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Week in Review

Week Ending: Friday, August 4, 2017

Recap & Commentary

Market performance was mixed for the week with large caps and international equities posting positive returns while small caps and commodities under-performed.  The Dow received particular attention as it crossed 22,000 for the first time, and ended the week at a new record high. As we have discussed previously, these “milestones”, while interesting to pundits, are largely irrelevant from a fundamental standpoint.

Through Friday, 84% of companies within the S&P 500 had reported second quarter earnings. The strong performance trends seen throughout earnings season continue.  To date, 72% of companies have beaten their earnings estimates while 70% have beaten their sales estimates.  Forecasted earnings growth for the entire S&P 500 now stands at 10.1%, up from 6.8% at the outset of earning season.

Friday’s July employment report beat expectations as nonfarm payrolls increased by 209k, well above the expected 178k.  Unemployment ticked down –0.1% to 4.3%.  In another positive sign, the labor force participation rate edged up 0.1% to 62.9% as 349k individuals entered the workforce in search of employment.

In response to its most recent missile test, the United Nations passed additional sanctions against North Korea.  The new sanctions aim to further reduce the flow of hard currency into the country by banning and number of exports including coal and iron.

Economic Bullet Points

Data out of the factory sector was positive. The ISM Mfg. Index in July just above expectations for 56.2 at 56.3. All components were strong, exports the leading contributor. Factory Orders jumped 3% in June, skewed by aircraft orders that more than doubled in the month. Aircraft has helped the factory sector this year which has otherwise been struggling. This increase offset back-to-back declines in both May and April.

Data outside of the factory sector was mixed, the ISM Non-Mfg. Index was below consensus expectations, and the lowest since August of last year. This is likely the result of a summer slow-down that is expected to fade in coming months. The International Trade deficit shrunk to a below-consensus level of -43.6B in June, a positive for Q2 GDP revisions, and GDP growth moving forward. The decrease was helped by higher international demand for capital goods, cars and food.

Construction Spending fell -1.3% in the month, well below expectations for a 0.5% gain. Declines in residential spending and all public components were contributing factors.

Labor market conditions remain solid, the Employment Situation report indicated that non-farm payrolls added 209K jobs in the month, well ahead of expectations. Manufacturers and professional & business services were the leading drivers. The unemployment rate ticked lower by 0.1%, and the participation rate rose by the same, both positives. Average hourly earnings increased 0.3% in the month, Y/Y rate remained unchanged. Personal Income was flat despite strength in the wages & salaries component, which rose 0.4% M/M. Spending rose just enough to keep it in the positive column, up 0.1% M/M, seemingly fueled by savings which fell -1.7% to a 3.8% rate. Weak results point to less consumer momentum going into Q3.

Of Note

  • The Senate confirmed the nominations of two individuals to serve on the Federal Energy Regulatory Commission (FERC). With the appointments, the FERC regains the quorum needed to approve LNG export terminals, natural gas pipelines and other large-scale energy infrastructure projects.  FERC was without a quorum for the past six months.

Market Indices Week of 8/4

S&P 500             0.2%

Russell 2000       -1.2%

MSCI EAFE         0.8%

MSCI EM             0.4%

Commodities       -1.4%

Barclay’s Agg.      0.2%

US Dollar Index    0.3%

10-Yr Yield           2.27%

Oil ($/bl)               $50

Gold ($/oz)           $1,258


The Week Ahead

  • Producer Price Index
  • Consumer Price Index
  • Consumer Credit
  • NFIB Small Bus. Optimism
  • Jobless Claims

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