Market Commentary, 07/10/17
All three major indexes finished the holiday-shortened week in the green. The Dow gained 0.30%, the Nasdaq finished up 0.20%, and the S&P added 0.07%.
In US Economic news, the number of Americans who applied for new unemployment benefits after losing their job rose slightly the last week of June to 248,000 according to the Labor Department. Initial claims have been under 300,000 for 122 straight weeks. Continuing claims, the number of people already receiving benefits, totaled less than 2 million for the 12th straight week, its longest streak since 1973. Both of these numbers are below their relative threshold, which indicates low unemployment and a strong US job market.
The service sector of the US economy continues to grow according to the Institute for Supply Management (ISM) non-manufacturing index finishing the month of June at 57.4, 1.6% higher than projected. In fact, 16 of the 17 sectors tracked by the ISM index showed improvement. This growth in the service sector is directly tied to the growth in the US economy, as it is responsible for roughly 70% of US GDP.
The Federal Reserve released the minutes from its June 13-14 meeting revealing that several of the members are in favor of starting the reduction of its $4.5 trillion balance sheet within a couple of months. The statement only indicated that the process would start this year, not the extent of their plan.
You may recall that the Fed began large-scale purchases of assets in late 2008, such as US treasuries and government-supported mortgage-backed securities, to stave off a complete collapse of the financial system. For six years, the Fed embarked on this asset purchase program, known as quantitative easing, to keep interest rates at record low levels. In October 2014, when Fed Chair Janet Yellen ended the bond buying program, the balance sheet had reached $4.48 trillion (www.federalreserve.gov).
When combined with increasing the fed funds rate, reducing the balance sheet will contribute towards normalizing monetary policy. This reduction can be done in two ways: the more controlled approach would be to allow the bonds to mature and not reinvest the proceeds, while the quicker option would be to sell the securities, which could cause interest rates to increase rapidly.
We did not see a high on the Dow or S&P 500 last week, but the market continues to hold steady amid healthy economic data.
Wayne Copelin, CFP®
President, Copelin Financial Advisors, Inc.
514 Brooks Street
Sugar Land, TX 77478
Phone (281) 240-2902
Fax: (281) 240-2856
Securities offered through ProEquities, Inc., a Registered Broker-Dealer and Member FINRA & SIPC Advisory Services offered through Harvest Investment Services, LLC., a Registered Investment Advisor Copelin Financial Advisors, Inc and Harvest Investment Services, LLC are independent of ProEquities, Inc.