Sunday, July 31, 2016

MAD Weekly Review

We had another busy week full of important economic numbers and watching Bill Clinton sleep at the DNC. Must have been pretty boring I guess.

We had a lot of home sales reports including the Case-Shiller 20-city Index, new home sales, and pending home sales. None of them beat expectations coming in and I'll go over real estate more in the upcoming mid-year real estate report. 

Every one's ears were locked into what Janet Yellen would say Wednesday.  The market didn't expect a rate hike while I was willing to take the contrarian view.  Alas there was no rate hike, but she did include some stronger than normal language. "Near-term risks to the economic outlook have diminished". That was the exact phrase used. Also they noted economic activity has continued to expand moderately.  I'm not sure what they are waiting for, and the 1.2% rise in GDP reported Friday definitely makes the case stronger for a hike.

Now GDP will be revised a couple more times over the next few months, but it's still growing.  I think what concerns the Fed as we can see above is the lower growth rates we've experienced. A lot of that can be attributed to a lack of confidence this year.  Not only was business dealing with Brexit for so long, but also the fact that this is an election year and no one really wants to make huge investments without knowing who will be in charge come November. Business confidence was actually cited in the GDP release, and it makes a showing in durable goods orders posted this week.

Durable goods came in at -4%!  Now people are quick to point out that excluding transportation the number was only down -0.5%. I don't like looking at numbers excluding certain parts of the economy. Airplane and car purchases are big parts of the economy, and even if the giant swings from orders can cause large near-term percentage changes the numbers still count. But let's not get to worried. I think the Fed said it best. The economy is still expanding moderately.

Just one quick note is Japan has instituted quite a large economic stimulus plan this week at $267 billion.  But then the BOJ decided to not really change anything in it's current monetary policy. The BOJ response sent the yen soaring against the Euro and US Dollar.  The current plan is to continue buying government debt, corporate debt, -0.1% interest rates, but ETF equity buying would be increased.

The US stock market seems to think it's all fine for now. This week was also loaded with earnings reports from major US companies. Shares of Facebook and Amazon continued to climb higher, and a big jump by Apple helped the Nasdaq register a 1.2% gain for the week. That makes it 5 weeks in a row the index has risen.  The S&P 500 has seen a tight trading range with plenty of alternating up/down days recently. Also small caps have really come on strong the last few weeks and are now outperforming their large cap peers.

IndexStarted WeekEnded WeekChange% ChangeYTD %
S&P 5002175.032173.60-1.43-0.16.3
Russell 20001212.731219.947.210.67.4

There will be awesome website updates coming soon at  Head there for some hints! Have a great weekend

The MAD Consultant

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