S&P 500

S&P 500 Shrugged Off Weak U.S. Retail Sales Data, While the New York Fed Knocks Down the Third-Quarter GDP Forecast to 2.4%

Witawat (Ed) Wijaranakula, Ph.D.
Fri Aug 12, 2016

The S&P 500 closed at 2,184.05, practically unchanged for the week, despite that the U.S. Commerce Department reported mediocre U.S. retail sales for July on Friday. The fact that Americans cut back on discretionary spending last month came as a surprise after the U.S. Labor Department reported a “blowout” nonfarm payrolls figure last Friday, showing an increase of seasonally adjusted 255,000 jobs last month. 

The weak retail sales data prompted the Federal Reserve Bank of New York to trim its U.S. GDP forecast for the third-quarter of 2016 to 2.4%, from the previous 2.6%. Without a strong rebound in crude oil prices, the S&P 500 would have been down for the week. Since August 1, the index has re-coupled with WTI crude prices, but how long this will last is anyone's guess. 

The U.S. Dollar index declined 0.50% for the week, to close on Friday at 95.682, in response to weak U.S. economic data. Separately, the EU directorate-general Eurostat confirmed on Friday that the GDP in the eurozone expanded 1.6% in the second-quarter of 2016, over the same quarter last year. For reference, the U.S. Bureau of Economic Analysis said last Friday that the U.S. second-quarter GDP (advance estimate) was only 1.2%, meaning “tepid” growth.

The yield of the 10-year U.S. Treasury Note tumbled 5.03% for the week to close at 1.51% on Friday. Recession fears are on the rise again, as the yield spread between the 10-year and 2-year U.S. Treasury Notes took an 8.05% nosedive for the week to close at 0.80 percentage points on Friday.

The WTI crude oil spot price skyrocketed 6.44% for the week, to close on Friday at $44.49 per barrel, while the Brent crude price jumped 6.19% for the week to close at $47.17 per barrel, following bullish comments from Paris-based International Energy Agency (IEA) and Saudi Energy Minister Khalid al-Falih on Thursday, which triggered fund buying and some algorithmic trades. Earlier in the week, crude oil prices were bearish and ready to fall as the weekly report from the Energy Information Administration (EIA) had a larger-than-expected increase in U.S. crude oil inventory. 

The EIA weekly U.S. oil inventory report on Wednesday showed another increase of 1.1 million barrels to 523.6 million barrels, excluding strategic inventories, in the week ending August 5, compared to S&P Global Platts analysts’ expectations for a drawdown of 1.75 million barrels. The American Petroleum Institute (API) inventory data on Tuesday reported a U.S. crude inventory increase of 2.1 million barrels for the week. 

There was another large decline last week in U.S. gasoline supplies of 2.8 million barrels, while distillate stockpiles, including jet fuel, diesel fuel and heating oil, decreased by 2.0 million barrels, according to the EIA. Analysts were expecting a drawdown of 1.6 million barrels of gasoline stocks and an increase of 400,000 barrels for distillates.

Separately, the EIA said weekly U.S. crude oil production dropped another 15,000 barrels per day (bpd) for the week ending August 5, 2016, to 8.445 million bpd. Weekly U.S. crude oil output has fallen about 12.12% from the peak level of 9.61 million bpd during the week ending June 6, 2015. Houston-based oilfield services company Baker Hughes Inc. said on Friday that the U.S. oil rig count was up another 15 from the previous week, to 396, compared to 316, when the rig count hit the low on June 6, 2016. 

The IEA said on Thursday that their balances show essentially no oversupply during the second half of the year because producers outside the Organization of the Petroleum Exporting Countries (OPEC) cut back their production and global demand for crude oil remains healthy, according to the Wall Street Journal. From the IEA website however, the IEA said in their August 11, 2016 World Oil Demand report that global oil demand growth is expected to slow from 1.4 million barrels a day in 2016 to 1.2 million barrels a day in 2017, as underlying support from low oil prices wanes. 

In the past several weeks, hedge funds and other big speculators have been dumping crude oil amid worries about oversupply and rising stockpiles of gasoline despite the peak summer driving season in the United States, according to the weekly Commitments of Traders (COT) reports from the U.S. Commodity Futures Trading Commission (CFTC).

Separately, Saudi Energy Minister Khalid al-Falih said on Thursday that OPEC members and non-members would discuss the market situation, including any action that may be required to stabilize prices, during an informal meeting on September 26-28 in Algeria. Everyone should be skeptical though, as Saudi Arabia and Iran are now pumping crude oil at near record levels, while U.S. producers have brought 80 idle oil rigs back online since the rig count hit the low at 316 on June 6, 2016. 

The best performing S&P 500 sectors for the week were Energy and Consumer staples, up 1.24% and 0.7%, respectively. The worst performing sectors for the week were Materials and Healthcare, down 0.88% and 0.63%, respectively. 

S&P 500 Summary: +6.85% YTD as of 08/12/16
Barclay Hedge Fund Index: +2.56% YTD 

Outperforming Sectors: Telecommunication services +19.86% YTD, Utilities +17.03% YTD, Energy +13.32% YTD, Materials +10.68% YTD, Industrials +9.38% YTD, Consumer staples +8.67% YTD, and Information technology +8.40% YTD

Underperforming Sectors: Consumer discretionary +4.81% YTD, Healthcare +3.70% YTD, and Financials –0.11% YTD.


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