News

For the week ending July 18th, markets dealt investors a slice of volatility for the first time in several weeks. In fact, Thursday marked the first session in two months with a move greater than 1% on the day. Congressional testimony from Fed Chairman Janet Yellen, corporate earnings, and geopolitical tensions fueled markets on the week. Yellen’s testimony both pushed and pulled markets as she acknowledged stretched valuations in some areas of the stock market (biotechnology and small caps), concern surrounding a slowdown in the housing market recovery, while also speaking about noticeable improvement in labor market and overall positive economic backdrop. She made clear that Fed policy of continued low interest rates is soundly in place. The FOMC will be closely monitoring the economy to guide future policy decisions, but unemployment and stable price goals may be converging faster than the market is discounting.

Second quarter earnings were in full focus last week with solid major bank earnings getting much attention. Earnings are on track to grow 5.5% at this point. Attention grabbing economic highlights included disappointing June retail sales, increasing PPI, and a second consecutive month of declining new housing starts. Despite poor June results, overall 2Q retail sales are up a respectable 4.2% year-over-year. Increasing producer prices (June PPI +0.4%) suggest producers are seeking price increases to offset higher wage expectations given the improved labor market backdrop.

Interest rates fell sharply on news of Israel / Gaza conflict escalation and the downed commercial jetliner in eastern Ukraine. The 10yr UST finished the week at 2.48%, just shy of the 2014 low of 2.4%, continuing to confound market consensus for higher interest rates.