Markets Slide Sideways – Weekly Update for June 26, 2017

Last week, markets kept relatively quiet despite the continuing drop in oil prices. The S&P 500 rose by 0.21%, the Dow increased by 0.05%, and the NASDAQ—the week’s best performer—jumped 1.84%. Internationally, the MSCI EAFE fell by 0.20%Asian markets remained relatively mixed while European markets were down modestly.

A global glut of oil has led to 5-straight weeks of price declines. OPEC’s attempts to curb oil production have not yet played out as expected, as prices are down roughly 20% for the year. Though oil rose slightly on Friday due to a weaker U.S. dollar, oil markets closed the week at a 10-month low. Still, oil stocks and energy companies in general comprise less than 6% of stocks in the S&P 500 on a capitalization basis, down from 11% only 3 years ago. As such, they are less significant to the overall markets today than in the past.

 What We Learned Last Week

 Despite oil’s problems, a few economic indicators for the week pointed to the potential for mildly stronger Q2 consumer spending.

  • Existing Home Sales Rebound: Overall, existing home sales for May rebounded with a 1.1% increase from April to an annualized rate of 5.62 million sales. Single-family sales rose 1.0% for an annualized rate of 4.98 million, while condos sales rose by 1.6% for an annualized rate of 640,000.
  • New Home Sales and Pricing Surge: New home sales for May rose 2.9% to a 610,000 annualized rate on strong pricing. Median house pricing jumped to $345,800, an 11.5% rise for the month. The 16.8% year-on-year increase is roughly double the actual sales gain of 8.9%.
  • Low Jobless Rate Stays Steady: June jobless numbers have so far remained on track and consistent with the current historic lows. Last week’s data revealed that the 241,000 claims matched general consensus.
  • Flash Purchasing Managers’ Index (PMI) Slows: The PMI flash composite index came in at 53.0 for the month versus 53.9 for the prior month. Though new orders and employment in the service sector appear optimistic, manufacturing’s new orders and output have fallen. The single index is a synthesis of data such as new sales orders, inventories, and employment. A reading above 50 indicates rising output versus the previous month.

What Is Next?

With Q2 ending this week, markets will look at the durable goods orders, additional home sales data, and consumer sentiment, while continuing to watch oil prices. In addition, the second part of the Fed stress test for banks will report on Wednesday. The second half of the stress tests evaluates banks’ abilities to pay dividends and buy back stock. All 34 major banks passed the first part of the test last week, indicating their strength in an economic downturn.

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Economic Calendar

Monday: Durable Goods Orders
Tuesday: Case Shiller Home Prices Index, Consumer Confidence Index
Wednesday: Pending Home Sales
Friday: Personal Income and Outlays, Consumer Sentiment

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