The Markets (as of market close March 16, 2018)

Market volatility has been fueled by investor concerns of accelerating inflation. However, last week’s Consumer Price Index, retail sales, and Producer Price Index reports showed inflationary trends in February were subdued. Nevertheless, stocks posted weekly losses, possibly resulting from investor fears that the administration’s trade policy could drive up costs for domestic manufacturers. Each of the indexes listed here lost value by last week’s end, led by the large caps of the Dow and S&P 500, followed closely by the Nasdaq, which dropped a little over 1.0%. The small caps of the Russell 2000 and the Global Dow outperformed larger shares. Treasury yields receded as bond prices advanced, possibly reflecting the weak inflation data previously referenced.

The price of crude oil (WTI) rose slightly last week, closing at $62.25 per barrel early Friday evening, ahead of the prior week’s closing price of $62.12 per barrel. The price of gold (COMEX) dipped to $1,313.90 by early Friday evening, down from the prior week’s price of $1,324.00. The national average retail regular gasoline price decreased to $2.559 per gallon on March 12, 2018, $0.001 less than the prior week’s price and $0.236 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 Economic Headlines

The prices consumers paid for goods and services increased 0.2% in February after rising 0.5% in January. Over the last 12 months, consumer prices have risen 2.2%. Consumer prices less food and energy rose 1.8% over the past year. Price pressures over the first two months of the year have yet to appear, contrary to some opinions that inflation is on the rise. The February price increase is primarily attributable to a 0.3% advance in services — prices for goods dipped 0.1%.

The prices producers received for goods and services advanced 0.2% in February, and are up 2.8% from February 2017. Producer prices rose 0.4% in January. Prices less food and energy also increased 0.2% for the month and 2.5% for the year.

Sales at the retail level fell in February for the third consecutive month, as consumers held off buying automobiles and other big-ticket items. A big tax cut, high consumer confidence in the economy, and a flourishing job market haven’t been enough to send consumers on a spending spree. Retail sales fell 0.1% in February following January’s revised dip of 0.1%. Not since 2012 have retail sales fallen three consecutive months.

The federal government deficit expanded to $215.25 billion in February, following a $49 billion surplus the previous month. Government receipts were $155.62 billion, while government outlays totaled $370.87 billion. Through the first five months of the 2018 fiscal year, the deficit sits at $390.97 billion compared to $350.62 billion over the same period last year — an increase of 11.5%.

Building permits and housing starts both dipped in February. Permits for all types of privately owned housing units fell 5.7% below the January rate. Single-family building permits slipped only 0.6%. Privately owned housing starts came in 7.0% below the January level, although single-family starts were up 2.9%. A positive from the report came from housing completions, which were 7.8% ahead of January’s figures. Single-family housing completions in February were 3.0% above the January rate.

According to the Federal Reserve’s report, industrial production rose 1.1% in February following a decline of 0.3% in January. Manufacturing production increased 1.3%, its largest gain since October. Mining output jumped 4.3%, mostly reflecting strong gains in oil and gas extraction. The index for utilities fell 4.7%, as warmer-than-normal temperatures last month reduced the demand for heating. Capacity utilization for the industrial sector climbed 0.7 percentage point in February to 78.1%, its highest reading since January 2015.

Prices paid by the United States for imports continue to advance at a faster pace than the prices for goods sold by U.S. manufacturers to foreign countries. The price index for U.S. imports rose 0.4% in February, the seventh consecutive monthly increase, after advancing 0.8% in January. The last time the index declined on a monthly basis was a 0.2% drop in July 2017. Import prices advanced 3.5% for the 12-month period ended in February, matching the 12-month rise in November. Those were the largest annual increases since the index rose 3.6% for the 12-month period ended April 2017. Export prices increased 0.2% in February after rising 0.8% in January. The last time the index declined on a monthly basis was a 0.1% decrease in June 2017. The price index for U.S. exports increased 3.3% over the past 12 months.

The labor sector remained steady, according to the Job Openings and Labor Turnover summary. January saw the number of job openings increase to 6.3 million, over 600,000 more than December. Overall, the number of hires remained relatively the same in January, as did total separations. Job openings increased in professional and business services, transportation, warehousing, and utilities. There were 1.8 million layoffs and discharges in January, with increases in health care and social assistance. Over the 12 months ended in January, hires totaled 65.4 million and separations totaled 63.2 million, yielding a net employment gain of 2.1 million.
In the week ended March 10, there were 226,000 initial claims for unemployment insurance, a decrease of 4,000 from the previous week’s level, which was revised down by 1,000. The advance insured unemployment rate remained at 1.3% for the week ended March 3. The advance number of those receiving unemployment insurance benefits during the week ended March 3 was 1,879,000, an increase of 4,000 from the prior week’s level, which was revised up by 5,000.

Eye on the Week Ahead

Of particular interest to investors, the Federal Open Market Committee meets next week, after which it is expected to increase interest rates based on favorable economic conditions and strengthening in the labor sector. Inflationary pressures, which have been subdued, should not factor into the Committee’s decision.

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.

Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2018