Stocks were little changed last week, as the S&P 500 rose by 0.02 percent to 2,779.66. That fractional gain left the benchmark index up 3.97 percent year-to-date, and just 3.24 percent below the all-time closing high. There were numerous headlines for markets to react to during the past few trading sessions but the key issue that investors were paying attention to was the latest announcement on monetary policy from the Federal Open Market Committee (FOMC). Indeed, officials on Wednesday raised the target range for the federal funds rate to 1.75-2.00 percent, the 7th hike since the central bank started gradually tightening in 2015. The committee also updated its quarterly economic projections, with highlights being an upgraded forecast for 2018 real gross domestic product (GDP) growth and lower unemployment expectations over the next few years.
As for inflation, estimates were revised higher for both 2018 and 2019, although some of this was likely a reflection of the recent, and potentially transitory, rise in oil prices. Fed Chair Jerome Powell during the post-announcement press conference summarized the committee’s policy outlook by saying that “a gradual approach for increasing the federal funds rate will best promote a sustained expansion of economic activity, strong labor market conditions, and inflation near our symmetric 2 percent goal.” Looking ahead, the updated projections imply another two quarter-point rate increases this year, three in 2019, and one in 2020. That is a bit more hawkish than previously anticipated and current market pricing suggests that the next hike will occur at the September FOMC meeting. What all of this means for equities in the near-term remains unclear but for regular investors the focus should continue to be on the long-term goal of amassing a large retirement nest egg. As always, we are here to help with any questions you may have.
To recap a few of the things we learned about the economy last week, the positives included that manufacturing activity in the Northeast region of the country expanded at a faster rate, consumer confidence improved, retail sales growth jumped, first-time claims for unemployment benefits fell, and a gauge of small business owner optimism spiked to a nearly half-century high. As for the negatives, mortgage and refinance applications slid, industrial production unexpectedly declined, capacity utilization decreased, and household, wholesale, and trade-related inflation pressures in America all continued to rise. This week the pace of economic data slows down considerably but there are still a few important reports on housing and manufacturing scheduled to be released.
**A more detailed snapshot of the U.S. economy can be found here.**
What To Watch:
- MBA Mortgage Applications 7:00 AM ET
- Current Account 8:30 AM ET
- Existing Home Sales 10:00 AM ET
- EIA Petroleum Status Report 10:30 AM ET
- Jobless Claims 8:30 AM ET
- Philadelphia Fed Business Outlook Survey 8:30 AM ET
- FHFA House Price Index 9:00 AM ET
- Leading Indicators 10:00 AM ET
- EIA Natural Gas Report 10:30 AM ET
- 30-Yr TIPS Auction 1:00 PM ET
Sources: Econoday, FRBG, CME, FRBSL
Post author: Charles Couch