Market Perspective for September 2, 2016

As expected, the markets traded within a narrow range and closed the week relatively unchanged. Investors continued their cautious stance ahead of the monthly unemployment report this week. It was also another week of mixed economic reports and conflicting signals from the Fed. On Wednesday, Chicago Federal Reserve President Charles Evans signaled that low interest rates were here to stay due to ongoing slow growth conditions. That same day, however, Boston Fed President Eric Rosengren advocated strongly for a near-future hike, citing that the central bank should raise interest rates in the near future due to strong labor markets and the possibility of inflation above the governing body’s 2 percent target.

While the SPDR Standard & Poor’s 500 index ETF (SPY) was flat on the week, the possibility of an interest rate hike bolstered financial stocks. The SPDR Financial Select Sector ETF (XLF) rose approximately 1.5 percent on the week. Wednesday’s weekly oil inventory data showed an unexpected build. A barrel of West Texas Intermediate Crude dropped more than 7 percent on the week. The Energy Select Sector SPDR ETF (XLE) declined by slightly more than 2 percent. While gold dipped lower on the week, the U.S. Dollar index rose slightly and Treasury bond futures were flat.

The most recent Personal Income and Outlays report was in line with expectations at 0.4 percent and 0.3 percent increases respectively. With a reading of 51.5, the Chicago Purchasing Managers Index (PMI) for August fell more than expected. The ISM Manufacturing Survey, which came in at 49.4, was also disappointing. With a reading below 50, the survey signaled contraction in the manufacturing sector. Light vehicle sales declined for the fourth time in six months. While construction spending was unexpectedly flat last month, mortgage applications rose almost 3 percent week-over-week as buyers took advantage of the current low rates ahead of any possible Fed action later in September. The latest S&P/Case-Shiller 20-City Composite Index showed a 5 percent increase. On Thursday, labor costs were revised sharply higher as weekly unemployment claims rose less than expected. The highly-anticipated monthly nonfarm payroll report showed 151,000 new jobs were created and the unemployment rate remained at 4.9 percent. Markets rose just slightly on the news to offset selling pressure earlier in the week.

In reports from overseas, Chinese manufacturing activity rose near a two-year high. The country’s nonmanufacturing sectors also continued to indicate expansion, though at a slower rate than last month. Japanese consumer confidence fell slightly last month. While UK manufacturing grew at its fastest pace in almost a year, eurozone manufacturing PMI figures hit a three-month low. Eurozone business confidence fell to levels not seen since late 2013. Both the iShares MSCI EAFE ETF (EFA) and the MSCI Emerging Markets ETF (EEM) were flat on the week.

As earnings season comes to a close, Abercrombie & Fitch (ANF) sold off significantly following earnings per share (EPS) and revenues well below consensus estimates. Although EPS lululemon athletica (LULU) reported EPS and revenues in line with expectations, the athletic apparel retailer’s shares also fell due to disappointing forward guidance. Technology companies (CRM) and Broadcom (AVGO) also reported this week. CRM sold off in afterhours trading when the company delivered earnings that beat expectations but lowered its third quarter guidance. Although AVGO reported EPS and revenues that beat expectations, the share price remained unchanged. As forecast, shares of H & R Block (HRB) fell when the company reported an expected loss per share. Campbell’s (CPB) reported sales declines as its foray into the fresh food segment continues to deliver poor results. Shares of CPB were down more than 6 percent on the news.

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