When equity markets experience increased volatility, some investors seek the perceived safety of fixed-income securities. This investment strategy may provide short-term safety and stability, but it can be a costly […]
Click Here to open today’s Global Momentum Guide WEEKLY MARKET PERSPECTIVE Healthy economic data spurred the Fed to signal the possibility of raising interest rates earlier than anticipated. Inflation […]
Fed officials’ recent statements and FOMC meeting minutes pointing to a June interest rate hike led to increased volatility this week that gave way to a Friday rally.
The Federal Reserve generated a significant shift in interest rate expectations. The futures market odds of a June hike were at 4 percent just a week ago, but have rapidly climbed to 30 percent.
There were two key passages in the FOMC minutes from April’s meeting that caught investors’ eyes. The first related to economic data, asserting that stable labor conditions and growth, in tandem with good inflation numbers, could prompt the Fed to increase rates in June. Economic growth has picked up since that meeting, labor market conditions have strengthened and inflation has made progress towards that 2 percent objective.
Other members addressed low interest rates expectations:
Some members expressed concern that the likelihood implied by market pricing that the Committee would increase the target range for the federal funds rate at the June meeting might be unduly low.
Although the Fed has communicated ambiguously in recent sessions, a rate hike does indeed appear more likely this summer. The Fed is unlikely to hike interest rates around the time of the presidential election, and the only post-election meeting is in December, increasing the odds of a summer hike.
Although it was a choppy week for stocks, a Friday rally lifted the major indexes into the black. The financial sector gained around 2 percent, while the SPDR S&P Regional Banking ETF (KRE) gained more than 5 percent. Rate sensitive utilities fell on the week, down about 2 percent. Real estate and consumer staples were also down for the week. In the commodity space, oil rallied to near $50 a barrel before settling back in the high $40s. Copper and industrial metals fell on the week, as did gold and silver. The U.S. dollar index was up nearly 1 percent and the 10-year treasury yield gained a similar amount, to a yield of 1.8 percent.
Home Depot (HD), the world’s largest home improvement retailer delivered better-than-expected earnings and raised its first full-year guidance despite an unexpected drop in same-store sales. Their primary competitor, Lowe’s (LOW) also beat expectations on Wednesday. Wal-Mart (WMT) delivered better-than-expected quarterly profits and same-store sales doubled analysts’ estimates at 1 percent. Target (TGT) beat earnings estimates, but revenues lagged. Like other brick-and-mortar retailers that reported last week, the company’s shares fell approximately 10 percent on the news. In non-retail earnings, Cisco (CSCO) shares climbed 5 percent following an earnings and revenue beat due to strong demand in Asia.
Inflation, housing and labor market data indicate a strengthening economy. The Empire State manufacturing index for May missed estimates and fell to a negative 9.02 reading versus the anticipated 7.25, which indicates a manufacturing slowdown in the New York region. On Tuesday, April CPI in the United States, however, posted its largest gain in three years led by rents, medical care and gasoline, with core CPI rising 0.2 percent. Rent and medical care prices have been pushing core CPI higher, but if energy can hold at $50 or higher, headline inflation will climb above 2 percent by the end of this year or early in 2017. Housing data was strong as well, with both building permits and housing starts coming in higher than expected.
On Friday, existing home sale for April exceeded estimates, with growth of 1.7 percent over last year. March’s sales growth was revised higher to a 5.7 percent growth rate. Leading economic indicators rose to 0.6 percent, according to a report released on Thursday, which was more than expected. On Thursday, weekly unemployment claims totaled 278,000, which was slightly above estimates.
This week the Atlanta Federal Reserve lowered its GDPNow forecast for the second quarter from last week’s 2.8 percent down to 2.5 percent due to lower residential housing investment in April. The New York Fed’s GDP Nowcast increased its estimate of GDP growth to 1.7 percent.
Brick-and-mortar retailers will be in the spotlight for a second week as several retail giants report earnings, while a slew of April economic reports will have a direct impact on GDP growth estimates.
Last week, several department store retailers including Kohl’s (KSS), Macy’s (M) and Nordstrom’s (JWN), pulled the retail sector lower with disappointing earnings results. The miss came despite strong consumer spending, which accelerated to 1.3 percent growth in April. This week, discount and home improvement retailers will tell us if this trend is isolated to department stores, or if others in the brick-and-mortar retail sector are under competitive threat.
Home Depot (HD) will report on Tuesday. The world’s largest home improvement specialty retailer is expected to deliver solid earnings per share of $1.33 on revenues of $22.35 billion. Analysts also anticipate increases in same store sales. Target and Lowe’s will report earnings on Wednesday. Target (TGT) is expected to report EPS of $1.20 on earnings of $16.32 billion and Lowe’s (LOW) is projected to show EPS of $0.80 and revenues of $14.84 billion. Both Home Depot and Lowe’s are components in some housing and construction funds.
Wal-Mart (WMT) will release earnings on Thursday. The company is expected to report EPS of $0.88 on revenues of $113.14 billion. Wal-Mart missed sales estimates last quarter and reaffirmed the weaker guidance that sent shares to a 52-week low in November 2015. At $65 and change, WMT remains more than $20 below its 2015 high. Another important report this week will come from heavy equipment manufacturer John Deere (DE), which reports earnings on Friday. Analysts anticipate EPS of $1.47 and revenues of $6.72. DE is a component in industrial sector funds as well as Market Vectors Agribusiness (MOO).
On Monday, the Empire State manufacturing index came in at negative 9, below expectations. The drop indicates a slowdown in the greater New York region’s manufacturing sector. On Tuesday, the consumer price index (CPI) will be released, with economists forecasting a 0.3 percent increase in April. The core CPI is expected to increase 0.2 percent, with a year-over-year increase of 2.1 percent. With GDP growth estimates rising, a surprise to the upside would likely rattle the bond markets and revive speculation over the timing of the Federal Reserve’s next hike.
The Fed will release the minutes of its last FOMC meeting on Wednesday. Statements made by a few Fed officials in the month since that meeting tend to indicate a hawkish sentiment. One or two officials shifting their outlook wont’s affect policy though; the odds of a rate hike (according to the futures market) don’t cross 50 percent until December. Eurozone CPI will also be released on Wednesday and is expected to show deflation. Eurozone core CPI is expected to rise 0.7 percent versus last year.
Thursday’s weekly unemployment claims will be watched closely after last week’s unexpected increase. The state of the U.S. housing market will be revealed with April housing starts and building permits on Tuesday, mortgage purchase application index on Wednesday and existing home sales on Friday. April industrial production and capacity utilization are due on Tuesday as well.
Nearly every data point this week could affect second quarter GDP estimates if they come in on the high or low side from current expectations. Last week’s very strong retail sales data pushed the Atlanta Fed’s GDP Now model to 2.8 percent growth, up from 2.2 percent before the report and well above the 1.7 percent estimate of a couple of weeks ago. If data misses on the downside this week, it will nudge GDP estimates back into the expected range of growth. Further upside surprises could push GDP estimates above 3 percent, putting pressure on the Federal Reserve and reviving the U.S. dollar bulls.
Brick-and-mortar retailers will be in the spotlight for a second week as several retail giants report earnings, while a slew of April economic reports will have a direct impact on GDP growth estimates.
Last week, several department store retailers including Kohl’s (KSS), Macy’s (M) and Nordstrom’s (JWN), pulled the retail sector lower with disappointing earnings results. The miss came despite strong consumer spending, which accelerated to 1.3 percent growth in April. This week, discount and home improvement retailers will tell us if this trend is isolated to department stores, or if others in the brick-and-mortar retail sector are under competitive threat.
Home Depot (HD) will report on Tuesday. The world’s largest home improvement specialty retailer is expected to deliver solid earnings per share of $1.33 on revenues of $22.35 billion. Analysts also anticipate increases in same store sales. Target and Lowe’s will report earnings on Wednesday. Target (TGT) is expected to report EPS of $1.20 on earnings of $16.32 billion and Lowe’s (LOW) is projected to show EPS of $0.80 and revenues of $14.84 billion. Both Home Depot and Lowe’s are components in some housing and construction funds.
Wal-Mart (WMT) will release earnings on Thursday. The company is expected to report EPS of $0.88 on revenues of $113.14 billion. Wal-Mart missed sales estimates last quarter and reaffirmed the weaker guidance that sent shares to a 52-week low in November 2015. At $65 and change, WMT remains more than $20 below its 2015 high. Another important report this week will come from heavy equipment manufacturer John Deere (DE), which reports earnings on Friday. Analysts anticipate EPS of $1.47 and revenues of $6.72. DE is a component in industrial sector funds as well as Market Vectors Agribusiness (MOO).
On Monday, the Empire State manufacturing index came in at negative 9, below expectations. The drop indicates a slowdown in the greater New York region’s manufacturing sector. On Tuesday, the consumer price index (CPI) will be released, with economists forecasting a 0.3 percent increase in April. The core CPI is expected to increase 0.2 percent, with a year-over-year increase of 2.1 percent. With GDP growth estimates rising, a surprise to the upside would likely rattle the bond markets and revive speculation over the timing of the Federal Reserve’s next hike.
The Fed will release the minutes of its last FOMC meeting on Wednesday. Statements made by a few Fed officials in the month since that meeting tend to indicate a hawkish sentiment. One or two officials shifting their outlook wont’s affect policy though; the odds of a rate hike (according to the futures market) don’t cross 50 percent until December. Eurozone CPI will also be released on Wednesday and is expected to show deflation. Eurozone core CPI is expected to rise 0.7 percent versus last year.
Thursday’s weekly unemployment claims will be watched closely after last week’s unexpected increase. The state of the U.S. housing market will be revealed with April housing starts and building permits on Tuesday, mortgage purchase application index on Wednesday and existing home sales on Friday. April industrial production and capacity utilization are due on Tuesday as well.
Nearly every data point this week could affect second quarter GDP estimates if they come in on the high or low side from current expectations. Last week’s very strong retail sales data pushed the Atlanta Fed’s GDP Now model to 2.8 percent growth, up from 2.2 percent before the report and well above the 1.7 percent estimate of a couple of weeks ago. If data misses on the downside this week, it will nudge GDP estimates back into the expected range of growth. Further upside surprises could push GDP estimates above 3 percent, putting pressure on the Federal Reserve and reviving the U.S. dollar bulls.
The Investor Guide to Vanguard Funds is NOW AVAILABLE! Links to the Vanguard Data are posted below. Market Perspective: Earnings Reports Beat Expectations; Investors Still Cautious The Dow Jones Industrial […]
Mutual Fund Investor Guide
1166 Main Street
Williamstown, MA 01267
888-252-5372
The Mutual Fund Investor Guide is completely independent of, and not affiliated with any investment firms or investment product providers. Our privacy policy can be found here. No representation is made that any account will or is likely to achieve profits or losses similar to those shown, and there are frequently significant differences between hypothetical performance results subsequently achieved by following a particular strategy. The Mutual Fund Investor Guide is not a registered investment advisor. PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. All Investments involve risk including loss of principal. Copyright © 2013-2023 Mutual Fund Investor Guide. All rights reserved.
