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The Markets (as of market close August 5, 2016)

As the week progressed, oil prices gained some momentum, as did U.S. stock indexes, after starting out downward early in the week. Also, on the heels of a favorable jobs report, stocks rebounded by the end of last week to post those late week gains. Both the S&P 500 and Nasdaq reached record highs. The Dow gained more than 111 points over the prior week’s closing value. Bond prices fell due to lower demand, sending the yield on 10-year Treasuries up 15 basis points. It was good to see BWFA’s energy positions gain along with this week of gains in the broader indexes.

Abroad, Japan approved a $274 billion stimulus package in an attempt to spark its languid economy. The immediate response from Japanese investors was underwhelming, as the Nikkei Stock Average dropped. The Bank of England cut interest rates for the first time since 2009 to 0.25% and adopted additional stimulus measures in an attempt to support the British economy during the period of adjustment following the vote to leave the EU.

Crude oil (WTI) prices continue to be volatile, falling below $40 during last week, until a moderate rally had the price close at $41.98 a barrel last week. The national average retail regular gasoline price decreased for the seventh week in a row to $2.159 per gallon on August 1, $0.023 under the prior week’s price and $0.530 below a year ago.

Last Week’s Headlines
• In another clear sign of a strengthening economy, the jobs report showed 255,000 new jobs were added in July, while the unemployment rate remained at a relatively low 4.9% (7.8 million unemployed). This report should be a boost to the stock market, which has been reacting to volatile oil prices and tepid earnings reports.
• For the third consecutive month, consumers had more to spend in June and they spent it, according to the Bureau of Economic Analysis. As was the case in April and May, consumer spending outpaced income growth. Since consumers are spending more than they’re making, it stands to reason that they’re saving a little less given that the personal savings rate dipped in June while inflationary pressures remain soft.
• The goods and services trade deficit reached $44.5 billion in June due to a surge in consumer purchases of foreign goods.
• From the non-manufacturing sector (services, construction, mining, agriculture, forestry, and fishing and hunting) economic activity grew, but at a slower pace in July compared to June, a sign that business activity may be picking up in the third quarter.

Eye on the Week Ahead
Trading is expected to be light this week, as it has been for much of the summer. Two reports for July that are indicative of inflationary trends–Retail Sales and the Producer Price Index–come out at the end of the week. At BWFA, our investment research activity has not waned with the summer market volumes and we are constantly assessing opportunities and we will make changes dependent on what our research dictates.