Weekly Economic Update 6/19/17

FED DELIVERS EXPECTED & UNEXPECTED NEWS

As Wall Street anticipated, the Federal Reserve raised interest rates on June 14. The Federal Open Market Committee voted 8-1 to take the benchmark interest rate north by a quarter-point to the 1.00-1.25% range. The Fed also said it would begin to reduce its $4.5 trillion balance sheet at some point “this year” by slowing reinvestments. As a start, it will let $6 billion per month in Treasury holdings run off, along with $4 billion per month in agency debt and mortgage-linked securities. This implies upward pressure on long-term interest rates.1,2

RETAIL SALES, HEADLINE INFLATION BOTH RETREAT

The Consumer Price Index declined 0.1% in May, noted the Bureau of Labor Statistics; core consumer inflation rose 0.1%. A bigger May decline came for retail purchases – the Census Bureau said that they fell 0.3% even with car sales factored out.3

HOUSING STARTS SLIP

The Census Bureau’s new residential construction snapshot showed groundbreaking at an 8-month low, with total housing starts down 5.5% in May. Total building permits decelerated 4.9% last month to their slowest pace since April 2016.4

GAUGE OF SENTIMENT DESCENDS

In its preliminary June edition, the University of Michigan’s consumer sentiment index fell short of expectations. Economists, polled by Briefing.com, forecast a reading of 97.0 for the index, but it came in at 94.5.3

DOW 30 OUTPACES S&P 500

Rising 0.53% in five days, the Dow Jones Industrial Average ended the week at 21,384.28. The S&P 500 made a weekly advance of 0.06% to a Friday close of 2,433.15. Tech shares kept selling off, resulting in the Nasdaq Composite’s 0.90% weekly descent to a Friday settlement of 6,151.76. The Dow Jones Utility Average had the best week among consequential U.S. equity indices, rising 1.75%.5

THIS WEEK:

  • Nothing major is scheduled for Monday.
  • Tuesday, Adobe Systems, FedEx, La-Z-Boy, Lennar, and Red Hat all present earnings.
  • Wednesday offers May existing home sales figures and earnings announcements from CarMax, Oracle, and Winnebago.
  • Earnings news from Accenture, Barnes & Noble, Bed Bath & Beyond, Carnival, and Sonic arrives Thursday, plus new initial jobless claims numbers.
  • Friday, investors consider May new home sales and Q2 results from Finish Line.
% CHANGE Y-T-D 1-YR CHG 5-YR AVG 10-YR AVG
DJIA +8.21 +20.59 +13.50 +5.68
NASDAQ +14.28 +26.97 +22.83 +13.42
S&P 500 +8.68 +17.09 +16.24 +5.87
REAL YIELD 6/16 RATE 1 YR AGO 5 YRS AGO 10 YRS AGO
10 YR TIPS 0.49% 0.15% -0.54% 2.73%

Sources: wsj.com, bigcharts.com, treasury.gov – 6/16/175,6,7,8
Indices are unmanaged, do not incur fees or expenses, and cannot be invested into directly. These returns do not include dividends. 10-year TIPS real yield = projected return at maturity given expected inflation.


WEEKLY TIP

Do you have a child heading off to college this fall?

Financially, it may be time for his or her first credit card. One idea: have your son or daughter sign up for a basic, low-limit card through a credit union or independent bank and have the monthly statements sent to you.


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Citations.
1 – marketwatch.com/story/fed-raises-interest-rates-to-reduce-balance-sheet-this-year-2017-06-14 [6/14/17]
2 – businessinsider.com/federal-reserve-rate-hike-plan-to-unwind-45-trillion-balance-sheet-2017-6 [6/14/17]
3 – briefing.com/investor/calendars/economic/2017/06/12-16 [6/16/17]
4 – reuters.com/article/us-usa-economy-idUSKBN197277 [6/16/17]
5 – markets.wsj.com/us [6/16/17]
6 – bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=6%2F16%2F16&x=0&y=0 [6/16/17]
6 – bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=6%2F16%2F16&x=0&y=0 [6/16/17]
6 – bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=6%2F16%2F16&x=0&y=0 [6/16/17]
6 – bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=6%2F15%2F12&x=0&y=0 [6/16/17]
6 – bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=6%2F15%2F12&x=0&y=0 [6/16/17]
6 – bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=6%2F15%2F12&x=0&y=0 [6/16/17]
6 – bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=6%2F15%2F07&x=0&y=0 [6/16/17]
6 – bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=6%2F15%2F07&x=0&y=0 [6/16/17]
6 – bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=6%2F15%2F07&x=0&y=0 [6/16/17]
7 – treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyield [6/16/17]
8 – treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyieldAll [6/16/17]