Last Week’s Highlights
1 . Again, little general movements in equities overall. Second quarter earnings season has been positive but there has been a holding pattern as investors await reaction of Federal Reserve balance sheet normalization and tax reform. For a second week, DJIA (+1.2% to a record 22,092) was the best performer versus S&P 500 (+0.2%) and Nasdaq (-0.4). Utilities (+1.3%), financials (1.2%) fared well while energy (-1.2) was weak. The rotation to large cap multi-nationals and financials from small cap and tech continues. The Dow , which contains only 30 stocks, was especially aided by sharp positive moves in Apple and 3M.
2. Economic data was mixed. July non-farm payrolls were strong (209k vs +180 expectation) and the unemployment rate dropped to 4.3% (from 4.4%). In addition labor participation rate inched up (62.9%). However, hourly earnings were only up 0.3% MOM and 2.5% YOY. The questions are how can a tight job market have such low increases in pay and will the Fed focus more on low unemployment data or low inflation in its decision to raise short term interest in 2017. The federal funds futures market indicates only a 40% chance in 2017.
3. Continued disfunction in Washington D.C. President Trump’s approval ratings have reached a new low and some Republican legislators are more comfortable thwarting his plans (i.e. health care). New Chief of Staff John Kelly is trying to bring some stability to the administration quickly removing Anthony Scaramucci and trying to institute a proper chain of communication to the White House.