FED DELIVERS EXPECTED & UNEXPECTED NEWS
As Wall Street anticipated, the Federal Reserve raised interest rates on June 14. The Federal Open Market Committee voted 8-1 to take the benchmark interest rate north by a quarter-point to the 1.00-1.25% range. The Fed also said it would begin to reduce its $4.5 trillion balance sheet at some point “this year” by slowing reinvestments. As a start, it will let $6 billion per month in Treasury holdings run off, along with $4 billion per month in agency debt and mortgage-linked securities. This implies upward pressure on long-term interest rates. 1,2
RETAIL SALES, HEADLINE INFLATION BOTH RETREAT
The Consumer Price Index declined 0.1% in May, noted the Bureau of Labor Statistics; core consumer inflation rose 0.1%. A bigger May decline came for retail purchases – the Census Bureau said that they fell 0.3% even with car sales factored out. 3
HOUSING STARTS SLIP
The Census Bureau’s new residential construction snapshot showed groundbreaking at an 8-month low, with total housing starts down 5.5% in May. Total building permits decelerated 4.9% last month to their slowest pace since April 2016. 4
GAUGE OF SENTIMENT DESCENDS
In its preliminary June edition, the University of Michigan’s consumer sentiment index fell short of expectations. Economists, polled by Briefing.com, forecast a reading of 97.0 for the index, but it came in at 94.5. 3
DOW 30 OUTPACES S&P 500
Rising 0.53% in five days, the Dow Jones Industrial Average ended the week at 21,384.28. The S&P 500 made a weekly advance of 0.06% to a Friday close of 2,433.15. Tech shares kept selling off, resulting in the Nasdaq Composite’s 0.90% weekly descent to a Friday settlement of 6,151.76. The Dow Jones Utility Average had the best week among consequential U.S. equity indices, rising 1.75%. 5
THIS WEEK
: Nothing major is scheduled for Monday. Tuesday, Adobe Systems, FedEx, La-Z-Boy, Lennar, and Red Hat all present earnings. Wednesday offers May existing home sales figures and earnings announcements from CarMax, Oracle, and Winnebago. Earnings news from Accenture, Barnes & Noble, Bed Bath & Beyond, Carnival, and Sonic arrives Thursday, plus new initial jobless claims numbers. Friday, investors consider May new home sales and Q2 results from Finish Line.
| % CHANGE | Y-T-D | 1-YR CHG | 5-YR AVG | 10-YR AVG |
|---|---|---|---|---|
| DJIA | +8.21 | +20.59 | +13.50 | +5.68 |
| NASDAQ | +14.28 | +26.97 | +22.83 | +13.42 |
| S&P 500 | +8.68 | +17.09 | +16.24 | +5.87 |
| REAL YIELD | 6/16 RATE | 1 YR AGO | 5 YRS AGO | 10 YRS AGO |
| 10 YR TIPS | 0.49% | 0.15% | -0.54% | 2.73% |
Sources: wsj.com, bigcharts.com, treasury.gov – 6/16/17 5,6,7,8
Indices are unmanaged, do not incur fees or expenses, and cannot be invested into directly. These returns do not include dividends. 10-year TIPS real yield = projected return at maturity given expected inflation.
Citations.
1 – marketwatch.com/story/fed-raises-interest-rates-to-reduce-balance-sheet-this-year-2017-06-14 [6/14/17]
2 – businessinsider.com/federal-reserve-rate-hike-plan-to-unwind-45-trillion-balance-sheet-2017-6 [6/14/17]
3 – briefing.com/investor/calendars/economic/2017/06/12-16 [6/16/17]
4 – reuters.com/article/us-usa-economy-idUSKBN197277 [6/16/17]
5 – markets.wsj.com/us [6/16/17]
6 – bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=6%2F16%2F16&x=0&y=0 [6/16/17]
6 – bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=6%2F16%2F16&x=0&y=0 [6/16/17]
6 – bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=6%2F16%2F16&x=0&y=0 [6/16/17]
6 – bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=6%2F15%2F12&x=0&y=0 [6/16/17]
6 – bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=6%2F15%2F12&x=0&y=0 [6/16/17]
6 – bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=6%2F15%2F12&x=0&y=0 [6/16/17]
6 – bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=6%2F15%2F07&x=0&y=0 [6/16/17]
6 – bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=6%2F15%2F07&x=0&y=0 [6/16/17]
6 – bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=6%2F15%2F07&x=0&y=0 [6/16/17]
7 – treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyield [6/16/17]
8 – treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyieldAll [6/16/17]
WEEKLY QUOTE
“We learn by example and by direct experience because there are real limits to the adequacy of verbal instruction.”
– Malcolm Gladwell
WEEKLY TIP
Do you have a child heading off to college this fall? Financially, it may be time for his or her first credit card. One idea: have your son or daughter sign up for a basic, low-limit card through a credit union or independent bank and have the monthly statements sent to you.
WEEKLY RIDDLE
What are you able to keep after you give it to someone?
Last week’s riddle:
I often stand straight and tall. I can illuminate your wall or hall. If you push me, I may fall. What am I?
Last week’s answer:
A candle.
