US Stocks Hit New Highs, Foreign Investors Snapping Up US Properties

Weekly Economic Updates — July 22, 2017

• US markets resumed their march towards new highs, but international stocks continue to outpace their US counterparts, having gained over 3% in the last two weeks (MSCI EAFE) vs. 2% for US stocks (S&P 500). Emerging markets are doing even better, gaining 5% over the past two weeks (MSCI Emerging Markets)
• Earnings season in the US kicked off this past week, with 20% of the S&P 500 companies reporting. Of those 20% reporting, fully 3/4 have surpassed expectations for both revenues and profits, led by the Information Technology, Consumer Discretionary and Financial sectors
• Most experts are expecting energy companies to generate the largest earnings increase from last year, mostly due to their terrible showing in the second quarter of 2016
• The yield on the US 10-year Treasury note dropped for the week to 2.24% from last week’s 2.33%
• The price of a barrel of West Texas Intermediate crude oil remained almost exactly the same, ending the week at $46.35/barrel, down about 23 cents on the week
• Volatility, as measured by the Chicago Board Options Exchange Volatility Index, remained steady at a still-historically low 9.9
• The fed funds futures market points to the December Fed meeting as the most likely time for the next rate-hike announcement, with an implied probability of 52.0%
• Fed watchers are eagerly anticipating the release of the Fed’s latest policy statement on Wednesday afternoon

Weekly Market Performance

CloseWeekYTDDJIA21,580–0.3%9.2%S&P 5002,4730.5%10.4%NASDAQ6,3881.2%18.7%Bonds*$109.920.5%3.0%10-Year Treasury Yield2.24%-0.09%-0.21%

*Source: Bloomberg. Bonds representedby the iShares Core US Aggregate Bond ETF

Another Week, More Record Highs

Except for the narrowly-defined DJIA, US stocks recorded small gains for the week and drove all the other major US stock market benchmarks to new record highs. The technology-laden NASDAQ is leading the way, with YTD performance of almost 19%, fueled by positive earnings reports, including Netflix.

Earnings Driving Stock Prices, But There Are Other Signs to Watch

With roughly 100 companies reporting last week and with 75% reporting revenue and profit growth, earnings continue to drive stock prices higher.

Of the S&P 500 companies reporting, 76 companies reported an 8.6% rise in earnings on 5.4% revenue growth. Yes, earnings growth slowed down from Q1’s furious pace, but there is no question that Q2 earnings season is off to a very solid start. And research firm FactSet reports that analysts expect earnings for the S&P 500 Index to grow by a little more than 7% in the second quarter (versus last year).

Although the market saw disappointing news the week prior related to inflation and retail sales data, this week brought some positive news. More specifically, the Commerce Department reported that housing starts rose 8.3% in June and new housing permits rose 7.4%, both rebounding from prior drops in May. In addition, initial jobless claims fell and reached their lowest level in a couple months, signaling strength in the labor markets.

Foreign purchases of US homes hits record

For the one year period ended March 2017, the National Association of Realtors reported that foreign investment in US residential real estate hit new highs. Fueled by a substantial increase in sales dollar volume from Canadian buyers, but also investors from China, foreign buyers accounted for fully 10% of the dollar value of US homes purchased over the year, amounting to $153 billion in purchases.

This translates into a 49% jump from 2016 and accounts for almost 300,000 US properties being bought by foreign investors. Sales were concentrated mostly in Florida, California and Texas.

Data Releases This Week

• Higher material costs dampened homebuilder sentiment, as the NAHB index fell to an eight-month low.
• Housing starts rose 8.3% in June but new building permits, considered a forward-looking indicator, jumped 7.4% for the month.
• The Conference Board’s index of leading economic indicators increased in June for the sixth consecutive month.

Seen first @ Growplanning.com

Sources

nar.realtor.com; nahb.org; conference-board.org; factset.com; census.gov; federalreserve.gov; tiaa.org; bls.gov; bea.gov; dowjones.com; tiaa.org; morningstar.com; mfs.com; bloomberg.com; edwardjones.com