Market Week: December 26, 2016

The Markets (as of market close December 23, 2016)

The Dow reached its seventh consecutive week of gains as it nears 20000. As it stood at the close of last week, the Dow was about 66 points away from that milestone. During a slow week of trading leading up to the holidays, each of the indexes listed here closed on the positive side except for the Global Dow, which lost about 6 points (0.23%). For the first time in several weeks, the yield on 10-year Treasuries narrowed as bond prices kicked up a bit.

The price of crude oil (WTI) increased last week, closing at $53.10 per barrel, up from the prior week’s closing price of $52.03 per barrel. Gold (COMEX) remained volatile as its price fell again last week, closing at $1,133.30 by late Friday afternoon, down from the prior week’s price of $1,136.80. The national average retail regular gasoline price increased to $2.264 per gallon on December 19, 2016, $0.028 more than last week’s price and $0.238 higher than a year ago.

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

Last Week’s Headlines

The third and final estimate of the gross domestic product for the third quarter showed the economy grew at an annual rate of 3.5%, significantly ahead of the second-quarter annual growth rate of 1.4% and the first-quarter growth rate of only 0.8%. The third-quarter estimate is the strongest quarterly growth rate in two years. The advance in the third-quarter estimate is related to stronger consumer spending and increased business investment. While significantly higher than the estimates for the first two quarters of the year, the third-quarter GDP estimate essentially brings the annual growth rate in line with the 2.0% annual growth rate that’s prevailed since 2009. The price index, an indicator of inflation, increased 1.5% in the third quarter, compared with an increase of 2.1% in the second quarter. Corporate profits increased $117.8 billion in the third quarter, in contrast to a decrease of $12.5 billion in the second quarter.

Personal income increased $1.6 billion (less than 0.1%) in November, according to the latest estimates released by the Bureau of Economic Analysis. Disposable personal income (income less personal taxes) decreased $1.3 billion (less than 0.1%) and personal consumption expenditures (PCE), which measures the value of goods and services purchased by consumers, increased $24.0 billion (0.2%). Excluding food and energy, the PCE price index increased less than 0.1%. November’s report shows that increasing consumer income and spending, which spurred economic growth through the third quarter, may be subsiding in the fourth quarter of 2016. Nevertheless, the PCE price index is up 1.4% from a year earlier, which, while still below the Fed’s target inflation rate of 2.0%, is the best year-over-year increase in two years.

A big surge in the Northeast helped push sales of existing homes up in November, according to the National Association of Realtors®. Total existing home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, rose 0.7% to a seasonally adjusted annual rate of 5.61 million in November from a downwardly revised 5.57 million in October. November’s sales pace is now the highest since February 2007 (5.79 million) and is 15.4% higher than a year ago (4.86 million). The median existing home price for all housing types in November was $234,900, up 6.8% from November 2015 ($220,000). Total housing inventory fell for the eighteenth straight month by the end of November, dropping 8.0% to 1.85 million existing homes available for sale, and is now 9.3% lower than a year ago (2.04 million). Unsold inventory is at a 4.0-month supply at the current sales pace, which is down from 4.3 months in October.

New home sales surged in November, according to the latest report from the Census Bureau. Sales of new single-family homes were at an annual rate of 592,000 — 5.2% above the October rate of 563,000 and 16.5% above the November 2015 estimate of 508,000. The median sales price of new houses sold in November 2016 was $305,400; the average sales price was $359,900. The seasonally adjusted estimate of new houses for sale at the end of November was 250,000. This represents a supply of 5.1 months at the current sales rate.

The advance report from the Census Bureau on the manufacturing sector in November was a mixed bag of information. New orders for durable goods (products expected to last at least three years) decreased $11.0 billion, or 4.6%, following four consecutive monthly increases. Excluding transportation, new orders increased 0.5%. Year-to-date, new orders are down 0.3%. Unfilled orders — down five of the last six months — fell 0.2%. On the plus side of the report, manufacturers’ shipments and inventories increased 0.1%, respectively.

Consumers’ confidence in the economy expanded in December. The University of Michigan’s Surveys of Consumers Index of Consumer Sentiment rose from 93.8 in November to 98.2 in December. This marked the highest index level since January 2004. Consumers also were more positive in their opinions on current and future economic conditions.

In the week ended December 17, the advance figure for seasonally adjusted initial unemployment insurance claims was 275,000, an increase of 21,000 from the previous week’s unrevised level of 254,000. The advance seasonally adjusted insured unemployment rate remained at 1.5%. The advance number for seasonally adjusted insured unemployment during the week ended December 10 was 2,036,000, an increase of 15,000 from the previous week’s revised level.

Eye on the Week Ahead

The week between Christmas and New Year’s Day is customarily slow for economic news and market activity. Trading volumes are likely to be light, as many investors will be off toasting the 2016 string of record highs while hoping 2017 brings more of the same.

Data sources: News items are based on reports from multiple commonly available international news sources (i.e. wire services) and are independently verified when necessary with secondary sources such as government agencies, corporate press releases, or trade organizations. Market data: Based on data reported in WSJ Market Data Center (indexes); U.S. Treasury (Treasury yields); U.S. Energy Information Administration/Bloomberg.com Market Data (oil spot price, WTI Cushing, OK); www.goldprice.org (spot gold/silver); Oanda/FX Street (currency exchange rates). All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice. Past performance is no guarantee of future results. All investing involves risk, including the potential loss of principal, and there can be no guarantee that any investing strategy will be successful.

The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap weighted index composed of 2,000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. Market indices listed are unmanaged and are not available for direct investment.