INVESTMENT  MANAGEMENT  CORPORATION

VALUE
SAFETY
MOMENTUM

Probability of
Federal Reserve
increasing interest rates by 07/31-08/01 FOMC meeting

by 1/4%:  0%
by 1/2%:  0%

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CURRENT MARKET OUTLOOK

-07/16/18 update--next update Monday 07/23/18-

    Despite some selling pressure after more tariff actions, strong Q2 earnings expectations enabled a second positive week for stock prices.  Select U.S. index weekly point changes were:  +562.93 Dow, +41.49 S&P500, and +137.59 for the Nasdaq.  The 10yr. treasury note rose +0.02 to 2.83%.

Last week:

    Stock prices moved higher.  Early second quarter corporate earnings reports supported the end of quarter forecast for the average earnings increase to be near +20.0%.  There was mid-week adverse reaction to the news that an additional 200 billion in new tariffs against China is being proposed.

    Higher Producer Prices (up +0.3% in June) raised some concern for future consumer inflation, but the tame +0.1% June increase in Consumer Prices (reported last) Thursday will give the Federal Reserve more reason to hold to their current interest rate forecast.  Their objective is to hold annual inflation near +2.0%.        

This week:

    The markets will respond to news surrounding President Trump's summit in Helsinki with Russia's President Vladimir Putin.

    Monday morning's Retail Sales report for June met expectations for a good +0.5% increase.  This will have a positive affect on reported second quarter Gross Domestic Product (GDP).

    As more Q2 earnings reports are released, future business guidance will be closely monitored.  There are high expectations for very strong Q2 earnings to average around a +20% level.  So far, with just 5% of the S&P500 reports now out, 89% have reported positive earnings results averaging 19.9%.                

    A number of important economic data reports will influence this week's markets: [those with the most market moving potential are highlighted]  Monday- Retail Sales, Empire State Manufacturing Index, Business Inventories; Tuesday- Industrial Production, Housing Market Index; Wednesday- Housing Starts, Beige Book, Petroleum Reserves; Thursday- Phila. Fed Business Outlook Survey, Leading Indicators, Jobless Claims; Friday- (none)

    Our technical system's score for the market's valuation fundamentals remained at +7 (range 0 to +10), which is in the "positive" range for the future.  Please note that this technical score does not incorporate any of our measures for positive/negative market psychology, which can be highly volatile.  Last week, it rose into the "positive" range for the near-term.  (As always, the near-term direction of the market will be affected by the outlook for Federal Reserve action, the favorableness of economic data releases, earnings releases, analysts' forecast updates, and finally international events and governmental action.)

The "Portfolio Detail and Activity" section of our website is updated on the day after any trading activity.

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Select Economic Data Releases:

 Gross Domestic Product

     The final estimate for 2018 Q1 GDP weakened to +2.0% due to increased inflation measurements.  The 2nd estimate for Q1 GDP matched consensus for a small decline to +2.2%.  The first +2.3% estimate of Q1 2018 GDP eased from the final quarter of 2017.  --The final 2017 Q4 GDP report beat consensus improving to +2.9%.  The second estimate for Q4 GDP matched consensus calling for it to be revised to +2.5%.  The 1st estimate for Q4 GDP showed solid growth at +2.6%.  The third estimate for Q3 GDP eased slightly to +3.2%, which is still strong.  The second estimate for Q3 GDP improved to +3.3%.  The first estimate of Q3 GDP rose +3.0% with strong spending.  The final estimate for Q2 GDP estimate improved to 3.1% confirming a strong quarter driven by improving 3.3% increase in consumer spending.  The second estimate for Q2 GDP improved to +3.0%.  The first estimate of Q2 GDP showed improvement to +2.6%.  The third 2017 estimate of Q1 GDP was raised to +1.4%.  The second estimate for Q1 release improved to +1.2%.  The first estimate for Q1 growth was much weaker than the consensus forecast at +0.7%--

Employment Data

     June employment added a healthy213K to payrolls reflecting continuing economic strength.  The Unemployment Rate increased to 4.0% due to more people thinking it is a good time to look for work.  --May's employment statistics came in well above consensus showing +223K new job hires with the Unemployment Rate falling to 3.8%.  April employment hires of 164K was well below analysts' 190K consensus forecast.  Consensus calls for +187K new hires.  March employment hires reported were a modest 103,000, which was well under the consensus forecast.  February's employment report showing a very strong 313K hires with tame wages greatly exceeded analysts' consensus expectations.  The unemployment rate remained 4.1%.  January's employment data showed a strong gain above consensus at 220,000.  Consensus had called for 170,000 new hires.  Year-over-year earnings growth measured +2.9%.  December's employment report came in below consensus at 148,000 new hires, but still remains at a healthy level.  November employment data showed good growth well above consensus with 228,000 new hires.  October employment growth of 261K rebounded from September with the Unemployment Rate falling to 4.1%.  September employment reflected the effects of hurricanes Harvey and Irma pushing employment down -33K, which was well below expectations for a weak report.  The Unemployment Rate fell to 4.2%.  August employment data came in below consensus, but at 156,000 is still good and showed a surge in manufacturing hires.  July employment came in above consensus at +209,000, with the Unemployment Rate ticking down to 4.3%.--

Retail Data

     Today's June Retail Sales report matched the consensus call for a strong +0.5% gain that will have a positive affect on Q2 GDP.  --May's Retail Sales showed a strong increase that reflected broad gains in current consumer spending.  April Retail Sales report showed moderate +0.3% growth matching the consensus forecast.  March Retail Sales rose +0.6% and was the first decent monthly gain for the Q1.  Retail Sales for February declined -0.1%, which was again weaker than consensus.  Retail Sales for January fell -0.3%, which was well below consensus expectations for post-holiday consumer spending.  Retail Sales for December rose +0.3% finishing a good holiday shopping season for 2017.  November Retail Sales up +0.8% were strong to start off the holiday shopping season.  October Retail Sales data that showed a small +0.2% increase was near consensus.  September Retail Sales will be reported.  August Retail Sales down -0.2% were negatively impacted by the hurricane weather.  Past months were also revised lower.  July Retail Sales gain at +0.6% exceeded expectations.--

Housing Data

     This week on Wednesday, June Housing Starts will be released.  May New Home Sales continued an uptrend to 689K, but May Existing Home Sales were weaker than expected falling -0.4% to 5.43M.  May Housing Starts of 1.35M were strong hitting the high-end of consensus.  May Existing Home Sales were flat at a below consensus 5.43M. --April New Home Sales of 662K supported the continuing upward annual rate, but Existing Home Sales at 5.46M were disappointing and well below consensus. April Housing Starts of 894K single family homes and +0.9% rise in new permits shows housing activity remaining solid.  5.6M Existing Home Sales for March and 694K New Home Sales beat consensus.  March Housing Starts showed a good 1.319M gain at the high end of consensus.  --February Existing Home Sales at 5.540M were up +3.0% beating consensus.  New Home Sales at 618K were near consensus and showed prices gain traction.  February Housing Starts at 1.236M was below the consensus forecast.  January new home sales came in below consensus at 593K, but the level of New Permits and Starts indicate the overall near-term positive trend will resume.  January Existing Home Sales fell -180K to 5.380M, which was below consensus due to increasing supply and lower prices.  January Housing Starts at 1.326M remained seasonally strong.  December Existing Home Sales were 5.57M and New Home Sales at 625K continue at a solid pace.  December Housing Starts for December were below consensus at 1.192M, but New Permits remained very strong at 1.302M.  November housing data showed Housing Starts at 1.297M, Existing Home Sales at 5.810M, and New Home Sales at 773K, which were all strong and well over consensus.  October's strong New Home Sales at 684K was well above consensus.  October Existing Home Sales report also came in above consensus at 5.39M.  October Housing Starts showed a strong above consensus increase to 1.29M.  September New Home Sales at 667K beat consensus rising to the highest level since 2007.  September Housing Starts at 2.127M was below consensus, but New Permits at 1.215M showed a good increase for single family homes.  September Existing Home Sales at 5.39M beat consensus.  September New Home Sales will be released this Wednesday.  August New Home Sales at 560K came in a little below consensus.  August Housing Starts at 1.18M and Building Permits at 1.3M were solidly above consensus and August Existing Home Sales at 5.35M were lower due to weakness caused in hurricane affected markets.  July New Home Sales at 571K and Existing Home Sales at 5.44M came in below consensus forecasts.  July Housing Starts at 1155K and Building Permits at 1223K were below expectations.  During June, 610K New Home and 5.52M Existing Home Sales were reported.  Both were near consensus.  Earlier reports for June Housing Starts of 1215K and Building Permits of 1254K beat consensus.--  

Leading Indicators

    This week on Thursday, June Leading Indicators will be released.  May Leading Indicators report up +0.2% showed growth was not accelerating, but still at a good level.  --April Leading Indicators report up +0.4% came in at the high end of expectations.  March Leading Indicators advanced a respectable +0.3%.  February Leading Indicators despite the recent stock market weakness rose +0.6% indicating good economic growth ahead for 2018.  January Leading Indicators rose +1.0% indicating that good economic growth will continue.  December Leading Indicators rose +0.6% signaling further economic growth ahead.  The November Leading Indicators release shows a reasonably healthy +0.4% rise.  October Leading Indicators, up +1.2% showed a strong above consensus increase.  September Leading Indicators report showing a -0.2% decline was impacted by recent hurricane related job losses.  August Leading Indicators rose a solid +0.4%.  July Leading Indicators were in-line with expectations at +0.3%.  June Leading Indicators measure came in slightly above consensus at +0.6%.  May Leading Indicators up +0.3% matched the consensus forecast.  The April Leading Indicators report showed a +0.3% rise, which was close to the consensus forecast.--       

Inflation

    Last week, the +0.3% rise in both "headline" and "core"June Producer Prices was at the high end of consensus raising questions whether some inflation pressure will pass through to future consumer costs.  June Consumer Prices were tame, matching the consensus call for a +0.1% rise.  "Core" prices were up +0.2%.  --May inflation reports showed a moderate +0.2% increase in Consumer Prices, but also an above consensus +0.5% increase in Producer Prices that reflected large increases for steel and aluminum.  April Producer Prices up +0.1% showed little sign of inflation pressure and April Consumer Prices up +0.2% were also below consensus showing price increases remaining contained.  March Producer Price +0.3% "headline" and "core" inflation was higher than consensus, but the acceleration was modest.  March Consumer Prices fell -0.1% due mostly to lower gasoline prices, but the +0.2% "core" gain matched expectations.  February inflation for Consumer Prices were reported to have risen +0.2%, with core prices up a tame +1.8%.  Producer Prices also rose +0.2% at the overall and core levels.  January Consumer Prices showed a 0.5% increase with core price up +2.3%.  Year-over-year it rose 2.2%.  Producer Prices headline number rose +0.4%, with core prices also up +0.4%.  December inflation data showed December Producer Prices both headline and core declining -0.1% for a net year-over-year +2.6% change.  December Consumer Prices headline number rose +0.1% with core prices up +0.3%.  The year-over-year change was +2.1%.  November inflation data showed higher Producer Prices inflation up +0.4% with core prices rising +0.3%.  November Consumer Prices up +0.4% was offset by core prices showing a slight +0.1% gain.  October inflation data releases showed Producer Prices rising +0.4% at both the total and "core" levels and Consumer Prices rising +0.1% +0.2% for "core" prices.  This brings the Producer prices annual rate of increase up to the 2% level targeted by the Federal Reserve.  The annual rate of increase for Consumer Prices is now +1.8%.  September inflation data showed Producer Prices rising +0.4 and Consumer Prices rising +0.5 reflecting a spike caused by food and energy price rises due to the hurricanes.  September core prices still show little inflation rising +0.2 at the producer level and +0.1 at the consumer level.  August inflation data releases showed Producer Prices up +0.2% (core +0.1%) and Consumer Prices up +0.4% (core +0.2%).  July Producer Prices were reported to have fallen -0.1%, which was below consensus and July Consumer prices rose +0.1% matching consensus.--


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