The US equity markets were on the back foot this week as the World Bank lowered its expectations of global economic growth by 40 basis points (bps) to 2.8% for the year, due to weaker outlooks from the US, China, Russia, India, and Brazil. News of violence in Northern Iraq also dented the rally and prevented the two market indices from recording a weekly gain for the fourth-consecutive week.
On Tuesday, the Dow Jones Industrial Average (DJIA) posted its 10th new high for the year and was close to the 17,000 mark for the first time ever, before the blue-chip index retreated after the World Bank lowered its global economic outlook. The Washington-based financial organization cut estimates for economic growth in the US by 70 bps to 2.1% for the current year. Then the escalation of violence in Northern Iraq caused the index to register a further decline. For the trading week ended June 13, the Dow Jones Industrial Average witnessed a decline of 148.54 points, or 0.9%, to close at 16,775.74 on Friday.
The S&P 500 index has, on the other hand, set all-time highs 19 times this year. Recently however, the market has not been subject to a lot of volatility: since April 16, the S&P 500 has not recorded a gain or loss greater than 1%. The index lost 13.28 points, or 0.7%, during the week to close at 1,936.16 yesterday.
Intel Corporation (INTC) recorded a 6.8%, or $1.91, increase – the highest gain that the Santa Clara, California-based company’s stock price has seen in the last three years –, largely attributable to the management’s decision to revise guidance upward on greater business PC demand. For the second quarter, Intel expects revenues to increase $700 million and its gross margin to expand 1%.
Priceline Group Inc.’s (PCLN) announcement that it will acquire OpenTable Inc (OPEN) for $2.6 billion in cash to augment its online travel business with restaurant bookings caused the latter’s stock price to increase $34.05, or 48.3%, during trading yesterday. OpenTable also touched its 52-week high of $104.77 yesterday. Shares of Priceline, however, declined 3%, or by $36.70, to close at $1,189.30 on Friday after news of the acquisition.
Crude Oil and Gold Spike
Reports that Islamist militants have overrun parts of Northern Iraq caused crude oil prices to rally this week due to concerns over interruption of crude oil supply from the second-largest supplier among the Organization of the Petroleum Exporting Countries (OPEC). During the week, the price of West Texas Intermediate’s (WTI) front-month contract on the New York Mercantile Exchange (NYMEX) increased 4.4%, or $4.47, to $106.91.
On the other hand, the July contract for Brent crude oil – which is considered the benchmark for global crude oil prices – saw a weekly increase of $5.3, or 5%, to $113.41. The price of Gold futures also increased 1.65%, or $20.3, during the week to $1,273.70 an ounce as investors opted for this safe-haven asset during times of uncertainty.
Housing Market Index to Release on Monday
The National Association of Homebuilders (NAHB) will release its monthly data regarding the Housing Market Index (HMI) for June on Monday. The HMI – which is considered a measure of confidence among homebuilders – has registered readings below 50 for four consecutive months.
During May, the HMI stood at 45 points, against analysts’ expectations of 49 points. For the current month, analysts expect the HMI to improve by two points to come in at 47 points. If the HMI continues to miss the Street’s projections, investors’ confidence in a housing recovery could be dented further.
This could also negatively impact homebuilders exchange traded funds (ETFs), like the iShares Dow Jones US Home Construction ETF (ITB) and the S&P 500 Homebuilders ETF (XHB), which have seen their prices decline by 3.2% and 4.1%, respectively, since the start of the year. Major homebuilders stocks, such as PulteGroup, Inc. (PHM) and D.R. Horton, Inc. (DHI), could also come under the limelight after housing index data is released on Monday.
Read our detailed analysis of the homebuilding industry here.