Week of May 26, 2015
Investors clearly had upcoming cookouts on their mind last week given the mostly quiet trading heading into the long weekend. The S&P 500 and Dow Jones Industrial Average were essentially flat, and the Nasdaq Composite rose just 0.8%.
Rate Hikes On Track For Later This Year
The Federal Reserve Chairwoman gave investors food for thought just before the long holiday weekend. On Friday she gave a speech before the Greater Providence Chamber of Commerce where she said, “I think it will be appropriate at some point this year to take the initial step to raise the federal funds rate target and begin the process of normalizing monetary policy.” However, she also noted it could be several years before getting back to normal. While the economy is improving, Chair Janet Yellen suggested it is not fully healed citing disappointing wage growth and commenting that the labor market is only approaching full strength, not yet there. During their March meeting, Federal Reserve officials projected 2.5% GDP growth for the year, and this figure will be updated during the June meeting. Most experts expect that a rate hike in June is unlikely, but think a move in September is likely.
Warmer Weather Thaws Home Building Market
Last week the Commerce Department released data showing housing starts rose more than 20% to a seasonally adjusted annual rate of 1.13 million homes in April. This is the highest reading since late 2007 and the largest percentage increase since 1991. This figure is known to be volatile and is often revised, but impressively the expansion was broad based. Single-family units, which make up the bulk of the market, climbed more than 16%, while new apartment and condominium construction jumped 27%. The March figure was revised higher from 2% to 4.9% also. The potential thaw in housing has prompted some economic forecasters to begin raising GDP growth targets for the second quarter. Economists from both Goldman Sachs and Barclays bumped their estimate higher to 2.7%.
GDP Growth In Japan
Japan said “sayanara” to last year’s recession when the government released measures last week that demonstrated the economy expanded at a 2.4% annualized rate for 1Q15. This was nearly a point better than the consensus forecast by economists. The strength in the economy was underpinned by robust household and corporate sectors as growing corporate profits are leading to pay raises, which is in turn leading to better consumption. While Japanese politicians paint the results as an indication their economic stimulus efforts are working, there is a sign of caution. An increase of inventories contributed half a percentage to the quarterly growth. Without this, the annualized rate would have been just 0.4%.
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Securities offered through Jacques Financial, LLC (JFLLC) a Broker-Dealer, Member FINRA and SIPC. Certain associates of Joseph W. Jacques, CPA, CFPTM are registered representatives of JFLLC. Joseph W. Jacques, CPA, CFPTM and JFLLC are affiliated. Investment advisory services are offered through Jacques Advisors, LLC an affiliate of JFLLC. Tax services are offered through Jacques & Associates Certified Public Accountants, LLC an affiliate of JFLLC.* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investments may be appropriate for you, consult with your financial advisor.
* The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.
* The Nasdaq Composite Index is a market-capitalization weighted index of the more than 3,000 common equities listed on the Nasdaq stock exchange. The types of securities in the index include American depositary receipts, common stocks, real estate investment trusts (REITs) and tracking stocks.
* The Dow Jones Industrial Average is an unmanaged group of securities demonstrating how 30 large publicly owned companies have traded and cannot be invested into directly.
* Indexes are unmanaged, statistical composites and their returns do not include payment of any sales charges or fees an investor would pay to purchase the securities they represent. Such costs would lower performance. It is not possible to invest directly in an index.
* Past performance does not guarantee future results.
* Charts and graphs should not be relied upon as the sole basis for any investment decision and are for general informational purposes only.
* The prices of small cap stocks are generally more volatile than large cap stocks.
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* This newsletter was prepared by CWM, LLC.
* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.
Wall Street Journal, May 2015 (subscription required) http://www.wsj.com/articles/japan-grows-2-4-in-first-quarter-1432081799
Wall Street Journal, May 2015 (subscription required) http://www.wsj.com/articles/housing-starts-climb-20-2-in-april-1432038806
Wall Street Journal, May 2015 (subscription required) http://www.wsj.com/articles/yellen-says-fed-on-track-to-raise-rates-this-year-1432314091
Braron’s, May 2015 (subscription required) http://online.barrons.com/articles/dow-stalls-in-slow-pre-holiday-trading-1432348280