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Week in Review

Week Ending: Friday, August 3, 2018

Recap & Commentary

Results for the week were mixed as U.S. markets generated positive returns while international returns were negative.  Following its 5th consecutive week of gains, the S&P 500 is now just 1.1% away from its record high set in late January.

Through Friday, 81% of S&P 500 companies had reported second-quarter earnings.  Thus far, 80% and 74% of companies that have reported have beaten their earnings and sales estimates, respectively.  According to industry group FactSet, second quarter S&P 500 earnings growth is forecasted to be 24%.

As expected, the Fed held rates steady at the conclusion of its July meeting.  In its post-meeting statement, the Fed described the pace of economic activity as “strong”, an upgrade from prior assessments of “solid.”  Markets are currently expecting the Fed to raise rates again in September and December.

Trade tensions were inflamed when the U.S. said that it might levy import tariffs of 25% on $200B of Chinese goods versus the initial rate of 10%.  In response, China said it would place tariffs on $60B of U.S. exports.

Nonfarm payrolls added 157K jobs in July, less than the expected 190K. However, the prior two months were revised upwards by a total of 59K, helping to offset the miss.  Other positives in the report included 37K new manufacturing jobs and a new record-low unemployment rate of 5.1% for those without a high school education. Strong employment growth in low-paying jobs and an influx of 25-34-year-olds into the workforce, combined with the retirement of the Baby Boomers, has helped to subdue hourly wage growth which remained steady at 2.7% in July.

Economic Bullet Points

  • Manufacturing—Despite some cooling, July factory output remained strong according to both the ISM and PMI Manufacturing indexes. While their respective 58.1 and 55.3 readings pointed to strength (a plus-50 score indicates expansion), supply shortages, rising prices, and weak exports, driven by imposed and speculative tariffs, remained key concerns among sample participants.
  • Services—Broad service sector activity slowed in July but remains elevated overall. In both ISM and PMI Non-manufacturing reports, current production, new orders, supplier delivery times, and order backlog data eased over the month. In sum, manager comments were upbeat, but tariff-related price concerns persisted.
  • Personal Income and Outlays—Incomes rose 0.4% in June, and upward revisions to previously reported data showed that incomes had risen slightly faster than expected. Coupled with a sharply higher savings rate, which was more than double what was anticipated in last week’s GDP print, the US consumer looks healthy.
  • International Trade—The US deficit widened more-than-expected in June, at $46.3B versus a $45.6B consensus expectation, due mainly to declining aircraft export orders. Tariff impacts are expected to hit next month’s print.
  • Consumer Confidence remained steady and strong at 127.4, beating out the 127.0 consensus estimate and in-line with the trend seen year-to-date.

Of Note

On Thursday, Apple became the first company in history to reach a market value of $1T. That made it all the harder to believe that, at one point in 1997, the company was just 90 days from bankruptcy.

Market Indices Week of 8/03

S&P 500                          0.8%

Russell 2000                  0.6%

MSCI EAFE                    -1.5%

MSCI EM                         -1.7%

Commodities                  0.1%

Barclay’s Agg.                  0.1%

US Dollar Index              0.5%

10-Yr Yield                       2.95%

WTI Oil ($/bl)                     $69

Gold ($/oz)                      $1,216

The Week Ahead

  • Consumer Credit
  • Jobless Claims
  • Producer Price Index
  • Consumer Price Index

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