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Perspectives from Above the Noise -- Week of September 26th, 2016

| September 26, 2016
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economy; Perspectives

U.S. stocks finished moderately lower on Friday, as investors were put off by a sharp decline in oil; yet following three days of gains, the S&P 500 posted its strongest weekly gain in two months. Oil prices fell nearly 4% on Friday after Saudi Arabia failed to reach an agreement with Iran to cut crude oil production. A number of key technology stocks posted big gains last week, along with relatively safe, strong dividend-paying stocks that investors generally favor when uncertain about the economy. Real Estate, in its first full week of trading as the S&P 500’s newest major sector group, surged 4.3%, its best performance since July.

For the week, the S&P 500 gained +1.20%, the Dow Industrials added nearly +138 points (+0.76%), and the MSCI EAFE (developed international) advanced +3.15%.

What We’re Reading

Emerging Markets Surged on Dovish Fed -- CNBC

China’s Surging Housing Prices -- Bloomberg

Sheila Bair Warns on Student Loan Debt -- Bloomberg

Chart of the Week: U.S. Housing Costs Are Rising

It is no surprise that shelter costs represent a large portion of the typical household budget. Accordingly, rent, paid either to a landlord or to oneself as an owner-occupant, has a large weighting in the Consumer Price Index (CPI) and the Personal Consumption Expenditures (PCE) deflator, the two major measures of U.S. consumer prices.

According to CoreLogic, which maintains the broadest index of home prices in the country, the rate of home price appreciation has picked up noticeably in recent months. As is shown in the chart above, the twelve-month rise in home prices (black line) rose to 6% in July, up from 5.2% the month before.

Home price inflation soared to 11.6% from February through July, up from just 1.6% in the previous five months. The Bureau of Labor Statistics’ Rent Index also continues to climb steadily, reaching 3.8% in August, the fastest rise since September 2008. Rentals constitute a little more than 7% of the entire CPI basket. The CPI component of Owners’ Equivalent Rent (OER) has reached 3.3%, the fastest rise since May 2007. This estimate is based on consumers who rent their primary residence and it comprises about 25% of the CPI. The OER inflation has consistently been slower than that of actual rentals.

Some materials are chosen by the Cetera Investment Management team and summarized by Jason Vitucci who is not affiliated or registered with Cetera. Cetera Investment Management provides investment management and advisory services to a number of programs sponsored by First Allied Securities and First Allied Advisory Services. Cetera Investment Management individuals who provide investment management services are not associated persons with any broker-dealer. International investing involves additional risk, including currency fluctuations, political or economic conditions affecting the foreign country, and differences in accounting standards and foreign regulations. These risks are magnified in emerging markets. Investing in companies involved in one specified sector may be more risky and volatile than an investment with greater diversification.

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