Markets last week were mixed with leading tech stocks falling dramatically as some investors pulled profits. The NASDAQ took the biggest hit, finishing 1.55% down on the week - its worst week of the year. Meanwhile, the Dow rose 0.31% for the week, notching another record close on Friday and the S&P 500 fell 0.30%.
The S&P tech sector dropped 3.3% on Friday; however, it remained up 18% for the year. Major tech stocks account for almost 13% of the total number of stocks in the S&P 500, while comprising nearly 40% of the S&P 500 increase for the year.
Internationally, Asian markets were mixed while European markets closed the week generally higher. The European equities markets took last week's UK election in stride, though the pound dropped in response to the Conservatives losing their majority.
Domestically, monthly job openings exceeded 6 million in April. Hiring, however, has slowed to only 5 million per month, suggesting workers skills may not match job needs. Moreover, the economy continues to show signs of softening.
Indications of a Softer Economy
Wholesale and Retail Inventories Down: Revised wholesale inventories shrunk 0.5% in April, the largest contraction in more than 12 months. In addition, retail inventories fell in April as sales weakened.
Inflation Slows: As noted last week, consumer prices remain weak. Inflation slowed in April to an annual rate increase of 1.7% year-over-year, down from the 1.9% recorded in March and 2.1% in February. Falling oil prices, excessive auto inventories, and increasing apartment rental inventories will all create head-winds to reaching the Fed's target rate of 2.0%.
Factory Orders Down: Factory orders fell 0.2% in April. While motor vehicles rose 0.6% and computers gained 1.6%, durable goods orders fell 0.8%.
Oil Prices Drop: Though summer driving season is here, U.S. gasoline demand dropped by nearly a half-million barrels a day. While the need for fuel fell - and despite beliefs that oil would fall by 3.5 million barrels - stockpiles rose by 3.3 million barrels. As a result, oil dropped by 4%, ending the week at $45.86 per barrel.
What Comes Next
The Fed will hold a meeting this week to determine whether to raise interest rates. Expectations are that the Federal Open Market Committee (FOMC) will raise the fed funds rate 0.25% to 1.25% despite the soft economic news, which the Fed characterized as "transitory." The FOMC meeting will also address quarterly forecasts for the remainder of the year. The markets expect both Japan and Britain's central banks to also address the issue of interest rates.
In addressing the federal debt, the Treasury Secretary assured last week that the U.S. will not default on its debt. Congress must address the debt limit this summer or fall, but markets may react negatively if delays occur. Meanwhile, Congress continues to wrestle with policy questions around tax reform, an infrastructure program, and healthcare reform. How the government addresses these important initiatives could alter market dynamics in the future.
If you have questions on where you stand as these events unfold, do not hesitate to contact us. We are here to support your financial life with clarity and sound perspectives.
Quote of the Week
"Only those who will risk going too far can possibly find out how far one can go."
Golf Tip of the Week
Eliminate Your Lag
Experienced golfers use power and finesse to keep the ball in play. By developing the correct downswing sequence for managing their lag, they add distance to their shot. They hold the angle between their lead arm and club shaft for as long as possible in their downswing. Done incorrectly and you can shank the ball, top it, and hit shots to your right. The goal is to achieve lag while turning the club over through impact.
To achieve a proper downswing sequence that generates correct force by winding out into the club, follow these tips:
- Use a 6- or 7-iron: Without using the ball, first set up to the ground. You'll need to bend your arms and place the shaft outside of your right upper arm (for righties). To land the correct position, you may have to lightly release your right hand.
- Turn your shoulders: Do so at 90 degrees and keep the club shaft against your right arm. This should be a move similar to making a backswing.
- Try a downswing: Swing and test how long the shaft remains touching your right arm; doing so should even your hands with your right leg.
- Make your delayed release: The delayed release should whip your clubhead through impact, naturally turning over your forearms and club.
Tip courtesy of GolfTips Magazine
Financial Question of the Week
Who Can Represent You Before the IRS?
The tax preparer you choose to help you file taxes can have different representation or "practice" rights. These rights affect how they can represent you before the IRS. As you manage your tax details within your financial life, remember these tips.
Two Types of Representation Rights
- Unlimited: This category enables your tax preparer to represent you before the IRS on any tax item. The credentialed tax professional can be an Enrolled Agent, Certified Public Account (CPA), or attorney.
- Limited: This category means that only the person who prepared and signed your tax return can represent you before the IRS. However, he or she cannot represent you on appeals or collection matters. Your tax preparer can represent you in front of revenue agents, customer service representatives, and similar IRS employees.
As you manage your taxes each year, be sure to familiarize yourself with the tax preparer's representation rights.
Other details apply, and you can find more information on the IRS website.
Please Note: This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.