The major indices closed out a volatile week on a mixed note, though the Dow was able to notch another all-time closing record on Friday. Though stocks showed some momentum mid-week as investors bought the dip, they lost conviction on Friday as traders trimmed exposure ahead of the weekend. For the week, the S&P 500 lost 0.14%, the Dow gained 0.43%, and the Nasdaq fell 1.26%.
Last week was fairly quiet in terms of economic reports. The jobs market continues to show improvement. Jobless claims fell more than expected last week, snapping three weeks of increases. Though the four-week moving average rose slightly, the level is consistent with stable growth.
Fed Chair Janet Yellen spoke before the House and Senate about the state of the economy. Her testimony was mostly upbeat and she reassured lawmakers that economic activity should pick up speed after the slow first quarter. However, she expressed concern about weakness in the housing sector and indicated that Fed economists will be watching the sector closely in the coming months. Despite housing sector worries, the Fed will continue to pare back bond purchases and still plans to wrap up current quantitative easing programs by this Fall.
Ukraine is slipping closer to civil war as pro-Russian separatists in Eastern Ukraine move ahead with a disputed referendum on self-rule. Though Russia denies any role in the escalating conflict, Western leaders fear that Russia is funding rebels in order to absorb the Russian-speaking eastern portions of Ukraine. On the positive side, Russian President Vladimir Putin seems reluctant to engage in a showdown with the West by sending in troops. A destabilized Ukraine could lead to disruptions to natural gas supplies and other economic damage in Europe.
The week ahead is packed with important economic data, and analysts will be closely watching retail sales and business inventory numbers as well as the next consumer sentiment report to get a feel for how strong demand is in the second quarter. Though housing data is still expected to be weak, analysts are hopeful that warmer weather will boost activity.
Monday: Treasury Budget
Tuesday: Retail Sales, Import and Export Prices, Business Inventories
Wednesday: PPI-FD, Housing Market Index, EIA Petroleum Status Report
Thursday: Janet Yellen Speaks, Consumer Price Index, Jobless Claims, Empire State Mfg. Survey, Treasury International Capital, Industrial Production, Philadelphia Fed Survey
Friday: Housing Starts, Consumer Sentiment
Notes: All index returns exclude reinvested dividends, and the 5-year and 10-year returns are annualized. Sources: Yahoo! Finance and Treasury.gov. International performance is represented by the MSCI EAFE Index. Corporate bond performance is represented by the DJCBP. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly.
Strong wholesale inventories may reduce Gross Domestic Product (GDP) downgrade. Though economists may lower first quarter GDP estimates, a better-than-expected increase in wholesale inventories in March – a key component of GDP estimates – may temper the downgrade.
China will avoid large-scale economic stimulus. Despite the signs of a slowing Chinese economy, its central bank will not employ any significant stimulus programs – similar to the U.S. Federal Reserve’s quantitative easing – to boost the economy.
Mortgage applications rise. After weeks of lethargy, mortgage markets picked up as loan applications rose. Total mortgage volume rose on a surge of home buying activity spurred by lower interest rates and continued job market growth.
Cash deals rule in housing market. High demand and low supply are forcing homebuyers to get competitive with all-cash offers, which accounted for 43% of total home sales in the first quarter. Strict lending standards have reduced the opportunities for many traditional homebuyers and given investors a competitive edge.