Highlights of this Week’s Update:
- U.S. stock indices end the week little changed after a week of continued volatility.
- Interest rates flatten and the 30 year fixed mortgage ends just above 4%.
- Some signs of economic improvement in the U.S. appear.
- FED meets this week.
- Greece in the headlines again.
READ ON FOR MORE DETAILS………………………………………………
Last week saw the major U.S. stock indices end little changed after a week of continued volatility. The Dow Jones Industrial Average ended up .28%, while the Standard & Poor’s 500 stock index closed just .06% higher for the week. Year-to-date, the Dow is now up .43% and the broader S&P 500 1.71% higher through last Friday. (MarketWatch) As we have stated since early this year, we did feel we might see a “sideways” market for a good part of this year with increased volatility. So far, that has been the case.
Interest rates eased slightly, with the yield for the 10 year U.S. Treasury now at 2.39%, .02 lower than the previous week. (U.S. Treasury) Rates for a 30 year fixed mortgage ranged from 4.14-4.375%, and 15 year rates were 3.375-3.625%. (Bankrate.com)
Economic growth slowed sharply in the winter months and has been slow to accelerate during early spring. Recent data, however, are finally signaling a long-awaited pick-up in economic activity.
During the first week of June, the U.S. Bureau of Labor Statistics (BLS) reported employment jumped by a solid 280,000 in the month of May. Moreover, May’s impressive rise in nonfarm payrolls marks the 14th month in 15 that employment has risen by over 200,000 (BLS).
Last week, the U.S Commerce Department announced retail sales rose 1.2% in May. Remove autos, which can be volatile on a month-to-month basis, and gas station sales, which help filter out the wide swings in gasoline prices, and so-called core sales were up a respectable 0.7%.
It is important to be careful about taking monthly numbers out of context, as we can get volatility (or noise) on a monthly basis that obscures the trend. Note in the chart below that the 3-month annualized rate for core sales, which smooths out some of the volatility, is signaling that consumers are finally re-engaging.
While Federal Reserve officials will likely want to see more than just a one-month bounce in the overall economic data, the recent acceleration puts a September or October rate increase on the table. This assumes, of course, that we continue to see moderate economic growth. We may get more clues at this week’s Federal Reserve meeting and subsequent press conference by Fed Chair Janet Yellen.
It shouldn’t come as a surprise, but it appears that any deal to give Greece some breathing room may not be struck until the midnight hour. While German Chancellor Angela Merkel reportedly is willing to give some ground on Greek economic reforms (Bloomberg) and a European Union official said there is a good chance we’ll get an agreement this week (Reuters), an International Monetary Fund official noted, “There are major differences between us in most key areas. There has been no progress in narrowing these differences recently (Bloomberg).”
Moreover, Reuters reported that euro-zone officials are formally discussing a Greek default for the first time. Is it simply more brinkmanship and public posturing? To some extent, yes, but we have seen some short-term volatility (both up and down) as the deadline approaches. And tension has risen between Greece and its creditors. The mostly likely path is another short- or medium-term deal that puts off the tough decisions to a later date. It’s well-crafted headline that temporarily soothes concerns.
While rising, odds of an outright default remain relatively low since both Germany and the European Central Bank want Greece to stay in the euro-zone (the 19-nation bloc that shares the euro as its common currency).
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1 The Dow Jones Industrials Average is an unmanaged index of 30 major companies which cannot be invested into directly. Past performance does not guarantee future results.
3 The S&P 500 Index is an unmanaged index of 500 larger companies which cannot be invested into directly. Past performance does not guarantee future results.
5 New York Mercantile Exchange front-month contract; Prices can and do vary; past performance does not guarantee future results.
6 London Bullion Market Association; gold fixing pricing at 3 p.m. London time; Prices can and do vary; past performance does not guarantee future results.