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08/02/2017
Market Update

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The Federal Reserve left interest rates unchanged in July despite moderate economic expansion, citing declining inflation. The central bank also indicated it would begin unwinding its $4.5 trillion balance sheet later this year, likely in September or December.
This Week
  • The Federal Reserve left interest rates unchanged in July despite moderate economic expansion, citing declining inflation. The central bank also indicated it would begin unwinding its $4.5 trillion balance sheet later this year, likely in September or December.
  • Second-quarter gross domestic product (GDP) grew by an annualized 2.6%, led by business investment and personal expenditures. Residential investment detracted.
  • Durable goods orders jumped by 6.5% in June, while the previous month’s reading was revised upward from -1.1% to -0.1%. This month’s reading was the biggest advance in almost three years— yet was largely on a surge in civilian aircraft orders, while nonmilitary capital-goods orders excluding aircraft (a key gauge for business investment) slipped 0.1%.
  • The trade deficit shrank slightly in June to $63.9 million. Exports climbed by 1.4% (mainly within food and vehicles), while imports fell by 0.4% (primarily within industrial supplies and consumer goods). A smaller trade deficit increases GDP.
  • Economic activity improved in July; preliminary readings of Markit’s purchasing managers’ composite index (PMI) reached a six-month high, pointing to solid growth with signs of underlying acceleration. Services and manufacturing both came in above expectations, with strength in new orders, hiring and output.
  • June new-home sales were unchanged from the previous month, while existing-home sales softened by 1.8% in the month to an annualized rate of 5.52 million. Affordability and supply continued to challenge homebuyers.
  • The S&P CoreLogic Case-Shiller Home Price Index advanced in May, climbing by 0.1% for the month and by 5.7% year over year, reflecting a strong-but-slowing pace of home-price appreciation.
  • Consumer confidence beat expectations in July, according to the Conference Board; the outlook for employment and economic expansion remained positive, as did confidence about income growth in the near future.
  • Initial jobless claims rose by 10,000 to 244,000 in the week ending July 22. The four-week moving average (considered a more reliable gauge of unemployment) was unchanged at 244,000. Continuing claims fell by 13,000 for the week ending July 15, while the four-week moving average of continuing claims grew by 5,000 to 1.964 million. Unemployment remained historically low due to persistently robust demand for labor.
  • Eurozone economic activity expanded in July, but by less than in the previous month. Initial data from the composite PMI showed unchanged growth in services, but decelerating gains in the manufacturing sector.
  • The U.K. economy expanded by 0.3% during the first quarter and 1.7% year over year. Business and government services gained, while output and manufacturing fell.
  • Chinese industrial profits surged by 19.1% year over year in March. Quarterly profits, boosted by continued growth in construction, advanced by 22.0% for the year.

 

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