Investment Commentary –August 24th, 2016

Market Indices as of Market Close August 24th, 2016
Dow 18,481 (6.06% YTD)
S&P 2,175 (6.45% YTD)
NASDAQ 5,219 (4.20% YTD)
Global DOW 2,457 (2,033 week low/high 2,468)
10-year Treasury 1.56 (1.32 52 week low /2.38 high)
Gold 1,324 ($1,053 52 week low /high $1,384)
Oil $47.11 ($33.28 52 week low /high $54.34)

U.S. core capital goods orders surge; jobless claims fall

New orders for U.S. manufactured capital goods rose for a second straight month in July as demand for machinery and a range of other products picked up, offering a tentative sign that a business spending downturn was starting to ease.

The economy also got a boost from another report on Thursday showing an unexpected drop in the number of Americans filing for unemployment benefits last week.

The Commerce Department said non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, increased 1.6 percent last month, the largest gain since January.

These so-called core capital goods orders advanced 0.5 percent in June. July’s rise marked the first back-to-back gain since January 2015. Economists polled by Reuters had forecast core capital goods orders rising only 0.3 percent last month.

Prices for U.S. Treasuries fell after the data, while U.S. stock futures pared losses. The dollar edged up against the euro and yen.

Business spending has contracted since the fourth quarter of 2015, in part as companies slashed capital spending budgets in response to lower oil prices.

The increase in core capital goods orders follows a rise in oil and gas drilling activity in recent months.

Stocks Fluctuate as Traders Brace for Yellen’s Speech; Oil Rises

Stocks and Treasuries fluctuated as traders awaited clues on the path of U.S. interests rates before a speech by Federal Reserve Chair Janet Yellen Friday. Oil rebounded.
The rally that drove U.S. equities to a series of records since early July lost momentum after hawkish remarks from Fed officials added to speculation on higher borrowing costs in the world’s largest economy amid uneven global growth. European shares slumped after an unexpected drop in German business sentiment. Treasury two-year notes were little changed at the cheapest relative to 30-year bonds since the start of 2008. Iron ore fell on prospects for shrinking steel production in China, while crude rose from a one-week low.

Traders have boosted wagers on a Fed rate increase even as mixed economic data and messages from officials cast doubt on the probability of the U.S. to diverge from the increased stimulus in other developed economies. While the minutes from the July meeting showed divisions within the rate-setting committee, regional central bank chiefs have signaled that a hike may come by year-end. The odds of higher borrowing costs in the world’s largest economy by September rose to 30 percent from 18 percent at the start of the month, according to data compiled by Bloomberg from fed fund futures.

“Given the back and forth and the constant changes in the Federal Reserve discussion, the market is waiting for some clarity,” said Quincy Krosby, a market strategist at Prudential Financial Inc. in Newark, New Jersey. “It’s going to be a wait and see.”

THIS DAY IN FINANCIAL HISTORY: National Income Tax Emerges

On this day in 1894, income tax became a legislative issue in the United States Congress. The Wilson-Gormann Tariff was passed by the House of Representatives and attached to this bill was a passage relating to a national income tax. The Supreme Court later struck down the bill but it did put the idea of a national income tax on the legislative map. With the passage of the 16th Amendment in 1913 income tax soon became a part of American life.

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.