Blog Post

The Past Week in the Markets

Stocks gained this past week with the embittered emerging markets posting the largest gains.  This week marked the longest bull market (stretch of market gains without a 20% decline) in U.S. history, surpassing the 1990s.  However, I think it is important to point out that expansions do not have an expiration date.  Typically, one or more of three things lead to the end of a bull market; inflation running hot, excessive consumption or excessive business spending.  I see none of these at this time.  Inflation while at or slightly above the FED’s target is tame.  The consumer savings rate is increasing and business are acting responsibly in regards to capital spending.   Still markets can correct at any time for a variety of reasons.

I typically avoid politics but fell I need to address it here.  President Trump tweeted this week that the markets would crash if he gets impeached.  While we could see increased volatility for a short period of time, I believe the initial shock will give way to the reality, one person does not make the economy.  The simulative effect of tax cuts and increased government spending do not change and policy from a President Pence will likely not change in a way that will be negative to the economy.  Likely a more adult president could improve foreign relations and help to heal the divisive nature of the presidents tone and tweets.

This week the U.S. imposed tariffs on an additional 16BN more Chinese goods and they responded with an equal amount of tariffs.  China sent a delegation to the U.S., the first time in two months but returned home making no progress.  Tariffs are now applying to $50BN of Chinese goods and there are plans to expand the tariffs to an additional $200BN worth of goods in mid-September.

The Fed released minutes from their last meeting and indicated a likely short term interest rate increase next month and expressed concerns over a prolonged trade dispute.  The FED and central bankers from around the world also attended the Economic Policy Symposium in Jackson Hole Wyoming this week.  FED Chairman Powell said the FED is fine with gradual rate increases.  Stocks and gold rose after these comments, and the dollar fell against a basket of currencies.

Treasury bond yields were little changed as were commodities with the exception of crude oil which saw its first weekly gain in two months.  s

In the numbers this week:

  • The Bureau of Economic Analysis at the Commerce Department revised its estimate of the personal savings rate to 7.2% lending credence to the idea that consumers will be better prepared for the next economic downturn.
  • The National Association of Realtors reported that existing home sales fell 0.7% in July, the fourth consecutive monthly decline.  The decrease was attributed to a shortage of existing homes, higher prices and higher mortgage rates.
  • he Commerce Department reported
    • New home sales fell 1.7% in July.  However, for the first seven months of 2018, new home sales are 7.2% above the same period last year.
    • Durable goods order fell 1.7% in July.  The decline was attributed to non-defense aircraft which is quite volatile from month to month.  Excluding transportation, durable goods order rose 0.2%.
  • The Labor department reported first time claims for unemployment fell 2,000 at a seasonally adjusted 210,000.  The four week moving average of claims fell 1750 to a seasonally adjusted 213,750.
  • The Energy Information Administration weekly report is here wpsrsummary.  Also the EIA reported
    • U.S. Crude oil production increased from 10.9MM barrels per day to 11.0MM barrels per day.
    • Storage of natural gas rose 48BN cubic feet.  Natural gas storage is below the minimum for this date during the past five years.
  • According to Baker Hughes, In the past week the number of active oil rigs fell 9 to 860 and gas rigs fell 4 to 182.

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Loren C. Rex, CFP®, AIF®, MA                                                         Erik A Smith

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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.


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