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08/08/2016
Market Update

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U.S. gross domestic product (GDP), the broadest measure of the nation’s economic health, advanced by a disappointing 1.2% annualized rate in the second quarter, well short of the expected 2.6%. Consumer spending (which drives over two-thirds of the economy) grew by a robust 4.2%, but could not compensate for flagging business investment, which fell by 2.2%, providing evidence of firms’ low confidence in the global economy.
This Week
  • U.S. gross domestic product (GDP), the broadest measure of the nation’s economic health, advanced by a disappointing 1.2% annualized rate in the second quarter, well short of the expected 2.6%. Consumer spending (which drives over two-thirds of the economy) grew by a robust 4.2%, but could not compensate for flagging business investment, which fell by 2.2%, providing evidence of firms’ low confidence in the global economy.
  • Federal Reserve officials voted nearly unanimously this week to hold interest rates steady until the U.S. economy appears more stable. While acknowledging the recent momentum in the labor market and increased household spending, the central bank noted that pockets of weakness, such as anemic business investment, remain a concern — an indication that a rate hike is possible (but not probable) in September.
  • New-home sales logged a 10.1% increase from January through June 2016 compared to the same period in 2015, according to the Commerce Department. In June, sales of new homes increased by 3.5% for the best sales pace since February 2008, while previously owned home sales advanced by 1.1% for the same month, a rate last seen in February 2007.
  • The Case-Shiller Home Price Index rose by 5.2% in the twelve months ending in May. Demand for new homes and price appreciation have represented an increasingly bright spot within the U.S. economy in recent months.
  • The Conference Board reported that consumer confidence remained healthy and was essentially unchanged in July, a sign that consumers view short-term economic growth with cautious optimism. The University of Michigan, however, reported that consumer sentiment has slid since June.
  • Initial jobless claims rose by 14,000 to 266,000 for the week ending July 23; however, overall claims have remained below 300,000 for 73 consecutive weeks, underscoring continued job-market strength. Auto factories traditionally run temporary layoffs during the summer, which could account for increased claims.
  • The European Union’s economic sentiment indicator (ESI) rose a tick in July, showing optimism among businesses and consumers and surprising economists and investors, who expected a decrease following June’s Brexit vote. Meanwhile, second-quarter GDP lagged, as expected, to the slowest growth rate in two years.
  • The ESI in the U.K. tumbled in July to its lowest level since June 2013. Political uncertainty likely impacted the reading, which was recorded in early July when the U.K.’s ruling Conservative party was in the midst of appointing a new prime minister. As the U.K.’s new government stabilizes, confidence may improve in the coming months. U.K. GDP exceeded expectations during the second quarter, propelled by industrial gains.
  • The Bank of Japan (BOJ) announced plans to raise the annual purchase target of exchange-traded stock funds in an effort to stimulate price pressures. The BOJ held its already-negative benchmark interest rate steady and made no changes to its government-bond purchasing program.

 

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