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Week in Review

Week Ending: Friday, August 25, 2017

Recap & Commentary

Markets, as measured by the S&P 500, snapped two consecutive weeks of declines to post their strongest week in over a month. Comments by Congressional leaders as well as a key figure in the Trump administration helped drive returns.

On Monday, Senate Leader Mitch McConnell said there was “zero chance” that the debt ceiling wouldn’t be raised in September. His comments were in response to remarks by President Trump that he would be willing to risk a government shutdown in order to secure funding for a border wall with Mexico.  On Tuesday, House Speaker Paul Ryan said that tax reform should prove to be easier than health care reform because Republicans have already built consensus on the issue. On Friday, Gary Cohn, Director of the National Economic Council stated that he believes tax reform will pass this year.  Small cap stocks in particular benefitted from the statements.

Global central bankers gathered in Jackson hole on Friday for their annual symposium.  Investors hoped that speeches by Fed Chair Janet Yellen and European Central Bank (ECB) President Mario Draghi would provide insight on important policy issues facing both banks.  Instead, Yellen and Draghi focused their remarks on other topics; Yellen on the importance of financial regulation and the dangers of excessive de-regulation, and Draghi on the importance of free trade and the importance of making it more inclusive.  On the heels of Draghi’s comments, or more specifically, because Draghi did not address the timing of the ECB’s bond buying program, the Euro hit a 2.5yr high.  That in turn, had the inverse effect of pushing the dollar down to its lowest level since January 2015.  As a reminder, the Euro accounts for over 57% of the dollar index.

Economic Bullet Points

Data out of the housing sector showed a slight tapering. New Home Sales fell below consensus expectations, but were offset by upward revisions to the prior two months. The 3-month average shows sales still near expansion highs. Existing Home Sales told a similar story for July where numbers declined at the margin, but nonetheless remain high. A strong labor market is fueling demand in the housing market and supporting prices, but lack of supply continues to be a hindrance on the sector.

The factory sector remains healthy at the core despite a steep decline in durable goods orders, attributed largely to the volatile aircraft component. In addition to the pullback in commercial aircraft, the transportation sector was held down by continued softness in auto sales, which has pushed inventory levels up. Ex-transportation, however, the report rose 0.5% M/M.  Core capital goods, viewed as a measure of core business spending rose 1.0% M/M, the fastest pace since March.  The strong growth is positive for third quarter GDP.

The labor market remains on solid footing. Claims held on to the bulk of last week’s 12K decline, keeping the 234K initial jobless claims below consensus and near historic lows. Notably, annual auto retooling that often results in a temporary rise for claims was a non-factor this summer. Layoff activity remained very low in the month, consistent with recent high demand for labor.


Of Note

  • Thus far in 2017 there have only been seven days in which the S&P 500 has closed or been down by more than 1% from the prior day. That compares with an average of 73 days over the past 20 years.


Market Indices Week of 8/25

S&P 500                    0.7%

Russell 2000             1.5%

MSCI EAFE                0.6%

MSCI EM                    2.4%

Commodities            0.1%

Barclay’s Agg.            0.2%

US Dollar Index       -0.7%

10-Yr Yield                2.17%

Oil ($/bl)                       $48

Gold ($/oz)               $1,285

The Week Ahead

  • ISM Manufacturing Index
  • Case-Shiller HPI
  • Construction Spending
  • GDP
  • Personal Income & Outlays
  • Consumer Sentiment
  • Consumer Confidence
  • Employment Situation
  • Jobless Claims


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