While US Stocks Hit New Highs, International and Emerging Markets Stocks are Doing Better

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Weekly Economic Updates — July 15, 2017

• The S&P 500, the Dow Jones Industrial Average, and the Russell 2000 (representing small cap stocks) all hit record highs on Friday
• Although NASDAQ ended the week nine points below its record, it performed best for the week relative to the other indices, bringing its year-to-date performance to more than 17%
• Friday brought investors the beginning of second quarter earnings seasons, beginning with the large banks. Earnings from S&P 500 companies were up over 15% for the first quarter, and expectations for good second quarter earnings are high
• Around the world, Europe’s STOXX 600 Index jumped 1.85% in local currency terms, with the dollar’s decline increasing that gain to 2.1% for US investors
• Emerging Market stocks, which usually benefit from a weaker US dollar, jumped almost 4% for the week and have returned 22.3% year-to-date — more than doubling the S&P 500’s increase of about 10%
• The yield on the 10-year U.S. Treasury fell to 2.33% on Friday, just a week after it hit 2.39%, which happened to be a two-month high
• Crude oil leapt forward and recorded a weekly gain of 5.3%, settling in at $46.58/barrel
• Volatility, as measured by the Chicago Board Options Exchange Volatility Index, dropped to 9.89 from 11.75 last week

Weekly Market Performance

CloseWeekYTDDJIA21,6381.0%9.5%S&P 5002,4591.4%9.8%NASDAQ6,3122.6%17.3%Bonds*$109.370.4%2.5%10-Year Treasury Yield2.33%-0.06%-0.11%

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

Fed Chair Janet Yellen Testifies, Might Not Be Back

US Federal Reserve Chair Janet Yellen testified before the House Financial Services Committee as markets were still trying to better understand the impact the Fed’s balance sheet reduction plan will have on markets around the world. Yellen indicated that the Fed continues to expect a tightening labor market, which will lead to increased inflation. But Yellen did not tip her hand with respect to when the Fed might next raise rates. Last month, the Fed raised rates for the third time since December 2016.

Yellen also hinted at the fact that she might not be reappointed Fed Chair when her term expires in February. She answered that this “may well be” her last appearance before the House Financial Services Committee.

Earnings Season Kicks Off

Financials were a focus on Friday, with JPMorgan Chase, Wells Fargo, and Citigroup kicking off earnings season. All three of the major banks reported better than expected earnings — with JPM and C also beating revenue estimates — but the news was not good enough to keep the financial sector riding its positive wave. In fact, the financial sector dropped for the week and lost about 0.5%, whereas all other sectors in the S&P 500 finished the week higher.

Lots of Data Reported

• Retail sales were down 0.2% month over month and sales at department stores were down by about 0.7%, following a similar decline in May.
• The Consumer Price Index was unchanged with prices rising 1.6% compared to last June. Excluding the volatile food and energy categories, so-called “core” inflation increased just 0.1% last month and 1.7% from a year earlier.
• Consumer sentiment fell further from January’s 10-year high, according to the first reading of the University of Michigan index.