Strong Stocks and a Falling Dollar – Weekly Update for July 24, 2017

Last week, the Dow, S&P 500, and NASDAQ again hit record highs. The midweek peaks fell by Friday, though market performance remained strong. By week’s end, the Dow dropped 0.27%, and the S&P 500 and NASDAQ dipped on Friday but closed up 0.54% and 1.19%, respectively. The MSCI EAFE finished with a 0.46% increase.

Corporate Earnings Drive Growth

Analysts noted that stocks were particularly “strong” last week due to generally robust Q2 corporate earnings reports. With roughly 20% of S&P 500 companies reporting, corporate earnings should remain solid through the quarter. So far, 73% of reporting companies beat their estimated earnings per share, and 77% have higher-than-expected sales against a 5-year average.

Weakened Dollar Continues

The dollar continued its downward trend, dropping 1.3% during the week. So far, our currency has fallen 8.1% since the start of 2017. A weakening dollar will boost companies with exports or overseas business. As such, the U.S. consumer will take a hit, since a falling dollar causes price increases on imported goods. The latest fall started last week after the Fed expressed concerns over low inflation.

By and large, European markets reacted negatively to the falling U.S. dollar, and uneven EU corporate earnings reports did not help either. With the euro’s value against the dollar rising to its highest point since January 2015, the value of EU company exports and overseas earnings measured in dollars will fall.

Other Key Market Developments

Here are some other key developments in fundamentals from last week:

  • Housing Tensions Relax: Housing starts jumped to a 1.215 million annual rate, the first gain in three months. Similarly, housing permits increased to a 1.254 million rate, the strongest numbers since March. Homebuilders are cautious, however, with the Housing Market Index and Components falling 3 points in July. The rising cost in lumber—due to tariffs on Canadian softwood—has builders concerned, as homebuyers will ultimately pay higher prices.
  • Jobless Claims Fall: July’s employment numbers look hopeful as the initial jobless claims for the week of July 15 dropped to 233,000, far below the consensus estimate of 246,000. The numbers should help lower July’s overall unemployment rate and suggest that—despite low wages and productivity—labor demand remains high.
  • Oil Prices Drop: Oil prices fell over 2% on July 21, after reaching a 6-week high earlier in the week. The drop followed news that OPEC increased July production by 145,000 barrels daily while U.S. stockpiles largely decreased, contributing to the temporary price hikes.

A Busy Week Ahead

This week will be busy. More housing news starts the week, and expect Wednesday’s Fed meeting to get some attention, though interest rates should not increase. Further, Friday’s Gross Domestic Product (GDP) Price Index and Consumer Sentiment Index will be of interest to markets.

Though the news from Washington can dominate the headlines, remaining focused on key drivers of market performance is key. Contact us if you have questions as to how the past week’s markets may influence your portfolio. We are always happy to help.

ECONOMIC CALENDAR

Monday: Existing Home Sales
Tuesday: FHFA House Price Index, Consumer Confidence Index
Wednesday: New Home Sales
Thursday: Durable Goods Orders, International Trade In Goods, Jobless Claims, Chicago Fed National Activity Index
Friday: GDP, Employment Cost Index, Consumer Sentiment

 

Q2 Coming into Focus – Weekly Update for July 17, 2017

Last Friday, stocks closed on more record highs. The S&P 500 rose 1.41% and the Dow climbed 1.04%—both closing at new peaks. The NASDAQ reported a 2.58% gain and the MSCI EAFE posted a 2.38% increase. Despite continuing headlines from Washington, the markets remain productive and strong. New Q2 numbers also rolled in last week, giving us a clearer picture of what happened from April through June.

Q2 Coming Into Focus

Over the second quarter, the S&P 500 rose 2.57%, the Dow gained 3.32%, and the NASDAQ jumped 3.87%. Meanwhile, the MSCI EAFE improved by 5.0%. Analysts are now predicting that Q2 Gross Domestic Product (GDP) will grow to 2.4%—stronger than Q1’s soft 1.4% increase.

While we wait for more numbers and reports, here are some highlights so far:

  • Corporate Earnings: Corporate Earnings should remain strong for Q2, with an expected S&P 500 earnings growth of 6.5%. As of July 14, only 6% of S&P 500 companies have reported earnings.
  • Core Consumer Pricing: Core Consumer Pricing, which measures the price of consumer goods excluding food and energy, remained at 60-year historically low June’s numbers increased by only 0.1%—the third month in a row for low rates.
  • Retail Sales: Retail sales were soft, declining unexpectedly by 0.2% following May’s 0.1% drop and April’s 0.3% rise.
  • Labor Market: Employers hired at a record increase of 8.3% in May, filling 5.5 million jobs. Consequently, job openings fell in May to 5.7 million from April’s strong 6.0 million. The strong labor market further reflected in June’s low unemployment rate of 4.4%.

On the international front, global economic growth is set to post a predicted 3.0% increase for Q2. Emerging and advanced economies both should record positive results based on strong global trade growth and favorable economic indicators. Both China and Japan are expected to post strong economic growth.

News From Last Week and Looking Ahead

For Q3 and Q4, the economy should continue to produce strong job data and decent housing markets—along with growing investments in businesses. For the year, the economy is expected to expand at an estimated 2.2% in 2017. With that said, consumer sentiment fell to 93.1 in July—much lower than expected. Because consumer spending makes up more than two-thirds of the economy, the markets will continue to follow consumer attitudes and spending. Given current global economic trends, some analysts expect the global economy to grow by 3.0% for 2017.

Finally, Fed Chair Janet Yellen testified before Congress last week. She confirmed that the Fed’s reduction in its $4.5 trillion balance sheet—known as “tapering”—will start later this year. She also suggested that interest rate hikes might continue for a couple of more years. With inflation hovering at 1.4%, however, the Fed may be losing confidence in reaching its targeted goal of an annual 2% increase. Meanwhile, The Bank of Canada has followed the Fed’s lead by raising its interest rates 25 basis points to 0.75%—its first raise since 2010.

As always, we are here to help you navigate the often-complex economic environment. Contact us if you have any questions about how this information may impact your financial life. 

ECONOMIC CALENDAR

Monday: Empire State Manufacturing Survey
Tuesday: Import and Export Prices, Housing Market Index
Wednesday: Housing Starts
Thursday: Jobless Claims, Philadelphia Fed Business Survey Outlook, Fed Balance Sheet

 

July 2017 Market Update Video

June 30 marked the final trading session not only of the month, but also the first half of 2017. It’s a period marked by strong stock market returns and exceptionally low volatility, although volatility returned the last week of June. We also saw markets alternating between gains and losses.

In this video, Adam will talk about some of the economic headlines that influenced markets in June, and give you some insight into what they could mean for you as an investor.

As always, if you have any questions or concerns about your portfolio, or if you would like a second opinion, give us a call at (419) 425-2400, or send us an email. Thank you for watching!!

Slow Start to Second Half for Markets – Weekly Update for July 10, 2017

As the country celebrated the Fourth of July last week, the markets experienced some volatility, though they finished a bit flat overall. The Dow fell then rose to close the week up 0.30%. The S&P 500 climbed a modest 0.07% for the week, and the NASDAQ finished the week up 0.21%. The MSCI EAFE fell 0.48%.

Internationally, European markets posted soft gains on Friday, though emerging markets fell for a second-straight week. Further, gold dropped to a 5-month low, while bond yields rose globally on weakening bond markets. In addition, world leaders met last week at the G20 Global Summit and issued a statement supporting open markets. They agreed to fight unfair trade practices, such as countries blocking or heavily taxing imports to protect domestic industries.

 A Closer Look at U.S. Market News

  • Auto Sales Continue to Drop: Auto sales dropped in June by 3% from a year ago. Though vehicle sales are still generally high, numbers in the second half of 2017 are expected to remain soft.
  • Employment Numbers Give Mixed Signals: Payroll growth rose a strong 222,000, exceeding expectations of 170,000. The employment growth numbers, along with continuing low unemployment figures, reflect a high demand for workers. However, wage growth remains low at an annual rate of 2.5%.
  • Inflation Stays Weak: Inflation came in at a weak 1.4% in May, staying well below the Fed’s target of 2.0%. Despite weak inflation numbers, the Fed appears committed to raise interest rates one more time this year.
  • Manufacturing Rises and Falls: The PMI manufacturing index closed at a low 0, down from May’s 52.7 on weak cost pressures and selling prices. Meanwhile, some good news emerged: The ISM manufacturing index surprised expectations of 55.1 and rose to 57.8—the strongest number since August 2014.
  • Oil Prices Continue to Slump: Oil dropped to $44.33 per barrel on continuing oversupply concerns. The week’s price erosion comes after a 14% drop in the first half of 2017.

A Look Ahead

 On Friday, July 14, key economic data will emerge such as consumer price index, retail sales, and consumer sentiment. As we look to the second half of 2017, a variety of developments could boost markets: strong corporate earnings, strengthening wage rates, and growing global trade and Gross Domestic Products (GDPs).

We want to remind you to avoid letting geopolitical ups and downs sway your investment focus. Instead, stay tuned to the fundamentals as you work toward your long-term goals. Feel free to contact us for any perspectives that can help you make sense of your financial life.

ECONOMIC CALENDAR

Tuesday: Job Openings and Labor Turnover Survey (JOLTS)
Wednesday: Beige Book
Thursday: Jobless Claims
Friday: Consumer Price Index, Retail Sales, Industrial Production, Business Inventories, Consumer Sentiment

 

 

Market Volatility Returns – Weekly Update for July 3, 2017

As Q2 ended, markets hit a six-week volatility high. While the tech sector declined during the week, consumer discretionary and industrial sectors drove stocks higher on Friday. On Friday, the tech-heavy NASDAQ slumped 1.99%. The S&P fell 0.61% and the DOW dropped 0.21%. Globally, the MSCI EAFE declined 0.32%, and European markets and most of the Asian markets finished the week down.

The Fed reported during the week that the largest U.S. banks passed the stress test evaluating their financial soundness. The test results indicate that banks have the capital structures to withstand difficult economic times. In addition, the results gave banks a green light to pay shareholders dividends and engage in share buybacks.

 Other Market News

  • Q1 Gross Domestic Product Numbers Go Up: The Q1 GDP estimate improved to 1.4% on an annualized basis. Previous estimates were 1.2% and 0.7%. Consumer spending was also revised upward to 1.1% from previous estimates of 0.6% and 0.3%.
  • Durable Goods Orders Fall: Weakening commercial aircraft sales contributed to a 1.1% fall in May’s durable goods orders. Core capital goods also fell 0.2%, surprising expectations for a 0.5% increase.
  • Consumer Confidence and Sentiment Rise: Consumer confidence exceeded expectations by 2 points in June as individuals who reported that jobs are difficult to find fell by 0.3%. The Consumer Sentiment Index rebounded in the second half of June to 95.1, but remains less than May’s 97.1 reading.
  • Pending Home Sales Weaken: Despite an expected 0.5% gain, pending home sales dropped 0.8% in May. The 3-month run of slowing sales suggests a weakening housing sector.
  • Home Price Index Softens: The Home Price Index fell from an annual increase of 5.9% to 5.7% year-over-year. This index reflects monthly changes in housing prices over 20 metropolitan regions. San Francisco, Boston, and Cleveland all reported lower housing price data.
  • Oil Prices Climb: Although oil prices ended last Friday at $46.04 a barrel, oil closed the first-half of the year down 14%, its weakest performance since 1998. Ongoing concerns about an oversupplied market continue to influence investors despite a dip in U.S. production slowing the bearish outlook.
  • Import/Export Data Modestly Brightens: Imported goods dropped to $193 billion and exports improved to $127.1 billion in May. While the $65.9 billion difference remains significant, this quarter’s goods gap is averaging $66.5 billion a month.
  • The Dollar Drops: Though marginally recovering on Friday, the U.S. dollar reported its largest quarterly decline in almost 7 years against other major currencies.

The Week Ahead

U.S. markets close on Tuesday for the July 4th holiday. During the shortened trading week, the markets will look at manufacturing indices, motor vehicle sales, and employment data reports. As the data becomes available, investors will focus on how Q2 numbers roll out and what might be developing for the rest of the year.

As you reflect on this data and the week ahead, feel free to contact us should questions arise. We are here to serve your complete financial goals and help you navigate your investing choices.

ECONOMIC CALENDAR

Monday: ISM Manufacturing Index, PMI Manufacturing Index, Motor Vehicle Sales, Construction Spending
Wednesday: Factory Orders
Thursday: ADP Employment Report, ISM Non-Mfg Index
Friday: Employment Situation

Markets Slide Sideways – Weekly Update for June 26, 2017

Last week, markets kept relatively quiet despite the continuing drop in oil prices. The S&P 500 rose by 0.21%, the Dow increased by 0.05%, and the NASDAQ—the week’s best performer—jumped 1.84%. Internationally, the MSCI EAFE fell by 0.20%Asian markets remained relatively mixed while European markets were down modestly.

A global glut of oil has led to 5-straight weeks of price declines. OPEC’s attempts to curb oil production have not yet played out as expected, as prices are down roughly 20% for the year. Though oil rose slightly on Friday due to a weaker U.S. dollar, oil markets closed the week at a 10-month low. Still, oil stocks and energy companies in general comprise less than 6% of stocks in the S&P 500 on a capitalization basis, down from 11% only 3 years ago. As such, they are less significant to the overall markets today than in the past.

 What We Learned Last Week

 Despite oil’s problems, a few economic indicators for the week pointed to the potential for mildly stronger Q2 consumer spending.

  • Existing Home Sales Rebound: Overall, existing home sales for May rebounded with a 1.1% increase from April to an annualized rate of 5.62 million sales. Single-family sales rose 1.0% for an annualized rate of 4.98 million, while condos sales rose by 1.6% for an annualized rate of 640,000.
  • New Home Sales and Pricing Surge: New home sales for May rose 2.9% to a 610,000 annualized rate on strong pricing. Median house pricing jumped to $345,800, an 11.5% rise for the month. The 16.8% year-on-year increase is roughly double the actual sales gain of 8.9%.
  • Low Jobless Rate Stays Steady: June jobless numbers have so far remained on track and consistent with the current historic lows. Last week’s data revealed that the 241,000 claims matched general consensus.
  • Flash Purchasing Managers’ Index (PMI) Slows: The PMI flash composite index came in at 53.0 for the month versus 53.9 for the prior month. Though new orders and employment in the service sector appear optimistic, manufacturing’s new orders and output have fallen. The single index is a synthesis of data such as new sales orders, inventories, and employment. A reading above 50 indicates rising output versus the previous month.

What Is Next?

With Q2 ending this week, markets will look at the durable goods orders, additional home sales data, and consumer sentiment, while continuing to watch oil prices. In addition, the second part of the Fed stress test for banks will report on Wednesday. The second half of the stress tests evaluates banks’ abilities to pay dividends and buy back stock. All 34 major banks passed the first part of the test last week, indicating their strength in an economic downturn.

If you have any questions about this content or your financial future, we welcome you to contact us. Our team is here to provide the perspectives you need for the road ahead.

Economic Calendar

Monday: Durable Goods Orders
Tuesday: Case Shiller Home Prices Index, Consumer Confidence Index
Wednesday: Pending Home Sales
Friday: Personal Income and Outlays, Consumer Sentiment

Mixed Markets Continue – Weekly Update for June 19, 2017

Markets remained mixed last week as the Dow closed at another record high, while the NASDAQ fell and the S&P 500 held steady. By Friday, the Dow gained 0.52%, the NASDAQ fell -0.92%, and the S&P 500 gained a slight 0.05%. Meanwhile, the MSCI EAFE remained virtually unchanged from last week, down only -0.002%.

In other markets, oil closed at $44.74 a barrel, down 2.4% on the week—its fourth week of declines. Overall, European equity markets remained steady while most Asian markets recorded modest gains at week’s end.

The Fed Increases Interest Rates

As expected, the Fed announced last week that it raised the short-term interest rate target by 25 basis points to a range between 1.00 and 1.25%. This was the third interest rate hike by the Fed in the last six months. The Fed also announced its intention to reduce the $4.5 trillion balance sheet by selling off assets acquired in the wake of the 2008 financial crisis. The Fed currently plans to sell approximately $10 billion monthly starting later this year.

Further, last Wednesday, Federal Reserve Chair Janet Yellen reported on the Fed’s belief that the current weak inflation numbers are temporary. However, the Fed’s plan to continue raising interest rates going forward and sell off its assets may change if the economy does not gain momentum in Q3 and Q4. To date, the economic data continues to point to a Q2 Gross Domestic Product (GDP) that may be weaker than previously anticipated.

Soft Economic Data Continues

Consumer Sentiment Dampens: The preliminary consumer sentiment index for June dropped to 94.5, the lowest since last November. The index fell from May’s reported 97.1.

Retail Sales Soften: Retail sales had their largest monthly drop since January 2016.  Sales declined 0.3% in May against predictions of a 0.1% gain over April. The report includes a variety of disappointing numbers:

  • 1% decrease for restaurants
  • 2% dip for automotive vehicles
  • 0% fall for department stores

Business Inventories Drop: In April, business inventories dropped 0.2% from the prior month, which was 0.1% under the consensus. Further, retail inventories also dropped 0.2%, and wholesale inventories abruptly fell 0.5% for the month.

CPI Falls: The Consumer Price Index fell 0.13% in May. The disappointing numbers mark another decline—the 2nd in 3 months—as economists had expected a 0.2% increase from April’s number.

Housing Weakens: In May, housing starts dropped 5.5% from April and permits fell 4.9%. The trend continues the decline from Q1 and could signal another negative quarter.

Market Details on the Horizon

More housing news will influence the week ahead as the existing home sales report comes out on Wednesday and the new home sales report comes out on Friday. Markets will continue to watch the fundamentals, including consumer spending, which makes up 69% of GDP. So far this year, consumer spending has been soft with vehicle sales and restaurant sales sliding downward most months.

As always, we are here to talk should you have any questions about the markets or your own financial objectives. Our goal is to help you understand your financial life with clarity and confidence.

ECONOMIC CALENDAR

Wednesday: Existing Home Sales
Thursday: Jobless Claims
Friday: PMI Composite Flash, New Home Sales

June 2017 Market Update Video

The economy has sped up a bit during spring. In this month’s video, Tony takes a tour around Findlay as he talks about some of the major headlines that influenced markets in May. We hope this information offers insight into what these developments might mean for you as an investor.

If you have any questions after watching this video, or would like a second opinion on your portfolio, send us an email, or give us a call at (419) 425-2400. We would be happy to talk. Thanks for watching!

Mixed Worldwide Markets – Weekly Update for June 12, 2017

Markets were mixed last week with leading tech stocks falling dramatically as some investors pulled profits. The NASDAQ took the biggest hit, finishing 1.55% down on the week—its worst week of the year. Meanwhile, the Dow rose 0.31% for the week, notching another record close on Friday. The S&P 500 fell 0.30%, and the MSCI EAFE closed the week down 1.22%.

The S&P tech sector dropped 3.3% on Friday; however, it remained up 18% for the year. Major tech stocks account for almost 13% of the total number of stocks in the S&P 500, while comprising nearly 40% of the S&P 500 increase for the year.

Internationally, Asian markets were mixed while European markets closed the week generally higher. The European equities markets took last week’s UK election in stride, though the pound dropped in response to the Conservatives losing their majority.

Domestically, monthly job openings exceeded 6 million in April. Hiring, however, has slowed to only 5 million per month, suggesting workers’ skills may not match job needs. Moreover, the economy continues to show signs of softening.

Indications of a Softer Economy

  • Wholesale and Retail Inventories Down: Revised wholesale inventories shrunk 0.5% in April, the largest contraction in more than 12 months. In addition, retail inventories fell in April as sales weakened.
  • Inflation Slows: As noted last week, consumer prices remain weak. Inflation slowed in April to an annual rate increase of 1.7% year-over-year, down from the 1.9% recorded in March and 2.1% in February. Falling oil prices, excessive auto inventories, and increasing apartment rental inventories will all create headwinds to reaching the Fed’s target rate of 2.0%.
  • Factory Orders Down: Factory orders fell 0.2% in April. While motor vehicles rose 0.6% and computers gained 1.6%, durable goods orders fell 0.8%.
  • Oil Prices Drop: Though summer driving season is here, U.S. gasoline demand dropped by nearly a half-million barrels a day. While the need for fuel fell—and despite beliefs that oil would fall by 3.5 million barrels—stockpiles rose by 3.3 million barrels. As a result, oil dropped by 4%, ending the week at $45.86 per barrel.

What Comes Next

The Fed will hold a meeting this week to determine whether to raise interest rates. Expectations are that the Federal Open Market Committee (FOMC) will raise the fed funds rate 0.25% to 1.25% despite the soft economic news, which the Fed characterized as “transitory.” The FOMC meeting will also address quarterly forecasts for the remainder of the year. The markets expect both Japan and Britain’s central banks to also address the issue of interest rates.

In addressing the federal debt, the Treasury Secretary assured last week that the U.S. will not default on its debt. Congress must address the debt limit this summer or fall, but markets may react negatively if delays occur. Meanwhile, Congress continues to wrestle with policy questions around tax reform, an infrastructure program, and healthcare reform. How the government addresses these important initiatives could alter market dynamics in the future.

If you have questions on where you stand as these events unfold, do not hesitate to contact us. We are here to support your financial life with clarity and sound perspectives.

ECONOMIC CALENDAR

Wednesday: Consumer Price Index, Retail Sales, Business Inventories, FOMC Meeting Announcement
Thursday: Industrial Production, Housing Market Index
Friday: Housing Starts, Consumer Sentiment

Economic Volatility: Where Are The Markets In Response? – Weekly Update for June 5, 2017

Last week, the S&P 500, Dow, and NASDAQ closed at all-time record highs. The S&P 500 rose 0.96%, the Dow gained 0.6%, and the NASDAQ grew by 1.54%. Meanwhile, the MSCI EAFE gained 1.64% for the week.

Despite strong equity markets, bond yields dropped to their lowest point in the year. The drop in yield caused by rising bond prices, combined with soft employment numbers and low wage growth, could suggest a slowing economy or a tightening labor market.

While the U.S. equity markets advanced to new highs and bond prices rose, other markets were mixed for the week. Pending home sales dropped 1.3% in April, a second straight month of decline. Oil fell to $47.66 a barrel, the dollar dropped to a seven-month low against the euro, and gold gained 0.8% closing at $1,280.20.

Additionally, soft employment numbers and flat wages could lead to a disappointing Q2 Gross Domestic Product (GDP). With an eye on dropping inflation, the Fed will have to decide whether to still raise interest rates.

Mixed Job Numbers and Slow Wage Growth

May’s job growth reported an anemic 138,000, well below the expected 185,000. At the same time, average hourly wages increased on a year-over-year basis by only 2.5%. Moreover, the revisions to March and April’s payroll numbers fell by 66,000 jobs. The economy is currently averaging 162,000 new jobs per month for the year—again, well below 2016’s 187,000 average.

Despite the unemployment rate falling to 4.3%, the lowest it’s been in over 15 years, the employment-to-population ratio also fell. Still, the data confirms that demand for experienced and skilled workers exists, while the supply is falling.

Fed Will Discuss Raising Interest Rates

On June 14, the Fed FOMC will meet to determine if an interest rate increase is in order. Despite the soft employment numbers and an inflation rate below the Fed’s target of 2%, traders still believe there is a nearly 88% chance that the Fed will raise rates in June. However, the market consensus currently suggests only a roughly 50/50 chance for another rate increase before the end of the year.

International News and Looking Ahead

Manufacturing in China has posted strong returns. Both the manufacturing and non-manufacturing PMIs reported gains above 50. The numbers suggest that China is on track to reach its targeted 6.5% growth for the year. This matters because China is the world’s second largest economy at $11 trillion GDP for 2017.

Other developments in the international arena could influence markets going forward. Reaction to President Trump’s decision to leave the Paris Climate Accord could adversely affect American products in the international markets. The landmark decision also runs the risk of hurting U.S. tech and alternative energy companies.

We will continue to follow developing international and national news as they move the markets. As always, if you have questions about how these events may affect your finances, please contact us. We are here to help you remain informed and in control of your financial future.

Economic Calendar

Monday: Factory Orders, ISM Non-Manufacturing Index
Tuesday: JOLTS (Job Openings and Labor Turnover Survey)
Thursday: Jobless Claims