Weekly Market Update, July 24, 2017

Presented by Mark Gallagher

General market news
• The yield on the 10-year Treasury continued to move lower last week and opened Monday morning at 2.24 percent. The 30-year yield also moved lower, ending last week at 2.81 percent and opening on Monday at 2.83 percent.
• Both the Nasdaq Composite and S&P 500 reached new all-time highs last week after posting gains of 1.20 percent and 0.56 percent, respectively. The Dow Jones Industrial Average lagged, losing 0.22 percent as a 12-percent drop in revenue from GE weighed on the stock and index. GE’s revenue woes were the result of weakness in the company’s energy connections business and have pushed the stock to its lowest level in 19 months. The MSCI World Index also posted a record high last week after European Central Bank President Mario Draghi said the bank had not discussed tapering asset purchases.
• In earnings news, roughly 20 percent of S&P 500 companies have reported earnings so far. On average, among companies reporting, earnings have increased 8.6 percent and revenue has increased 5.4 percent. This week, we will see results from technology companies such as Alphabet (GOOG/GOOGL), Facebook (FB), and Amazon (AMZN), as well as energy firms Exxon Mobil (XOM) and Chevron (CVX).
• The calendar was light on economic news last week, with most data related to the housing market. On Tuesday, the National Association of Home Builders Housing Market Index came in at 64 for July. This was below the consensus range of 65–69, as well as the prior reading of 67. Increasing lumber costs were cited in the report. The West region was the strongest, while the rest of the country lagged far behind. On Wednesday, we saw housing starts and building permits data. Both came in above expectations and beat numbers from the prior month. Starts jumped 8.3 percent in June to 1.215 million (annualized), and permits were up 7.4 percent to 1.254 million (annualized). Despite June’s gains, the second quarter showed a decline from the first quarter. Nevertheless, these reports are positive overall for the housing market.


Equity Index Week-to-Date Month-to-Date Year-to-Date 12-Month
S&P 500 0.56% 2.13% 11.67% 16.07%
Nasdaq Composite 1.20% 4.05% 19.42% 26.82%
DJIA –0.22% 1.21% 10.67% 19.17%
MSCI EAFE 0.46% 2.39% 16.95% 20.64%
MSCI Emerging Markets 1.35% 5.39% 24.95% 25.14%
Russell 2000 0.50% 1.49% 6.54% 20.01%

Source: Bloomberg


Fixed Income Index Month-to-Date Year-to-Date 12-Month
U.S. Broad Market 0.64% 2.93% 0.17%
U.S. Treasury 0.48% 2.36% –1.60%
U.S. Mortgages 0.50% 1.86% 0.49%
Municipal Bond 0.86% 4.46% 0.57%

Source: Morningstar Direct


What to look forward to
This week, we get a look at the housing market, with reports on sales of existing and new homes. Plus, we’ll learn about consumer confidence, industry and business confidence, and the growth of the economy as a whole.

Sales of existing homes for June will be reported on Monday. They are expected to remain steady at 5.62 million, after an upside surprise in May. Given the lack of available inventory, though, there is some downside risk, with a drop in pending sales in May also supporting that possibility. Although demand remains strong, there simply may not be enough houses available to keep sales rising.

New home sales, released on Wednesday, are expected to do better, with a small uptick from 610,000 to 615,000. Here, strong demand, combined with a better available level of inventory, suggests there may be some upside. Strong sales of new homes would be a positive signal for the economy.

The Conference Board survey of consumer confidence, released on Tuesday, is expected to drop somewhat, from a very high level of 119.9 down to 116.0, which is still healthy. This pullback would mirror declines in other surveys. Interestingly, while current confidence remains quite high, future expectations have declined, pulling down the index. The change in trend is worth watching.

The durable goods orders report, released on Thursday, is expected to be quite strong. The headline number, which includes commercial aircraft, is expected to improve from a 0.8-percent decline in May to a 3-percent increase in June on strong aircraft orders from Boeing. The core orders index, which excludes transport, is also expected to improve, moving from a gain of 0.3 percent in May to a gain of 0.5 percent in June. The core number is a better indicator and suggests business confidence and investment continues to improve. This would also be a good sign for the economy.

Finally, the first estimate of economic growth for the second quarter will be released on Friday. Gross domestic product growth is expected to be 2.5 percent, well above the first quarter’s 1.4 percent, with the gain coming from faster growth in consumer spending. Despite some apparent weakness in business investment, there is upside to this estimate as well. If the number comes in as expected, it will demonstrate that the recovery continues and economic conditions remain solid.

Disclosures: Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. All indices are unmanaged and are not available for direct investment by the public. Past performance is not indicative of future results. The S&P 500 is based on the average performance of the 500 industrial stocks monitored by Standard & Poor’s. The Nasdaq Composite Index measures the performance of all issues listed in the Nasdaq Stock Market, except for rights, warrants, units, and convertible debentures. The Dow Jones Industrial Average is computed by summing the prices of the stocks of 30 large companies and then dividing that total by an adjusted value, one which has been adjusted over the years to account for the effects of stock splits on the prices of the 30 companies. Dividends are reinvested to reflect the actual performance of the underlying securities. The MSCI EAFE Index is a float-adjusted market capitalization index designed to measure developed market equity performance, excluding the U.S. and Canada. The MSCI Emerging Markets Index is a market capitalization-weighted index composed of companies representative of the market structure of 26 emerging market countries in Europe, Latin America, and the Pacific Basin. The Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000® Index. The Bloomberg Barclays US Aggregate Bond Index is an unmanaged market value-weighted performance benchmark for investment-grade fixed-rate debt issues, including government, corporate, asset-backed, and mortgage-backed securities with maturities of at least one year. The U.S. Treasury Index is based on the auctions of U.S. Treasury bills, or on the U.S. Treasury’s daily yield curve. The Bloomberg Barclays US Mortgage Backed Securities (MBS) Index is an unmanaged market value-weighted index of 15- and 30-year fixed-rate securities backed by mortgage pools of the Government National Mortgage Association (GNMA), Federal National Mortgage Association (Fannie Mae), and the Federal Home Loan Mortgage Corporation (FHLMC), and balloon mortgages with fixed-rate coupons. The Bloomberg Barclays US Municipal Index includes investment-grade, tax-exempt, and fixed-rate bonds with long-term maturities (greater than 2 years) selected from issues larger than $50 million.


Mark Gallagher is a financial advisor located at Gallagher Financial Services at 2586 East 7th Ave. Suite #304, North Saint Paul, MN 55109. He offers securities and advisory services as an Investment Adviser Representative of Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. He can be reached at 651-774-8759 or at mark@markgallagher.com.

Authored by the Investment Research team at Commonwealth Financial Network.

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