In this week’s recap: core inflation reaches a 10-year peak, oil’s losing streak continues, earnings impress, and Wall Street indices have a mixed week.1
Weekly Economic Update
August 13, 2018
INFLATION AT 2.9%, CORE INFLATION AT 2.4%
Friday, the Department of Labor reported these annualized gains through July of this year for the Consumer Price Index. Both the headline and core CPIs rose 0.2% last month, matching the consensus forecast of economists polled by Reuters. The yearly core inflation increase is the largest on record since September 2008. (The core inflation reading leaves out food and energy costs.) The Producer Price Index was flat in July, with the yearly advance declining slightly to 3.4%; the core PPI rose 0.3%, resulting in a 2.8% annualized gain.1,2
HOW IS EARNINGS SEASON GOING?
Ninety-one percent of S&P 500 companies have reported Q2 results so far. FactSet, the respected stock market analytics firm, reports that 72% have surprised to the upside in terms of sales and 79% have topped earnings expectations. Weighing actual earnings results and future projections, FactSet estimates a 24.6% “blended” earnings growth rate for the second quarter. On Friday, the forward 12-month P/E ratio for the S&P 500 was 16.6; that compares to an average of 16.2 across the past five years.3
OIL FALLS FOR A SIXTH STRAIGHT WEEK
WTI crude last suffered such a losing streak in 2015. Friday, it settled at $67.63 on the NYMEX, even after a 1.2% advance during Friday’s trading session. Some commodities investors believe that the emerging trade war will reduce demand for energy products.4
NASDAQ ADVANCES, S&P AND DOW RETREAT
The possibility of the U.S. doubling tariffs on Turkish aluminum and steel sent stocks skidding worldwide, Friday, as diplomatic disagreements between the countries took on an economic aspect. Of the three major Wall Street indices, only the Nasdaq Composite posted a weekly gain, rising 0.35% to 7,839.11. The S&P 500 fell 0.25% in five days, settling at 2,833.28 Friday. The Dow Jones Industrial Average ended the week 0.59% lower at 25,313.14.5,6
Sysco announces Q2 results Monday. | Advance Auto Parts, Agilent Technologies, and Home Depot present earnings on Tuesday. | On Wednesday, July retail sales numbers are out, along with earnings from Briggs & Stratton and Cisco. | Nordstrom, Nvidia, and Walmart share quarterly results on Thursday, as Wall Street also considers new data on initial jobless claims and July homebuilding activity. | The University of Michigan’s initial August consumer sentiment index appears on Friday, plus the Conference Board’s latest leading indicators index and earnings from Deere & Co.
1 YR AGO
5 YRS AGO
10 YRS AGO
10 YR TIPS
Sources: wsj.com, bigcharts.com, treasury.gov - 8/10/186,7,8,9 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.
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1 - cnbc.com/2018/08/10/us-cpi-july-2018.html [8/10/18]
2 - reuters.com/article/us-usa-economy-inventories/u-s-producer-prices-unchanged-in-july-idUSKBN1KU1JH [8/9/18]
3 - factset.com/hubfs/Resources%20Section/Research%20Desk/Earnings%20Insight/EarningsInsight_081018.pdf [8/10/18]
4 - bloomberg.com/news/articles/2018-08-10/oil-set-for-sixth-weekly-loss-as-u-s-china-trade-war-escalates [8/10/18]
5 - thestreet.com/markets/stocks-slide-amid-currency-crisis-in-turkey-14679908 [8/10/18]
6 - markets.wsj.com/us [8/10/18]
7-bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=8%2F10%2F17&x=0&y=0 [8/10/18]< br>7-bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=8%2F10%2F17&x=0&y=0 [8/10/18]< br>7-bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=8%2F10%2F17&x=0&y=0 [8/10/18]< br>7-bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=8%2F9%2F13&x=0&y=0 [8/10/18]< br>7-bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=8%2F9%2F13&x=0&y=0 [8/10/18]< br>7-bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=8%2F9%2F13&x=0&y=0 [8/10/18]< br>7-bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=8%2F11%2F08&x=0&y=0 [8/10/18]
8 - treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyield [8/10/18]
9 - treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyieldAll [8/10/18]
Posted on Mon, August 13, 2018
by Sound Financial