Stocks End Mixed as Tech Falls on Earnings – Weekly Update for April 25, 2016

Image courtesy of FreeDigitalPhotos.net/jscreationzs

Image courtesy of FreeDigitalPhotos.net/jscreationzs

Stocks ended last week mixed on earnings that were largely better than expected, though the tech sector disappointed. For the week, the S&P 500 gained 0.52%, the Dow grew 0.59%, and the NASDAQ lost 0.65%.

First-quarter earnings reports drove a lot of market activity last week. Though analysts expect overall S&P 500 earnings to be negative for the fifth quarter in a row, the news so far is more about earnings surprises and fewer negative revisions to estimates. Given how low the bar was set by many corporate teams, it’s not so unexpected to see positive surprises. With reports in from 132 S&P 500 members, overall earnings are down 7.9% on 1.1% lower revenues, though nearly three-quarters beat their earnings estimates. Capture1

However, the tech sector is another story. Tech stocks sold off after disappointing results from major players. Overall, much of the tech sector is painting a picture that is the inverse of the rest of the market — many companies are failing to rise to the expectations built over previous quarters of strong growth, disappointing investors.

Will investors hold on to their optimism in the days ahead? We’ll see.

The week ahead is packed with important economic data, including the first estimate of first-quarter economic growth and a measure of consumer sentiment. The Federal Reserve Open Market Committee also meets next week to discuss interest rates; though no one expects the Fed to raise rates this month, analysts are hoping for more clarity on the timing of future hikes.

Last week, a Reuters poll of economists found that about two-thirds expect a June rate increase while another 20% are betting on September. In March, the Fed acknowledged its concerns about global risks, stating that it expects two more rate hikes this year, only half as many as were planned in December.

Earnings season also heats up next week with releases by 183 S&P 500 companies. By the end of the week, we’ll have seen quarterly results from about 60% of the index and will have a much more complete picture of business activity last quarter. With all the reports coming out, we can expect some volatility in the days ahead as investors digest the latest data.

ECONOMIC CALENDAR:

Monday: New Home Sales, Dallas Fed Mfg. Survey

Tuesday: Durable Goods Orders, S&P Case-Shiller HPI, Consumer Confidence

Wednesday: International Trade in Goods, Pending Home Sales Index, EIA Petroleum Status Report, FOMC Meeting Announcement

Thursday: GDP, Jobless Claims

Friday: Personal Income and Outlays, Employment Cost Index, Chicago PMI, Consumer Sentiment

 

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HEADLINES:

Housing starts drop. Groundbreaking on new houses dropped 8.8% in March, and permits for new home construction fell, indicating that home builders are expecting the sector to cool off.

Existing home sales bounce 5.1% higher. Resales of existing homes rose more than expected in March, suggesting that the housing market had legs last quarter. Though monthly sales are volatile, growth was solid across all four U.S. regions.

Jobless claims drop to multi-decade low. The number of weekly applications for new unemployment benefits dropped to the lowest level since 1973 in the latest sign that the labor market is steaming ahead despite slow economic growth.

Oil prices post third week of gains. Benchmark crude oil prices rose again last week on expectations that the global oil supply glut is easing and demand will rise in the peak driving season.

Dow Ends Best Week in a Month – Weekly Update for April 18, 2016

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Image courtesy of FreeDigitalPhotos.net/hywards

Stocks rallied again last week on better-than-expected earnings and some reassuring news about China’s economy, giving the Dow its best weekly performance since mid-March. For the week, the S&P 500 gained 1.62%, the Dow added 1.82%, and the NASDAQ grew 1.80%.

Earnings reports are trickling in and the news so far is not as bad as expected. Since advance estimates had prepared investors for very weak earnings reports, the weak reports we’re seeing so far are being treated as victories. Out of 35 S&P 500 firms reporting in so far, total earnings are down 9.0% from Q1 2015 on 0.1% higher revenues with 71.4% beating their earnings estimates. As earnings season continues to unfold in the weeks ahead, we may see more of the same, which could give markets room to rally. On the other hand, investors could take the weak earnings picture as a sign that the economy is struggling to produce sustainable growth.

After months of gloom on China’s economy, a new report shows that China’s economy grew 6.7% in the first quarter. Though this is down from the fourth quarter’s 6.8% rate of growth, it’s not as bad as investors had feared. U.S. investors treated the news as a win, though China experts are skeptical about the reliability of these statistics. Since China’s ruling body has staked its political legitimacy on economic stability, officials have a lot of pressure to produce reassuring data. Overall, it’s not likely that China’s economic woes are over.

The European Union gave us some headlines at the end of the week as Britain officially launched a campaign ahead of a referendum on leaving the EU on June 23rd. Current polls on a “Brexit” are evenly split with a significant number of people undecided on the issue. However, if Britain were to exit the EU, it would likely have a serious knock-on effect on markets, trade agreements, and currencies.

In other international news, several major oil-producing nations met over the weekend to discuss coordinating oil output to stabilize prices. If they come to an agreement, oil prices might bounce higher and offer some relief to the beleaguered energy sector; however, closing a deal between a large group of producers with widely varying national interests will be tough.

The week ahead is packed with earnings reports from 101 S&P 500 companies, including heavy hitters like Caterpillar [CAT], General Electric [GE], General Motors [GM], and Yum Brands [YUM]. Investors will also get a look at housing market data and see how well the sector is doing during the spring real estate season.

ECONOMIC CALENDAR:

Monday: Housing Market Index

Tuesday: Housing Starts

Wednesday: Existing Home Sales, EIA Petroleum Status Report

Thursday: Jobless Claims, Philadelphia Fed Business Outlook Survey

Friday: PMI Manufacturing Index Flash

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HEADLINES:

Retail sales fall unexpectedly. U.S. retail sales dropped last month as Americans cut back on purchases of cars, trucks, and other big-ticket items. The stumble suggests economic growth likely slowed last quarter.

Weekly jobless claims fall. Weekly claims for new unemployment benefits fell by 13,000 to levels last seen in 1973. Claims for the prior week were also revised lower.

Consumer sentiment drops. A measure of consumer confidence fell for the fourth straight month last week, showing that volatility and recession talk are weighing on optimism.

Federal Reserve survey shows economy still expanding. The Beige Book survey indicated that energy weakness and a slow manufacturing sector didn’t hold the economy back too much between late February and early April.

Stocks Post Worst Week Since February – Weekly Update for April 11, 2016

Image courtesy of FreeDigitalPhotos.net/Stuart Miles

Image courtesy of FreeDigitalPhotos.net/Stuart Miles

Stocks tumbled last week on downward revisions to U.S. economic growth and worries about global growth. For the week, the S&P 500 fell 1.21%, the Dow lost 1.21%, and the NASDAQ gave up 1.30%.

After a rosier-than-expected fourth quarter, economic forecasts suggest that the economy barely grew in the first three months of 2016. A report showing that wholesale inventories declined in February caused estimates of Q1 real economic growth to plummet from 0.7% to just 0.1%. In mid-March, the estimate was as high as 2.3%, but forecasts are dropping fast.

A couple of things to keep in mind: 1) these are very early estimates that are missing a lot of data; 2) early forecasts are very sensitive to updates to the data. Other economists think that the seasonal bias against first-quarter results could be pushing down estimates and that underlying economic growth could be closer to 2.0%. We’ll know more when the first estimate of Q1 Gross Domestic Product (GDP) growth comes out on April 25.

Last week, attention turned to the upcoming Fed meeting at the end of April. Minutes from the March meeting show that opinions among voting members of the Open Market Committee are running against an April rate hike. Other economists seem to agree; currently, just 1.0% think the Fed will raise rates in April. 75.0% think a June hike is likely.

In a public session with three other former Federal Reserve chairs last week, current Chair Janet Yellen reiterated her upbeat stance on the economy and stated that the Fed is on a “reasonable path” to future rate hikes. Her predecessor, former chair Ben Bernanke, supported her position by saying he doesn’t believe that recession risk is much higher in 2016 than in other years, which could pave the way for more hikes later this year. Given that the Fed has little room to lower rates again if economic growth slows, and plenty of room to raise rates if growth surprises, Yellen seems determined to be cautious.

The next few weeks are packed with earnings results, which will likely mean more market volatility. We know that the growth picture is weak and that the earnings outlook is negative. However, we also know that managers like to sandbag expectations so that they can post better-than-expected results. Will we see positive surprises next week? We’ll let you know.

ECONOMIC CALENDAR:

Tuesday: Import and Export Prices, Treasury Budget

Wednesday: Retail Sales, PPI-FD, Business Inventories, EIA Petroleum Status Report, Beige Book

Thursday: Consumer Price Index, Jobless Claims

Friday: Empire State Mfg. Survey, Industrial Production, Consumer Sentiment, Treasury International Capital

 

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HEADLINES:

Factory orders fall in February. Orders for manufactured goods fell in February for the third time in four months, showing that the manufacturing sector is still struggling.

Trade deficit widens more than expected. The difference between imports and exports increased in February as an increase in exports was offset by growth in imports. However, a weakened dollar could mean that the increase in exports is sustainable.

Jobless claims fall more than expected. Weekly claims for new unemployment benefits dropped by 9,000, indicating that the labor market continues to gain strength despite modest economic growth.

Tesla receives over 325,000 deposits for $35,000 electric car. The Tesla Model 3 launch blew away expectations as fans placed $1,000 deposits for the automaker’s mass-market electric car. The success leads analysts to wonder: Can Tesla successfully make the transition from niche manufacturer to major automaker?

Special Quarterly Update: Roller Coaster Q1 Ends Mixed – Weekly Update for April 4, 2016

Image courtesy of FreeDigitalPhotos.net/Sira Anamwong

Image courtesy of FreeDigitalPhotos.net/Sira Anamwong

After a rocky start to the year, most stocks ended the first quarter slightly higher, which is remarkable considering the negative sentiment that caused stocks to selloff in the early weeks of 2016. For the quarter, the S&P 500 gained 0.77%, the Dow grew 1.49%, and the NASDAQ fell 2.75%.

Markets faced serious headwinds last quarter due to slowing economic growth around the world. Combined with rising interest rates, a strong dollar, and falling commodities prices, we faced a perfect storm of factors that ticked off a stock market correction. However, after falling by as much as 10.5% earlier in the quarter, the S&P 500 gained 6.7% in March. That’s the best performance since October 2015. Given the roller coaster ride we’ve had this year, the recent gains are a testament to the resilience of investors.

Let’s talk about what happened last quarter.

What affected markets in Q1 2016?

Slowing global economic growth. Concerns about overseas growth were responsible for a lot of market activity. China’s ongoing economic woes caused major turmoil in markets around the world as investors digested the news that the world’s second-largest economy is slowing. Though China is grappling with a transition away from a manufacturing-centered economy, experts fear that the move won’t come without pain. Europe also faced its share of concerns. China’s slowing demand for foreign goods will hit European firms harder as many worry about terrorism and the migration crisis currently facing the borderless Schengen region.

Volatile oil prices. Oil producers faced falling demand and stubbornly high oil supplies, which caused oil prices to plunge. At the end of the quarter, prices appear to have stabilized somewhat as oil-rich nations like Kuwait and Saudi Arabia seek to stabilize prices through cooperation between producers.

The volatility and prolonged lows will likely be felt in energy sector earnings for the first quarter; however, low prices were a boon to consumers. Though gasoline prices will likely rise as refineries switch to summer blends ahead of the peak summer driving season, the average cost per gallon hit a 12-year low in the first quarter. The national average for the quarter was $1.86 per gallon—saving Americans nearly $10 billion, or about $45 per licensed driver. Did Americans plow those gas savings back into the economy through spending? We’ll see when spending data for the quarter is released.

Recession worries. At the beginning of the year, investors became increasingly concerned that global issues could come home to roost in the form of a recession. Though fears of a slowdown are serious, some domestic economic data suggests that a recession may not be nigh. The labor market added 628,000 jobs in the first three months of the year. Other employment factors also improved; the labor force participation rate increased and the number of discouraged workers decreased. Wages also increased 2.25% in March from a year earlier. Consumer spending, which is a significant contributor to U.S. economic growth, also increased, albeit sluggishly.

Central bank actions. Markets also responded to decisions by the Federal Reserve, European Central Bank, and Bank of Japan. While the Fed is working to bring interest rates closer to historic averages, the BOJ and ECB are struggling to stoke economic growth by lowering rates into negative territory and buying up assets. The big questions remain: When will the Fed raise rates again? Do central banks have enough bullets left to fight a global slowdown?

What’s in store for Q2 2016?

After the first quarter’s wild ride, we can hope for a smoother second quarter. Current estimates peg U.S. economic growth at 0.7% in the first three months of 2016. That’s a big comedown from the 1.4% growth in the fourth quarter, but it’s in line with the slow start the economy has experienced in several of the past few years. Is the economy still at risk of a slowdown? That’s very possible, and may depend on how much consumers open their wallets this year.

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Our view

What can we look forward to in the second quarter? Well, more uncertainty is certain. Though some fears have abated, most of the headwinds are still with us as we head into the second quarter. However, a lot of the potential pain facing the economy may already be priced into markets, and analysts are considerably more optimistic than they were during the rocky ride in January and February.

If first-quarter results show a rosier picture, then investors could react with a resumption of the rally. A lot depends on what the Federal Reserve has in store for interest rates; currently, the odds favor a June hike. Fed Chair Janet Yellen has struck a dovish tone in recent remarks, indicating that she plans to “proceed cautiously.” However, the rosy March jobs report could increase the odds of an April rate hike. We’ll know more in the coming weeks.

ECONOMIC CALENDAR:

Monday: Factory Orders

Tuesday: International Trade, JOLTS, ISM Non-Mfg. Index

Wednesday: EIA Petroleum Status Report, FOMC Minutes

Thursday: Jobless Claims, Janet Yellen Speaks 5:30 PM ET

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HEADLINES:

Economy adds 215,000 jobs in March. Though the unemployment rate increased to 5.0%, economists view it as a good sign that jobseekers are reentering the market.

Motor vehicle sales rise. U.S. car makers expect to have sold 1.66 million autos last month, roughly a 7.0% increase over a year ago. One estimate suggests that carmakers had the best monthly sales in a decade.

Consumer sentiment drops slightly. Though one gauge of consumer optimism fell in March, it came in better than economists had expected. The steady pattern suggests that consumers are still fairly optimistic about their finances this year.

Construction spending falls. Spending on new construction projects fell in February by the largest amount in three months following a January gain. However, residential construction rose solidly.

 

 

Q4 GDP Revised Upward by Strong Consumer Spending – Weekly Update for March 28, 2016

Image courtesy of FreeDigitalPhotos.net/Stuart Miles

Image courtesy of FreeDigitalPhotos.net/Stuart Miles

Stocks ended the holiday-shortened week down, snapping their five-week winning streak. However, losses were mild amid low trading volume before the Easter weekend. For the week, the S&P 500 lost 0.67%, the Dow fell 0.49%, and the NASDAQ dropped 0.46%.

Last week’s economic calendar was highlighted by the third estimate of fourth-quarter 2015 economic growth. The report showed that Gross Domestic Product grew much faster than originally thought—by a 1.4% annualized rate instead of 1.0%. For all of 2015, the economy grew by a respectable 2.4%— not too shabby considering the headwinds the country faced down last year.

The revision reflected much stronger consumer spending than originally thought, which is a relief to recession-watchers and could bode well for the economy in 2016. Spending is being supported by a strong labor market and low gas prices. However, the news isn’t all rosy. Business inventories were revised lower, showing that companies are reluctant to tie up cash in the face of uncertain demand. Since stockpiles are still high, it’s possible that weak business spending will eat into economic growth in the first quarter.

Can we trust GDP estimates? That interesting question was recently brought up by a CNBC report, which found that GDP growth estimates could be off by as much as 1.3%. When growth rates are already low, such a large margin of error (if it exists) could have serious business and policy implications.

A large part of the problem may be that many reports used by federal economists to calculate GDP arrive months— even a year—after the initial reports on economic growth go out, forcing them to use estimates. As these reports come in, economists revise the data, long after the relevant quarter matters to investors and policy makers. It’s often a question of trading accuracy for timeliness. That’s one of the reasons why we look at many different indicators and must understand the limitations of each one when we create models.

A vicious bombing attack on Tuesday killed at least 30 people in Brussels, putting the European Union capital on lockdown. Major cities around the world are bolstering security around transportation hubs in response. The attack brings attention to the ongoing threat of terrorism and highlights the problems Europe is having in sharing intelligence and tracking suspected terrorists. Our thoughts are with the victims and their families.

Looking at the week ahead, we can expect some volatility as investors react to last week’s GDP report, which was released during Friday’s market holiday. While investors may react positively to the better-than-expected growth, we may also see some market turmoil ahead of the end of the quarter. The question is: Did the first quarter of 2016 deliver on expectations?

ECONOMIC CALENDAR:

Monday: International Trade in Goods, Personal Income and Outlays, Pending Home Sales Index, Dallas Fed Mfg. Survey

Tuesday: S&P Case-Shiller HPI, Consumer Confidence, Janet Yellen Speaks 11:30 AM ET

Wednesday: ADP Employment Report, EIA Petroleum Status Report

Thursday: Jobless Claims, Chicago PMI

Friday: Motor Vehicle Sales, Employment Situation, PMI Manufacturing Index, ISM Mfg. Index, Consumer Sentiment, Construction Spending

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HEADLINES:

Durable goods orders fall. Orders for long-lasting factory goods like appliances and vehicles fell in February by 2.8%. The data shows that the manufacturing sector is still struggling with falling demand.

Weekly jobless claims rise modestly. The number of Americans filing new claims for unemployment benefits rose by 6,000, though revisions to prior week claims show that the labor market was stronger than expected.

Q4 corporate profits down 3.2%. A measure of after-tax corporate profits shows that the overall bottom line for U.S. companies declined 3.2% over the previous year, held down by results from petroleum and chemical industries.

New home sales rise in February. Sales of newly built homes rose last month; however, the increase was concentrated in a single region, suggesting the growth is not widespread as the busy Spring season takes off.

Dow and S&P 500 Green for 2016 – Weekly Update for March 21, 2016

Image courtesy of FreeDigitalPhotos.net/jscreationzs

Image courtesy of FreeDigitalPhotos.net/jscreationzs

After a historically rough start to the year, stocks finally rallied enough to put the S&P 500 and Dow in the green for the year. Extended weakness in the dollar—, which investors hope, could boost economic growth and corporate profits—contributed to the gains. For the week, the S&P 500 rose 1.35%, the Dow added 2.26%, and the NASDAQ grew 0.99%.

The last two weeks have been important in terms of global monetary policy. The European Central Bank, Bank of Japan, and Federal Reserve all met to determine next steps for their respective economic spheres of influence. Currently, there is a divide between the Fed, which is moving away from low rates while supporting economy growth, and the ECB and BOJ, which are fighting slowing economic growth with negative rates and quantitative easing. However, the latest Fed meeting suggests that the divide may not be as great as it was before.

The Fed voted last week to hold rates steady, not being ready to commit to further increases at the moment. However, the central bank’s official statement indicated that we can expect two interest rate hikes this year, instead of the four projected in December. The statement makes it clear that the Fed is adjusting its expectations to a slow-growth, slow-inflation world, which brings it more in line with the concerns of other central banks.

The Bank of Japan also voted to hold rates steady at the current negative 0.1% level last week; however, official notes from the January meeting showed that central bankers also debated expanding asset purchases to further stoke growth. The move into negative interest rates by the ECB and BOJ—essentially charging depositors for the privilege of holding cash—is worrying to some. Some economists fear competition between central banks to lower rates (potentially triggering a currency devaluation war) as well as the effect of negative rates on bank profits.

One big question on everyone’s mind is this: Does the Fed have enough bullets left to respond to an economic slowdown?

After seven years of ultra-low rates, the Fed can’t push rates much lower without going into negative territory. Though Fed chair Janet Yellen has stated that negative rates aren’t off the table in the event of a slowdown, it’s clear that the Fed isn’t keen on the idea.

Former chair of the Federal Reserve Ben Bernanke waded into the fray last week with a blog post supporting a “balanced monetary-fiscal response” to a potential downturn. In his ideal scenario, the best response to an economic slowdown would combine further quantitative easing and interest rate decreases with fiscal policies like increased government spending.

Bernanke’s support for accommodative fiscal policy isn’t new; in the past, he has rebuked Congress for not doing enough (in his opinion) to stoke economic growth. Leaving the politics of government spending firmly aside, here’s what we can take from Bernanke’s remarks: The Fed is taking threats of a slowdown seriously and may still have enough tools in the toolbox to fight a downturn if it comes.

Is a downturn likely? We can’t say. Predicting a recession is always difficult, and the probabilities of a recession this year are all over the place. A Wall Street Journal poll of economists has the current probability at 20%, down from 21% last month. The Federal Reserve Bank of Atlanta sees the risk as much lower—just 10%. Yet another prediction has the odds at just 4.06%. Basically, no one knows for sure.

In the week ahead, investors will be watching currency prices to see if the dollar continues its downward trajectory. If investors believe the dollar has peaked in value, it could give markets enough confidence to extend the rally further.

ECONOMIC CALENDAR:

Monday: Existing Home Sales

Tuesday: PMI Manufacturing Index Flash

Wednesday: New Home Sales, EIA Petroleum Status Report

Thursday: Durable Goods Orders, Jobless Claims

Friday: GDP

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HEADLINES:

Retail sales revised downward in January. Retail sales slumped in February as expected; however, a sharp downward revision in January sales— from a 0.2% increase to a 0.4% decrease— could be a sign of trouble.

Housing starts rebound in February. Groundbreaking on new home construction surged more than expected last month as U.S. homebuilders invested heavily in single-family homes. The rise is a strong sign of confidence in the economy.

Consumer sentiment dips in March. A measure of optimism about the economy among Americans fell slightly this month as consumers felt the effects of rising gasoline prices and worried more about the economy.

Job openings rise in January. Job openings rose to 5.5 million in January, up from 5.28 million in December, though the hiring rate dipped slightly. Increased openings are a positive sign for the economy and show that the labor market is in stable territory.

 

Bull Market Anniversary: What’s Changed in 7 Years? – Weekly Update for March 14, 2016

Image courtesy of FreeDigitalPhotos.net/ddpavumba

Image courtesy of FreeDigitalPhotos.net/ddpavumba

Stocks closed out their fourth week of gains as investors gained confidence from higher oil prices and aggressive moves by the European Central Bank. For the week, the S&P 500 rose 1.11%, the Dow grew 1.21%, and the NASDAQ added 0.67%.

Last week marked the seventh anniversary of the market bottom on March 9, 2009. To put the recent volatility into perspective, let’s take a look at what has changed over the last seven years:

The S&P 500 has grown 199%

From the depths of the bear market, the S&P 500 grew nearly 215% through it’s mid-May 2015 high, surpassing previous historic highs.[i] Since then, stocks have lost value, pummeled by global economic forces. However, it’s a testament to how resilient markets are that they have lost so little when faced with serious concerns about global growth.

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Economic growth has regained speed

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Source: BEA

The economy has also made major strides in the last seven years. Taking a look at this chart, we can see that in the first quarter of 2009, the economy contracted by 5.4%, putting it firmly in recession territory. In contrast, the latest data from Q4 2015 shows that the economy grew by 1.0%. Now, we’re not too excited about that level of growth, but we can see that the economy has grown substantially since 2009.

Millions of Americans have returned to work

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Source: BLS

Over the last seven years, the economy has gained over 11.5 million jobs – far more than the 8.7 million jobs lost in the recession. While much of the growth has been in relatively low-paying industries, the improvement has been broad-based, indicating that many sectors of the economy are hiring.

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Source: BLS

We can also see that the number of both unemployed and “discouraged” workers has been steadily declining since peaking in mid-2010. This is a broader measure of unemployment because it also captures those who are not looking for jobs because they believe no work is available. As the labor market improved, more Americans gained confidence in their prospects and returned to the labor market.

Americans are driving economic activity by spending

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Source: BEA

In tandem with the increase in available work, Americans opened their wallets and started spending again, increasing personal spending by 15.9% over the last seven years. Since consumer spending accounts for about 70% of economic activity, it represents a driving force for our economy. Though we don’t have February or March data yet, consumer spending still appears to be on a healthy trajectory.

 

Our view

With all of the talk of recession and bear markets, it can be easy to lose sight of just how far we’ve come during this rally. We don’t believe that it’s possible to accurately time the beginning or end of any market cycle. Since we can’t predict where markets will go later this year, we can take a look at underlying fundamentals and make prudent adjustments to investment strategies as needed. We’re keeping a close eye on markets and will continue to keep you informed.

The week ahead is packed with data. In addition, investors have two central bank meetings in what the media is calling “bank-a-palooza,” a series of meetings by the ECB, Federal Reserve, and Bank of Japan to decide monetary policy. While the Fed isn’t expected to raise interest rates again next week, officials could provide valuable insight into the timing of future rate hikes. If economic data supports further increases, investors could confront the possibility of multiple rate hikes this year.

ECONOMIC CALENDAR:

Tuesday: PPI-FD, Retail Sales, Empire State Mfg. Survey, Business Inventories, Housing Market Index, Treasury International Capital

Wednesday: Consumer Price Index, Housing Starts, Industrial Production, EIA Petroleum Status Report, FOMC Meeting Announcement, FOMC Forecasts, Fed Chair Press Conference

Thursday: Jobless Claims, Philadelphia Fed Business Outlook Survey, JOLTS

Friday: Consumer Sentiment

 

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HEADLINES:

China trade data shows slowdown. Exports from the world’s second-largest economy dropped 25.4% in February, far worse than estimates, stoking concerns about China’s growth in 2016.

Weekly jobless claims fall. The number of Americans filing new claims for unemployment benefits fell more than expected last week, reaching the lowest level since October.

Oil prices drive higher after watchdog report. Oil rallied last week after the International Energy Agency reported that after months of lows, oil may have bottomed out now that producers are working to stabilize prices.

European Central Bank moves aggressively to stoke growth. After months of anticipation, the ECB voted to cut interest rates to zero and unveiled a raft of measures to pull the EU out of the doldrums.

[i] S&P 500 price performance between 3/9/09 and 5/21/15. Source: Yahoo Finance

 

Stocks Rally for Third Week – Weekly Update for March 7, 2016

Image courtesy of FreeDigitalPhotos.net/cuteimage

Image courtesy of FreeDigitalPhotos.net/cuteimage

Markets closed out a third week of gains, putting the Dow at a two-month high and erasing much of the year’s losses. Higher oil prices and an upbeat February jobs report contributed to the rally.[i] For the week, the S&P 500 increased 2.67%, the Dow added 2.20%, and the NASDAQ grew 2.76%.[ii]

Investors cheered at a reasonably solid jobs report. The February Employment Situation report showed that the economy gained 242,000 new jobs last month. That’s the 65th straight month of job increases, and the trend shows that the labor market continues to improve.[iii] The headline unemployment rate remained unchanged at 4.9%; however, the labor force participation rate rose slightly to 62.9% as a greater percentage of Americans joined the labor market by working or actively looking for jobs.[iv] A declining participation rate had worried economists, and an uptick could indicate that discouraged workers are returning to the search.

 

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The report showed that the biggest job gains were in healthcare, retail, and hospitality. The construction industry also added thousands of new jobs, which is a sign that builders expect economic demand to pick up in the coming months. Unsurprisingly, the mining sector was the biggest job loser.[v]

However, the news wasn’t all rosy.

Digging deeper into the data, we also see that wages slipped last month. Average hourly wages are up just 2.2% from 12 months ago, slower than the 2.5% rate we have seen recently and well below target rates of 3-4%. Though the decline might be a seasonal issue or involve data technicalities, it could be a sign that jobs growth isn’t being reflected in wages. It could also mean that employers are offering incentives like benefits or vacation time that aren’t reflected in income.[vi]

Overall, the report is a mixed bag for the Federal Reserve, though the data shows that there isn’t a slowdown in the labor market and will help tamp down fears of a recession. Is a March interest rate hike in play? Realistically, the data probably isn’t solid enough for the Fed, which is looking for positive economic data to counterbalance global concerns and the recent market declines. Current bets on the next hike are all over the place. Some economists believe an April or June hike is likely while some futures traders are placing bets on a November hike.[vii]

This week’s economic calendar is thin, highlighted by trade data on Friday and a speech by Federal Reserve Vice President Stanley Fischer. Though the Fed isn’t likely to raise rates at next month’s meeting, Fischer may give some insight into the timing of the next rate hike. Most attention will be on presidential debates, caucuses, and the primary race.[viii]

ECONOMIC CALENDAR:

Wednesday: EIA Petroleum Status Report

Thursday: Jobless Claims, Treasury Budget

Friday: International Trade

2016-03-07

HEADLINES:

Motor vehicle sales jump in February. Sales of cars and trucks soared by 7% last month, soaring to a 15-year high for the month of February—traditionally a slow time for auto sales.[ix]

U.S. factory activity slows for fifth straight month. A gauge of manufacturing activity shows that the sector contracted again in February, but the pace of decline slowed, indicating that relief may be on the horizon.[x]

Beige book shows economic activity increased. A mid-quarter indicator of U.S. economic growth showed that overall activity increased, but it varied widely by region. This mixed picture may be a headache for the Fed.[xi]

Oil prices jump 10%. Benchmark oil prices logged their biggest weekly gain this year as traders digested news of falling U.S. production and possible supply freezes. West Texas Intermediate closed at $35.92 on the likelihood of lower production in the coming weeks.[xii]

[i] http://www.cnbc.com/2016/03/04/us-markets.html

[ii] http://finance.yahoo.com/q/hp?s=%5EGSPC&a=01&b=29&c=2016&d=02&e=4&f=2016&g=d

http://finance.yahoo.com/q/hp?a=01&b=29&c=2016&d=02&e=4&f=2016&g=d&s=%5EDJI%2C+&ql=1

http://finance.yahoo.com/q/hp?a=01&b=29&c=2016&d=02&e=4&f=2016&g=d&s=%5EIXIC%2C+&ql=1

[iii] https://www.glassdoor.com/research/jobs-report-feb-2016/

[iv] http://www.bls.gov/news.release/empsit.nr0.htm

[v] http://www.bls.gov/news.release/empsit.nr0.htm

[vi] https://www.glassdoor.com/research/jobs-report-feb-2016/

[vii] http://www.marketwatch.com/story/fed-could-hike-as-early-as-april-economists-after-jobs-report-2016-03-04 http://www.reuters.com/article/us-usa-fed-futures-idUSKCN0W61MR

[viii] http://www.foxbusiness.com/markets/2016/03/04/week-ahead-fed-speech-debates-and-primaries.html

[ix] http://www.reuters.com/article/us-usa-autos-idUSKCN0W34LC

[x] http://www.foxbusiness.com/markets/2016/03/01/u-s-manufacturing-remained-in-contraction-in-february.html

[xi] http://www.foxbusiness.com/markets/2016/03/02/fed-u-s-economic-activity-expanded-but-conditions-mixed.html

[xii] http://www.marketwatch.com/story/hope-that-us-production-is-shrinking-drives-gains-for-oil-2016-03-04

Stocks End Higher for Second Week – Weekly Update for February 29, 2016

Image courtesy of FreeDigitalPhotos.net/cooldesign

Image courtesy of FreeDigitalPhotos.net/cooldesign

Markets closed out another solid week of gains on the back of higher oil prices and some positive economic data. For the week, the S&P 500 increased 1.58%, the Dow grew 1.51%, and the NASDAQ added 1.91%.[i]

Investors got their second look at fourth-quarter 2015 Gross Domestic Product (GDP) last week. The latest data shows that the economy grew 1.0% last quarter versus the 0.7% originally reported. Economists had forecast a drop in GDP growth to 0.4%, so the increase was a welcome surprise and helped tamp down recession worries.[ii]

In another positive sign, consumer spending rose steadily in January and inflation increased closer to the Federal Reserve target of 2.0%. These encouraging indicators could support another rate hike since they bolster the growth picture for this year.[iii] Though the Fed could technically raise rates at the next meeting in March, most economists don’t expect to see higher rates until June at the earliest.[iv]

Though we expect volatility to continue over the next weeks and months, one contributor to volatility may be losing its grip. Over the last few months, U.S. equities have followed Chinese stocks over the edge, responding to worries about the health of the world’s second-largest economy. However, last week, though Chinese equities tumbled again, American stocks closed out the week positive. The divergence is a relief because it could indicate that the short-term connection between U.S. and Chinese markets is breaking down as investors return to fundamentals.[v]

Does this mean that what happens in China will cease to affect American investors? Probably not, but we can hope that investors stop worrying about every little twitch in China’s markets.

The week ahead holds more economic data, the highlight being the February jobs report that comes out on Friday. Based on the weekly gains reported so far, we’re expecting a solid showing and hoping for continued increases in wages, which could help boost consumer spending this year. Investors will be looking for signs that the domestic economy can withstand trouble abroad and hoping for signs of increased economic activity in the first quarter of 2016. Election-year politicking may add uncertainty when votes are tallied on Super Tuesday this year.


 

ECONOMIC CALENDAR:

Monday: Chicago PMI, Pending Home Sales Index, Dallas Fed Mfg. Survey

Tuesday: Motor Vehicle Sales, PMI Manufacturing Index, ISM Mfg. Index, Construction Spending

Wednesday: ADP Employment Report, EIA Petroleum Status Report, Beige Book

Thursday: Jobless Claims, Productivity and Costs, Factory Orders, ISM Non-Mfg. Index

Friday: Employment Situation, International Trade

02292016


HEADLINES:

New home sales fall sharply. Sales of newly built homes plummeted from a 10-month high in January. However, the fall seems to be largely because of unusually low activity in the West and the overall housing market appears to be healthy.[vi]

Consumer confidence declines in February. A measure of how Americans feel about the economy fell last month as consumers grew more pessimistic about their financial prospects.[vii]

Durable goods orders rise. New orders for long-lasting manufactured goods like electronics, appliances, and vehicles rose in January by the most in 10 months. The uptick in demand is a positive sign for the manufacturing sector this quarter.[viii]

Jobless claims rise, but remain stable. The number of Americans filing claims for new unemployment benefits rose last week, but the overall trend remains positive. Continuing claims also fell, indicating that workers are finding jobs and moving off benefits.[ix]

[i] http://finance.yahoo.com/q/hp?s=%5EGSPC&a=01&b=22&c=2016&d=01&e=26&f=2016&g=d

http://finance.yahoo.com/q/hp?a=01&b=22&c=2016&d=01&e=26&f=2016&g=d&s=%5EDJI%2C+&ql=1

http://finance.yahoo.com/q/hp?a=01&b=22&c=2016&d=01&e=26&f=2016&g=d&s=%5EIXIC%2C+&ql=1

[ii] http://www.cnbc.com/2016/02/26/us-q4-2015-revised-gdp.html

[iii] http://www.reuters.com/article/us-usa-economy-idUSKCN0VZ1RP

[iv] http://projects.wsj.com/econforecast/#qa=20160201001

[v] http://www.cnbc.com/2016/02/25/are-chinese-stocks-losing-hold-over-us-markets.html

[vi] http://www.foxbusiness.com/markets/2016/02/24/new-home-sales-fell-sharply-in-january.html

[vii] http://www.foxbusiness.com/markets/2016/02/23/consumer-confidence-gauge-declines-in-february.html

[viii] http://www.foxbusiness.com/markets/2016/02/25/january-durable-goods-orders-rise-4-9.html

[ix] http://www.cnbc.com/2016/02/25/us-weekly-jobless-claims-feb-23-2016.html

Stocks Post Best Week of 2016 – Weekly Update for February 22, 2016

Image courtesy of FreeDigitalPhotos.net/krishna arts

Image courtesy of FreeDigitalPhotos.net/krishna arts

Markets closed out their best week of the year last week, buoyed by higher oil prices and positive economic data that reassured some recession worriers. For the week, the S&P increased 2.84%, the Dow grew 2.62%, and the NASDAQ added 3.85%.[i]

After tumbling for weeks, oil prices stabilized close to $30/barrel after several major oil producers—including Saudi Arabia, Russia, Qatar, and Venezuela—announced their willingness to freeze production levels to fight low prices. It’s not clear that the deal will go anywhere since other countries are refusing to participate. [ii] Since cutting production will only work if all or most oil producers commit to collective action, it’s not certain that oil prices have ended their declines. However, the temporary pause was enough to give markets a boost.

A key barometer of prices in the U.S.—the Consumer Price Index—showed that core inflation rose 2.2% over the last 12 months.[iii] A modest rise is good news because it shows that there is demand pushing up prices. Demand means that the economy continues to grow. However, the increase is small enough that it’s not likely to trigger another interest rate increase by the Federal Reserve any time soon.

On the negative side, the current manufacturing picture is bleak. Two reports released last week show that the manufacturing sector is still contracting, a victim of a decline in global demand for manufactured goods. However, some portions of the sector that depend on domestic demand are doing well.[iv]

The official minutes from January’s Federal Reserve Open Market Committee meeting show that officials are concerned by how global risks may affect the domestic growth picture. This isn’t news to investors, and markets didn’t react very much to the release. Overall, the FOMC intends to be cautious in moving ahead with rate increases, though they are holding to their medium-term positive outlook on the U.S. economy.[v] We’re not likely to see a rate increase in March or April. Currently, the latest Wall Street Journal poll of economists shows June as the odds-on favorite for the next rate hike.[vi] We’re not holding our breath.

The week ahead is packed with important economic data, including the second release of fourth-quarter GDP, consumer sentiment, international trade, and consumer spending. Will last week’s optimism hold? Possibly, if we get more good news. However, it’s likely that we’ll see additional volatility in the days and weeks ahead.

ECONOMIC CALENDAR:

 

Monday: PMI Manufacturing Index Flash

Tuesday: S&P Case-Shiller HPI, Consumer Confidence, Existing Home Sales

Wednesday: New Home Sales, EIA Petroleum Status Report

Thursday: Durable Goods Orders, Jobless Claims

Friday: GDP, International Trade in Goods, Personal Income and Outlays, Consumer Sentiment

2-22-2016


HEADLINES:

Housing starts drop in January. Groundbreaking on new homes fell 3.8%, surprising economists who expected to see a rise. Seasonal factors like the large blizzard that blanketed the East Coast could be responsible.[vii]

Jobless claims fall unexpectedly. The number of Americans filing new claims for unemployment benefits fell last week, pointing to renewed strength in the labor market.[viii]

Mortgage applications rise on lower rates. Falling rates on mortgages continue to drive purchase applications and refinancing activity. Applications for home purchases are up 30% over the same period last year.[ix]

Home builders may be losing confidence. An indicator of optimism among the nation’s home builders shows that though current and future sales expectations are strong, a lack of labor and available lots may be dragging on future building.[x]

[i] http://finance.yahoo.com/q/hp?s=%5EGSPC&a=01&b=15&c=2016&d=01&e=19&f=2016&g=d

http://finance.yahoo.com/q/hp?a=01&b=15&c=2016&d=01&e=19&f=2016&g=d&s=%5EDJI%2C+&ql=1

http://finance.yahoo.com/q/hp?a=01&b=15&c=2016&d=01&e=19&f=2016&g=d&s=%5EIXIC%2C+&ql=1

[ii] http://www.cnbc.com/2016/02/18/oil-prices-fall-on-oversupply-concerns-after-us-crude-stocks-hit-record.html

[iii] http://www.reuters.com/article/us-usa-economy-fed-analysis-idUSKCN0VS2H5

[iv] http://www.foxbusiness.com/markets/2016/02/19/rumblings-oil-output-freeze-extend-momentum-to-wall-street.html

[v] http://www.forbes.com/sites/stevenblitz/2016/02/17/january-fomc-minutes-they-agree-uncertainty-has-increased-but-hold-to-medium-term-outlook/#2160521b288e

[vi] http://projects.wsj.com/econforecast/#qa=20160201001

[vii] http://www.foxbusiness.com/markets/2016/02/17/january-housing-starts-fall-3-8.html

[viii] http://www.foxbusiness.com/markets/2016/02/18/weekly-jobless-claims-fall-by-7000.html

[ix] http://wsj-us.econoday.com/byshoweventfull.asp?fid=471989&cust=wsj-us&year=2016&lid=0&prev=/byweek.asp#top

[x] http://online.barrons.com/mdc/public/page/9_3063-economicCalendar.html