The Markets (as of market close July 15, 2016)

Stocks continued to move up for the third week in a row as each of the indexes listed here posted significant gains by last week’s end. The Dow gained almost 370 points, and is substantially ahead of its 2015 closing value. The S&P 500 also pushed ahead of last year’s closing value. And the Nasdaq, which had yet to reach its year-end value, finally moved into positive territory for the year. Clearly moving past Brexit panic, the Global Dow gained past its 2015 closing value. As prices dropped, the 10-year Treasury yield rose nearly 20 basis points on the week.

Crude oil (WTI) closed at $46.28 a barrel last week, up from $45.21 per barrel the previous week. The price of gold (COMEX) fell to $1,337.70 by late Friday afternoon, down from the prior week’s price of $1,367.40. The national average retail regular gasoline price decreased for the fourth consecutive week to $2.253 per gallon on July 11, $0.038 under the prior week’s price and $0.581 below a year ago.

Here at BWFA we watched carefully as things unfolded in the UK and we stayed true to our long range discipline without overreacting to the flood of reporting on the latest financial event in the world.

Last Week’s Headlines

  • Businesses are paying more for goods and services as the Producer Price Index increased 0.5% in June, the largest increase in a year, according to the Labor Department. Higher energy costs pushed the increase. Since businesses usually pass on increases in the cost of goods and services, it’s likely consumer prices will increase as well, driving inflation upward slightly.
  • In fact, consumer prices did increase in June–just not at quite the same rate as producer prices. The Consumer Price Index rose 0.2%, following the same increase in May and a 0.4% gain in April. Over the last 12 months, the CPI has increased 1.0%. Excluding the volatile food and energy components, consumer prices still increased 0.2% in June and 2.3% from a year earlier.
  • Consumers continue to spend as retail sales increased in June–this report, coupled with increases in consumer and producer prices, provides optimism for the economy over the summer months.
  • The manufacturing sector experienced a noticeable uptick in June–the largest monthly increase since November 2014.
  • The number of job openings decreased by 345,000 to 5.5 million on the last business day of May. April’s rate was 5.8 million. May’s job openings rate is the lowest of the year. It’s important to remember that June’s employment situation report showed significant improvement on the labor front.
  • U.S. import prices rose 0.2% in June from May, largely due to a spike in petroleum prices. Exports also increased in June, rising 0.8% following increases of 1.2% in May and 0.4% in April. The 2.4% rise in export prices for the second quarter of 2016 was the largest three-month advance in export prices since the index rose 2.7% between February and May 2011.
  • The Treasury Department reported a $6.3 billion budgetary surplus in June, however, over the first nine months of the fiscal year, the deficit is up almost 27%, at $400.9 billion, over the same period last year ($316.4 billion).
  • Largely influenced by the immediate negative impact of the Brexit vote, the Index of Consumer Sentiment fell from 93.5 in June to 89.5 in July.

Eye on the Week Ahead
This week focuses on the housing sector as June’s reports on housing starts and existing homes sales are released. New home building slipped a bit in May, while existing home sales picked up. Overall, the housing market has been fairly strong with prices rising and inventory having a hard time keeping up with demand. With the Republican National Convention this week and The Democratic National Convention next week all eyes on the economy will shift to politics. The major themes we are looking at is potential infrastructure spending on roads, airports, mass transit, defense spending, preventative terrorism solutions and cyber security.

BWFA remains cautiously optimistic about the US economy and a bit less confident on the international front. We think interest rates will fall short term but believe long term rates will start to climb as our economy becomes stronger. Slow and steady. More clarity and finality in the international and domestic political and election environment going forward could bode well for financial markets the remainder of the year.