Stocks staged a strong rally this week as both the Federal Reserve and the European Central Bank indicated likely interest rate cuts at future meetings. The rally occurred despite increased tensions between the U.S. and Iran, following the downing of an unmanned U.S. drone. Traders were relieved this didn’t result in a military strike which could have further escalated tensions.
The dovish central banks are welcomed given a general slowdown in global growth. The rate of manufacturing growth in the U.S. and China has slowed and appears to be contracting in Europe and Japan. The slowdown has been attributed to increased trade tensions, slower business investment, following last year’s sharp increase and a tight labor market. Consumer demand, especially in the U.S. remains strong and inflation remains below the FED’s target.
Crude oil rallied sharply on escalating tensions with Iran, ending the week at $57.68. The U.S. Dollar fell against a basket of currencies on anticipated interest rate cuts. Gold rallied to over $1410 and ounce on the declining dollar and middle east tensions. The 10-year Treasury bond fell below 2% mid- week but ended the week at 2.034%.
In the numbers this week:
- The National Association of Realtors reported that existing home sales rose 2.5% in May from April. Existing home sales make up the vast majority of home sales and were aided by lower mortgage rates which have fallen from nearly 5% to roughly 4% since November. However, May’s existing home sales were 1.1% lower than last year.
- The Commerce Department reported:
- Housing starts fell 0.9% in May from April and are down 4.7% from last May. Increasing costs of construction materials and uncertainty over trade were cited as contributing to the slowdown. April’s housing starts were revised up.
- Building permits rose 0.3% in May. Building permits indicate future housing activity.
- The Labor Department reported first time claims for unemployment fell from a seasonally adjusted 222,000 to 216,000. The four week moving average of claims, designed to smooth out weekly fluctuations, rose 1,000 to 218,750.
- The Energy Information Administration weekly report is here: wpsrsummary . Also, the EIA reported in the prior week:
- U.S. Crude oil production fell from 12.3MM barrels per day to 12.2MM barrels per day.
- Storage of natural gas rose 115BN cubic feet and is still below the past five year average for this time of year.
- Baker Hughes reported in the past week that the number of active oil rigs rose 1 to 789 and the number of active gas rigs fell 4 to 177.
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Loren C. Rex, CFP®, AIF®, MA Erik A Smith
President Managing Partner
Generations Financial Planning & Wealth Management 269-441-4143
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Battle Creek, MI 49017
Carrie Fuce, Assistant 269-441-4091
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These are the opinions of Loren Rex and Erik Smith and are not necessarily those of Cambridge, are for informational purposes only, and should not be construed or acted upon as individualized investment advice. The Indices mentioned are unmanaged and cannot be invested into directly.