Week of July 18, 2016
Equity markets continued with broad positive momentum last week as our own domestic indices notched new all-time highs. Both the S&P 500 and the NASDAQ Composite were up just under 1.5% while the Dow Jones Industrial Average led the way, posting a 2% return for the week.
European equities were also in positive territory with the MSCI Europe Index ending the week up 3.47%.
All Time Market Highs
Both the S&P 500 and the Dow Jones Industrial Average hit all-time highs last week amidst the backdrop of a stronger domestic job market and uncertainty stemming from global growth concerns, the Brexit and an attempted coup in Turkey. Analysts attribute the pop in markets to catalysts such as a rebound in oil and a weakening US dollar, as well as indications of additional stimulus from Japan's government designed to kick start their sputtering economy. In addition, retail sales beat expectations for June, rising 0.6%. This was above the consensus of 0.1% and another positive sign that the US economy is heading in the right direction. Consumption is a major component of economic growth and makes up roughly two thirds of our domestic GDP. Interestingly, post Brexit, the S&P 500 is up just over 6% and the Dow Jones Industrial Average up 6.4%.
Inflation was up just 0.2% for the month of June, bringing the annual increase to 1% for the last 12 months and still shy of the Federal Reserve's target. The majority of last month's increase was driven by energy with the pop in gasoline prices making up the lion's share. This marks the fourth monthly increase in a row for energy costs. However, analysts point out that gas prices typically retreat from the summer peak and those seasonality characteristics could put downward pressure on inflation in the latter half of the year. What's also keeping inflation relatively muted is the cost of food. Grocery prices have experienced the largest consistent drop since 2010. A subset of the Consumer Price Index, the Food at Home Index is down 0.3% in June and down 1.3% over the last 12 months.
Commodity prices have surged this year and it's no surprise that two of the most important raw ingredients in chocolate have come under pressure as well, forcing chocolatiers to increase their costs in response. Over the last 12 months, cocoa butter has risen 21% as unusually small crop yields have impacted the commodity, while sugar is up a staggering 38% year-to-date after years of oversupply drove production down sharply. According to chocolate makers, those two ingredients comprise roughly 50% of most chocolate bars in terms of ingredients. Indeed, candy bar giants Mars Inc., Hershey and Nestle SA have all increased the prices as much as 8%. Interestingly, cocoa is one of the few commodities still priced in British pounds sterling. The recent weakness in the pound sterling following the Brexit, however, has provided some welcomed relief for cocoa purchases in euros and US dollars.
Fun Story of the Week
Do you remember the last time you had a Bib-Label Lithiated Lemon-Lime Soda? It sounds like something from a campy science fiction comic but that was the original name for the lemon-lime soda more commonly known as 7Up. Invented in 1929 by Charles Leiper Grigg and released just two weeks before the Wall Street Crash the same year, 7Up originally contained Lithia which is more commonly known today as lithium. Lithia naturally occurs in trace amounts in bubbling spring waters, and Grigg believed that the assumed health benefits of the substance would be attractive to the public. It wasn't until 1948 that the government banned the use of lithium in soft drinks and 7Up stopped including it in their recipe. As for the "Bib-Label" portion of the name, Grigg's soda company, called Howdy Corporation at the time, used paper labels that they could drop over unlabeled bottles, similar to a baby's bib. It wasn't until 1936 that the soda officially changed to 7Up but no one quite knows the exact origins of the name. There are rumors, of course, but one of the more prominent ones is that 7Up comes from the original seven ingredients: carbonated water, sugar, lemon and lime citrus oils, citric acid, sodium citrate and lithium citrate.
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Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
The Dow Jones Industrial Average is comprised of 30 stocks that are major factors in their industries and widely held by individuals and institutional investors.
The NASDAQ Composite Index measures all NASDAQ domestic and non-U.S. based common stocks listed on The NASDAQ Stock Market. The market value, the last sale price multiplied by total shares outstanding, is calculated throughout the trading day, and is related to the total value of the Index.
S&P 500 INDEX
The Standard & Poor’s 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
MSCI EUROPE INDEX
The MSCI Europe Index is a market capitalization weighted index which consists of stocks from 15 developed market countries within the European region.
CNBC, July 2016. http://www.cnbc.com/2016/07/11/us-markets.html
Wall Street Journal, July 2016. http://www.wsj.com/articles/higher-costs-bite-chocolate-makers-1468280462
Market Watch, July 2016. http://www.marketwatch.com/story/inflation-rises-02-in-june-cpi-shows-2016-07-15
Bureau of Labor Statistics, July 2016. http://www.bls.gov/news.release/cpi.nr0.htm
Wikipedia, July 2016. https://en.wikipedia.org/wiki/7_Up