Investment Commentary –August 17th, 2016
Market Indices as of Market Close August 17th, 2016
Dow 18,573 (6.59% YTD)
S&P 2,182 (6.77% YTD)
NASDAQ 5,228 (4.42% YTD)
Global DOW 2,449 (2,033 week low/high 2,439)
10-year Treasury 1.55 (1.32 52 week low /2.38 high)
Gold 1,053 ($1,053 52 week low /high $1,384)
Oil $46.85 ($32.85 52 week low /high $54.91)
Stocks log a modest gain as Fed minutes point to a hike
Stocks finished marginally higher Wednesday, paring earlier losses following minutes from the Federal Open Market Committee’s July meeting, which suggested that a rate hike might be in the offing. Investors, however, seemed to read the hawkish Fed as advocating a go-slow approach to ending monetary policies that have been accommodative to stocks. The Dow Jones Industrial Average DJIA, +0.12% rose 20 points, or 0.1%, to close at 18,572, the S&P 500 index SPX, +0.19% finished up about 4 points, or 0.2%, at 2,182, while the Nasdaq Composite Index COMP, +0.03% ended near break-even, but in the green, at 5,228. Among companies, Urban Outfitters Inc. URBN, +15.40% surged 15%, after its second-quarter profit margin improved.
Jobless claims fall more than expected as labor market firms
The number of Americans filing for unemployment benefits fell more than expected last week, reinforcing views of labor market strength that could encourage the Federal Reserve to raise interest rates soon.
Initial claims for state unemployment benefits dropped 4,000 to a seasonally adjusted 262,000 for the week ended Aug. 13, the Labor Department said on Thursday. Claims for the prior week were unrevised.
Economists polled by Reuters had forecast initial claims slipping to 265,000 in the latest week.
Claims have now been below 300,000, a threshold associated with a strong labor market, for 76 straight weeks. That is the longest such stretch since 1973, when the labor market was much smaller.
The labor market is now viewed as either at or near full employment, suggesting limited scope for more declines in claims. Labor market buoyancy, marked by robust hiring in the last two months and diminishing slack, could prompt the Fed to raise interest rates despite low inflation and sluggish economic growth in the first half of the year.
New York Fed President William Dudley, an influential policymaker at the U.S. central bank, said on Tuesday it was “possible” to hike rates at the Fed’s Sept. 20-21 policy meeting.
But the minutes from the July 26-27 meeting, which were released on Wednesday, showed Fed policymakers were divided on the urgency of a rate hike amid concerns about benign inflation.
What Brexit? Surprisingly strong U.K. data dispel recession fears
The first round of official post-Brexit data is out and the verdict is clear: The EU referendum isn’t destroying the U.K. economy as some people had feared, dispelling concerns Britain is heading for a recession.
The trio of data out this week — inflation, jobless claims and retail sales — all beat expectations and painted a picture of a country that’s shaking off the immediate concerns over leaving the European Union. The reports were all for July, covering the first full month after the referendum and offering an early insight into the real impact on the economy.
“Brexit is certainly not Britain’s Lehman moment. It seems to be a confidence shock, so far, that will hit investment and lead to slower consumption growth, but there’s no convincing evidence when looking at all of the data — both hard and soft — for the period after that the economy is heading for a disastrous Q3,” said Kallum Pickering, economist at Berenberg.
THIS DAY IN FINANCIAL HISTORY: United States Wartime Economy
On this day in 1939, the American economy started to get ready for wartime status. Initially, the stock market took a hit from fears of the German invasion of Poland, but soon the economy started to grow because of the millions of dollars spent on defense manufacturing and other defense programs. With all of the new products being made, the unemployment rate dropped significantly.
The views presented are not intended to be relied on as a forecast, research or investment advice and are the opinions of the sources cited and are subject to change based on subsequent developments. They are not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investments.
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