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Week in Review

Week Ending: Friday, August 18, 2017

Recap & Commentary

Equity markets were mixed with domestic markets trading lower, while international markets enjoyed a strong week. U.S. markets (S&P 500) started the week on a high note, rising more than 1% on Monday as tensions with North Korea abated.  Wednesday, however, saw the S&P 500 experience it second largest daily decline of 2017, as the political backlash to President Trump’s comments about violence in Charlottesville raised new concerns about the likelihood of his political agenda being implemented. Disappointing earnings from economic bellwethers Cisco and Walmart, and a terror attack in Barcelona that killed 13, also weighted on the markets.

Minutes from the Fed’s July meeting showed that the central bank is becoming increasingly wary of low inflation. The minutes revealed a lengthy discussion about inflation including current drivers, the framework by which it is measured, and the outlook.  On the later point, “Many members...saw some likelihood that inflation might remain below 2 percent for longer than they currently expected, and several indicated that the risks to the inflation outlook could be tilted to the downside.”  On the topic of balance sheet reduction, “Although several participants were prepared to announce a starting date for the program at the current meeting, most preferred to defer that decision until an upcoming meeting…”  Markets generally interpreted this to mean the Fed’s next meeting in September. Looking forward, while it seems reasonable to assume that the Fed will officially announce the start of its balance sheet reduction program at its next meeting, the timing of its next rate hike seems less certain, but will clearly be determined to a large extent by future inflation data.

Economic Bullet Points

Regional factory sector data is robust; the Empire State Mfg. Survey continued to climb higher, the August reading well above consensus, and the highest since September 2014. The Philly Fed survey was also above consensus, most components at or near 35-year highs. Government factory sector data is grinding higher, but at a more modest pace. Industrial Production rose 0.2% in July, a 3rd straight decline in motor vehicles holding down the month’s production.

Leading indicators rose 0.3% in July, in line with expectations. This is the 11th consecutive monthly gain, signaling continued economic growth ahead.

Data out of the housing sector was mixed, the housing market index rose above expectations, reaching early-year highs. Both housing starts and permits fell in July, but despite the declines the overall housing sector is expected to a be a positive contributor to second-half GDP.

The consumer is showing new signs of strength, retail sales climbed above expectations in July, and June was revised higher. The recent growth and revisions in sales have shifted the outlook to one that is more in-line with full employment. Consumer sentiment was well over even high-end expectations, and its strongest reading since post-election highs. Expectations were positive, slight decline in current conditions. Initial jobless claims fell in the week and were below expectations, a positive indicator for next week’s employment situation report.

Of Note

  • According to Credit Suisse, 5,300 retail stores closed in the first half of 2017, equating to ~200/week.




Market Indices Week of 8/18

S&P 500                    -0.6%

Russell 2000              -1.2%

MSCI EAFE                 0.0%

MSCI EM                      1.6%

Commodities            -0.6%

Barclay’s Agg.              0.1%

US Dollar Index          0.4%

10-Yr Yield                 2.20%

Oil ($/bl)                         $49

Gold ($/oz)                  $1,296



The Week Ahead

  • New Home Sales
  • Existing Home Sales
  • Durable Goods Orders
  • Jobless Claims



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