Investors had much to digest last week, and this week will be much of the same!

  • 87% of the S&P 500 companies have reported quarterly earnings with 75% topping earnings estimates
  • 528,000 was the number of reported new jobs filled for July.  The unemployment rate is now down to 3.5%
  • This Wednesday we’ll hear the widely anticipated Consumer Price Index (CPI) reading for JulyThursday we’ll hear the Producer Price Index (PPI)

Last week’s hot jobs number surprised most people.  Many are now thinking the Fed may want to hike rates by another .75% when they meet in September.  There will be a lot of data released between now and the next Fed meeting, so opinions may change weekly.

The experts are expecting Wednesday’s headline CPI number, which includes food and energy, to come in at 8.7%, down from 9.1% from June.  Stripping out food and energy, the estimate for the “core” rate is 6.1%, UP from 5.9% in June.

The PPI number expected (including food and energy) is 10%, less than the 11.3% reported in JuneCore PPI is expected to register 8.0% versus 8.2% in June.

Now matter how you read it; inflation is as hot as the east coast weather over the past week.

It’s certainly nice to see gas prices move down into the low $4 range.  If gas prices stay low, logic would think that most other items will start to see price reductions.  Just about everything we purchase has to be transported, including the food we purchase at restaurants, items we purchase at Home Depot, and all small and large ticket items purchased at various stores and on-line. 

I question how quickly prices will actually drop, if gas prices do stay down.  For example, as long as your local restaurants stay crowded, they will have no true reason to lower prices, except if their demand actually starts to slip.   We have become a very greedy society in many ways.

Markets Continue to Rise?

The current momentum of the market is higher.  More and more stocks are participating in the price recovery.  How long will this upturn last?  As always, time will tell!

Last week witnessed the S&P 500 increase for the third straight week, rising .39%.  The Nasdaq rose 2.18%, and the Russell 2000 1.96%.  The Dow bucked the trend finishing flattish (.11%).

Bond yields rose on Friday after the jobs number, with the 2-Year US Treasury yielding 3.25% and the 10-Year US Treasury 2.84%.

Oil, the main contributor to gasoline prices, finished the week @ $88.53/barrel

We have started to witness a few 3rd quarter profit estimates come down.  This will be very important to watch going forward.  If a large portion of estimates are guided down, that will suggest the market is over-valued.  The current PE ratio on the S&P 500 is now 17.5, up from the mid-June market low of 15.3.

Value stocks are leading growth stocks however the gap has been closing.  The average large value fund according to Morningstar is down (7.29%) year to date, and the average large growth fund is down (18.22%).  The average small value fund is down (8.45%) and the average small growth fund is down (19.22%).  Keep in the mind, the growth category has been down by over 25% a few weeks back.

As always, we’ll continue to monitor the situation and make portfolio adjustments as necessary. 

If you know of anyone who has concerns about the economy, markets, or their personal financial situation, I’ll be happy to act as a sounding board.  Please have them call Ellen to schedule a complimentary phone or in-person consultation – (856) 354-3200 ext. 205.

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