July Economic Update

June brought some definite headwinds to Wall Street, but the broad stock market still managed to post modest gains. The month was a trying one for European stocks, the oil sector, and many other commodities. The latest round of U.S. economic indicators contained some disappointments, although manufacturing and home sales surprised to the upside.

The S&P 500 added 0.48% across the month, even with tech shares selling off. As anticipated, the Federal Reserve raised the federal funds rate by another quarter point. All in all, increased volatility, terrorist incidents, and political happenings did not have much of an effect on investor confidence. (1)

ECONOMIC HEALTH

On June 14, the Federal Reserve yet again raised the benchmark interest rate to a range of 1.00-1.25% which Wall Street expected and impacted the markets little. The Department of Labor released their jobs report for the month of May which showed slowing growth, although unemployment did reach a 16-year low of 4.3% in part due to a reduction in the labor force. Consumer confidence remains very high and it was reported that wages were up 2.5% in the last 12 months, with the period ending in May. (2,3,4)

REAL ESTATE

Home sales accelerated again with The National Association of Realtors announcing a 1.1% gain for resales in May, partially reversing a 2.5% April retreat. The Census Bureau found new home buying up by 2.9% after a 7.9% dip in the fourth month of the year. As the Federal Reserve has gradually lifted the federal funds rate, mortgage rates yields have not dramatically risen as they are more affected by 10-year Treasury yields. (3)

THE SUMMER MARKETS

Since there was no “June swoon” on Wall Street, how can we expect July to unfold? Can the market keep grinding higher and dismiss perceptions that it is overvalued? As of the writing of this newsletter, the markets have pulled back slightly for the first week of July. However, a strong jobs report and encouraging fundamental indicators could reassure investors worried about economic sluggishness.

This year might simply see a repeat of the economic pattern characteristic of the past few years, in which slow first-quarter expansion gives way to improved Q2 and Q3 growth. During the past 30 years, the market has traditionally under-performed in summer compared to other times of the year – but when stocks have done well in the first half of a year, they have tended to upend those low expectations. (5)

Citations:

1.) money.cnn.com/data/markets/sandp/ [6/30/17]

2.) forbes.com/sites/laurengensler/2017/06/14/fed-raises-rates-june/ [6/14/17]

3.) investing.com/economic-calendar/ [6/30/17]

4.) nytimes.com/2017/06/02/business/economy/jobs-report.html [6/2/17]

5.) marketwatch.com/story/stock-market-poised-to-kick-off-july-4th-week-with-fireworks-of-its-own-2017-06-30 [6/30/17]

This post has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. Bob Lawson is not engaged in rendering legal or accounting services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.