MID-WEEK MOVE: MONEY OR MATH?

by Timothy S. O’Neil, SVP, Trust Investment Officer CFP®, CTFA

As expected it was a slow week for financial and economic indicators.  The stock market showed this as it traded back and forth over a fairly narrow range.

Herring Bank, Housing Starts, Soft economy, Economic news, Wealth Management, Financial news.

Housing starts decline even more than expected and the bulls and bears traded punches in a week of narrow trading.

One of the deficiencies of the method by which the Dow Jones Industrial Average is calculated was demonstrated on Wednesday when, following the release of lower-than-expected financial earnings, IBM, a component of the Dow, traded down 4.9%.  The index is calculated by dividing the total value of the prices of the 30 stocks by a number which was 30 when the index was first calculated but because of stock splits and stock substitutions is now a number smaller than one.  In a “price weighted” index like the Dow the stocks with the highest prices are the most influential, and with a dollar price of around $160 IBM moves the index far more than its other components.  The Dow was off 0.6% on Wednesday while the S & P 500 Index was down only 0.2% and the NASDAQ, of which IBM is not a member (it is also in the S & P), was up that day.  Next week might have a little more action, with the initial estimate of Gross Domestic Product (GDP) for the first quarter of the new administration due out on Friday.

FOCUS ON…leading indicators. 

Calculated by the Conference Board, this is a financial index of ten different data series which historically have moved up or down ahead of the broad economy as a whole.  It is comprised of such things as building permits, new factory orders, and unemployment claims.  While no individual reading will ring a bell, as it were, at the top or the bottom, the broad trend has been helpful to investors by providing a reading on the state of the economy and overall financial health.

ECONOMIC INDICATORS RELEASED THIS WEEK

MONDAY

National Association of Home Builders Housing Market Index

  • Previous, March:                                                 71
  • Expected, April:                                                   70
  • Announced:                                                       68

TUESDAY

Housing Starts (seasonally adjusted annualized rate, in millions)

  • Previous (February):                                 1.288
  • Expected (March):                                     1.262
  • Announced:                                                 1.215

Building Permits (seasonally adjusted annualized rate, in millions)

  • Previous (February):                                 1.213
  • Expected (March):                                     1.250
  • Announced:                                                 1.260

Industrial Production

  • Previous (February):                                 unchanged
  • Expected (March):                                   +0.4%
  •  Announced:                                           +0.5%

Manufacturing

  • Previous (February):                                 +0.5%
  • Expected (March):                                     +0.3%
  • Announced:                                                 -0.4%

Capacity Utilization

  • Previous (February):                                 75.4%
  • Expected (March):                                     76.0%
  • Announced:                                                 76.1%

WEDNESDAY

Mortgage Bankers’ Association Mortgage Applications

  • Purchases, previous:                                +3.0%
  • Purchases, announced:                            -3.0%
  • Refinances, previous:                               unchanged
  • Refinances, announced:                           +0.2%

EIA Petroleum Status Report (in millions of barrels)

  • Crude oil inventories (change for week ended 4/7): -2.2
    • Week ended 4/14:                                                  -1.0
  • Gasoline (change for week ended 4/7):                       -3.0
    • Week ended 4/14:                                                 +1.5
  • Distillates (change for week ended 4/7):                    -2.2
    • Week ended 4/14:                                                 -2.0

THURSDAY

Initial Unemployment Claims

  • Previous (week ended 3/25):                               234,000
    • Expected (week ended 4/8):                     244,000
    • Announced:                                                  244,000

Leading Indicators

  • Previous (February):                                 +0.6%
  • Expected (March):                                     +0.2%
  • Announced:                                                 +0.4%

EIA Natural Gas Report (in billions of cubic feet)

  • Previous (change for wk ended 4/7):         +10
  • Week ended 4/14:                                          +54

FRIDAY

Purchasing Managers’ Index (PMI) Manufacturing Flash

  • Previous (March final):                                     53.4
  • Expected (April “flash” or preliminary):       53.6
  • Announced:                                                         52.8

Purchasing Managers’ Index (PMI) Services Flash

  • Previous (March final):                                     52.9
  • Expected (April “flash” or preliminary):       53.1
  • Announced:                                                         52.5

Note: PMI readings above 50 indicate an expanding economy

Existing Home Sales (seasonally adj. annualized rate, in millions)

  • Previous (February):                                            5.48
  • Expected (March):                                                5.605
  • Announced:                                                            5.71

Baker-Hughes Rig Count

  • NA rig count (previous, wk ended 4/14):                965
    • Week ended 4/21:                                             956
  • U.S. rig count (previous, wk ended 4/14):              847
    • Week ended 4/21:                                             857
  • GoM rig count (previous, wk ended 4/14):               21
    • Week ended 4/21:                                                20
  • Canada rig count (previous, wk ended 4/14):         118
    • Week ended 4/21:                                                99

Source: Wall Street Journal Market Data Center       Not FDIC Insured—May Lose Value—No Bank Guarantee

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