S&P 500 Notches Up All-time High; Fed Remains Dovish Despite Strong Economic Data
Proprietary trading of in the U.S. continued to rally last week, with the S&P 500 index notching up a new all-time high. Most of the data last week was strong, as housing starts, existing home sales, jobless claims and the Philly Fed survey all came in better than expected. The Euro broke down as the dollar gained traction and oil prices tumbled to test the 2014 lows. The main catalyst for the week was the central bank symposium at Jackson Hole where both Fed Chair Janet Yellen and ECB President Mario Draghi gave speeches.
Janet Yellen's speech did not really say anything new. The central bank will continue to monitor the economy, but many members still there is a large gap in labor slack with wages remain at historically low levels. Draghi on the other hand all but told investors that a full blown QE might soon be under way. President Draghi acknowledged the weakened growth outlook as September ECB projections are likely to look weaker again. For now the data remains consistent with the ECB's target of modest growth, but downside risks have clearly increased considerably. Much will depend on the length of the tensions with Russia and whether more sanctions are too follow.
Economic data in the U.S. improved during the week. U.S. housing starts grew 15.7% to 1,093k from 945k in June. Permits for July were 1,052k from 973k in June. Completions rose to 841k in July from 811k in June. Starts under construction were 786k from 764k last month. U.S. existing home sales beat estimates with a 2.4% July rise to a 5.15 million rate from a 5.03 million clip in June to leave a gradual four-month climb from a 4.590 million two-year low in March.
The Philly Fed August surge to a 28.0 three-year high extending the upward trend seen in July which increased to 23.9 from 17.8 in June, versus a -6.3 fifteen-month low in February.
The 14k U.S. initial claims drop to 298k in the August survey week trimmed the prior 22k bounce to 312k from 290k at the start of the month. Claims are averaging 303k thus far in August, which is above the tight 296k July figure but well below prior averages of 315k in June and 312k in May.
Volatility tumbled back to the lower end of the annual range settling near the 12% level for the VIX volatility index. The Euro broke down this week, which should help Europe gain traction. A weaker Euro would help the Eurozone increase exports, but it will likely take a full-blown QE program to accomplish this feet.