor is it guaranteed to protect assets.
International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors.
The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.
The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ. The DJIA was invented by Charles Dow back in 1896.
The Nasdaq Composite is an index of the common stocks and similar securities listed on the NASDAQ stock market and is considered a broad indicator of the performance of stocks of technology companies and growth companies.
The MSCI EAFE Index was created by Morgan Stanley Capital International (MSCI) that serves as a benchmark of the performance in major international equity markets as represented by 21 major MSCI indexes from Europe, Australia and Southeast Asia.
The Dow Jones Corporate Bond Index is a 96-bond index designed to represent the market performance, on a total-return basis, of investment-grade bonds issued by leading U.S. companies. Bonds are equally weighted by maturity cell, industry sector, and the overall index.
The S&P US Investment Grade Corporate Bond Index contains US- and foreign issued investment grade corporate bonds denominated in US dollars. The SPUSCIG launched on April 9, 2013. All information for an index prior to its launch date is back teased, based on the methodology that was in effect on the launch date. Back-tested performance, which is hypothetical and not actual performance, is subject to inherent limitations because it reflects application of an Index methodology and selection of index constituents in hindsight. No theoretical approach can take into account all of the factors in the markets in general and the impact of decisions that might have been made during the actual operation of an index. Actual returns may differ from, and be lower than, back tested returns.
The S&P/Case-Shiller Home Price Indices are the leading measures of U.S. residential real estate prices, tracking changes in the value of residential real estate. The index is made up of measures of real estate prices in 20 cities and weighted to produce the index.
The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.
Google Finance is the source for any reference to the performance of an index between two specific periods.
Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.
Past performance does not guarantee future results.
You cannot invest directly in an index.
Consult your financial professional before making any investment decision.
Fixed income investments are subject to various risks including changes in interest rates, credit quality, inflation risk, market valuations, prepayments, corporate events, tax ramifications and other factors.
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