Upcoming Reports Impacting the Market – Weekly Upate for February 27, 2017

Once again, domestic markets reached record highs last week. The S&P 500 was up by 0.69% and the NASDAQ increased by 0.12%. With its 0.96% week-over-week growth, the Dow has posted gains for 11 straight days and is currently experiencing its longest record streak since 1987. On the other hand, international equities in the MSCI EAFE lost ground, dropping by 0.25% for the week.

Last week did not offer much new information on economic fundamentals. With the exception of January increases for new single-family homes and the fastest pace of existing home sales since 2007, we do not have a tremendous amount of new data to share.

In the absence of this data, focusing on the roiling political conversations becomes much easier. As we have said before, we encourage you to pay attention to how the economy is performing—not what the headlines are blaring. Rather than recount the policy debates and political back-and-forth, we will discuss three important economic developments on our horizon: revised GDP, February CPI, and Fed interest rate deliberations.

What’s Ahead?

February 28: Revised Q4 2016 GDP

On Tuesday, we will receive the second growth estimate of the U.S. economy during the fourth quarter of 2016, which came in at 1.9% in the first estimate. Consensus is that the revised estimate will increase to 2.1%, but we will have to wait until March 30 to see the third and final measurement of Q4 economic growth.

The Bottom Line: GDP is key in measuring the U.S. economy’s strength. Any upward revisions would signal our economy is growing faster than the initial readings indicated.

March 15: February Consumer Price Index (CPI)

In January, the CPI experienced its largest month-over-month jump since 2013. The upcoming February report will help to show whether prices are continuing to increase and how the cost of living is changing.

The Bottom Line: The CPI measures changes to the average cost of specific goods and services that consumers purchase and is a key indicator for inflation. This data
affects the bond and equity markets, labor contracts, Social Security payments, tax brackets, and more 

March 15: Federal Open Market Committee (FOMC) Meeting Announcement

From March 14 – 15, the FOMC will meet and determine whether or not to raise the Federal Reserve’s benchmark interest rates. After the meeting concludes, Fed Chair Janet Yellen will announce their decision—a move that market participants will watch very closely. Yellen recently commented that “Waiting too long to [raise rates] would be unwise.” However, Wall Street does not expect an increase in March and shows a less than 1 in 5 chance of this move.

The Bottom Line: When the Fed changes its benchmark interest rate, the effects reverberate throughout our economy. According to Barron’s, the FOMC interest-rate policy meetings “are the single most influential event for the markets.” If the Fed decides to raise rates, this choice would affect interest rates now and also imply that monetary policy will continue to tighten throughout 2017.

These upcoming details are only a few of the noteworthy economic details on the horizon. If you have questions about what other fundamental data we are tracking or believe could affect your financial life, we are always here and would love to connect!

ECONOMIC CALENDAR

Monday: Durable Goods Orders, Pending Home Sales Index
Tuesday: GDP, Consumer Confidence
Wednesday: Motor Vehicle Sales, PMI Manufacturing Index, ISM Mfg Index,
Friday: PMI Services Index, ISM Non-Mfg Index

January Reporting & An Up Market – Weekly Update for February 21, 2017

Another week, another round of record highs. Despite concerns about how France’s upcoming presidential election could affect the European Union’s stability, U.S. stocks ended the week up yet again. The S&P 500 gained 1.51%, the Dow added 1.75%, and the NASDAQ increased 1.82%—growth that represents record highs for all three indexes. International equities in the MSCI EAFE also posted positive returns, with 0.78% growth for the week.

A number of data reports also came out last week, and they tell a mostly encouraging story about the economy right now.

JANUARY INCREASES

Consumer Price Index Up by 0.6%

The Consumer Price Index (CPI), which measures the average prices of specific consumer goods and services, beat expectations and experienced its largest month-over-month jump since 2013. The index is now 2.5% higher than a year ago, a sign that inflation could be picking up.

Producer Price Index Up by 0.6%

Whereas the CPI evaluates price changes from a consumer’s perspective, the Producer Price Index (PPI), measures changes from the seller’s perspective. For January, the PPI also beat expectations, with energy experiencing a 4.7% increase.

Retail Sales Up by 0.4%

The monthly Retail Sales report shows growth or contraction in consumer demand for goods and can help indicate whether the economy is expanding. In addition to January’s 0.4% growth, the latest report included upward revisions for November and December 2016. Overall, Retail Sales are up 5.6% over January 2016.

Small Business Optimism Index Up by 0.1 points

Each month, the National Federation of Independent Business (NFIB) releases the results of its Small Business Optimism Index, which shows results from its member surveys. This report measures the mood of small business owners—the largest employers in the U.S.—and January’s results are the highest reading since December 2004. Last month’s growth comes on the back of December’s 7.4 point jump, the survey’s largest ever increase. In other words, small business owners are interested in hiring and expanding, good news for American workers and the economy.

JANUARY DECREASES

Industrial Production Down by 0.3%

Last month, industrial firms, such as factories and mines, produced a lower volume of raw goods. If you dig deeper, however, the data is likely less concerning than what it may seem at first. For example, warmer-than-normal temperatures in the contiguous U.S.—a factor that does not have to do with the economy—contributed to utility output’s 5.7% decrease, the largest drop since 2006.[xv]

Housing Starts Down by 2.6%

The number of new houses beginning construction fell in January, but future construction permits increased by 4.6%—higher than any time since November 2015.[xvi] Housing Starts are also up 10.5% over January 2016.[xvii] While the most recent report shows a monthly dip, the data indicates that housing has grown over the past year and will continue to grow in the future.

As you can gather from the balance between data increases and decreases, the January reports we received last week indicate an economy that is growing. We will continue to monitor the pace of growth and stay on top of political developments as we strive to determine what changes or opportunities may be on the horizon.

ECONOMIC CALENDAR

Monday: U.S. Markets Closed for Presidents Day Holiday
Wednesday: Existing Home Sales
Friday: New Home Sales, Consumer Sentiment

What To Do With The Trade Deficit – Weekly Update for February 13, 2017

The political world has presented much conversation lately, but one topic has had Americans’ attention since campaigning season: tax reform. Last week, President Trump announced that a tax plan is forthcoming, and domestic markets responded by reaching record highs. In fact, we saw positive market performance even before the announcement, as the S&P 500 and Dow posted new records two days in a row, while the NASDAQ reached record highs every day except Monday. By Friday, the Dow was up 0.99%, the NASDAQ added 1.19%, and the S&P 500 capped its fourth consecutive week of gains to increase by 0.81%. On the other hand, the MSCI EAFE was down this week, posting a 0.03% loss.

In today’s highly politicized market environment, we understand that you seek insight on how changes could affect your financial life. While we could focus on potential policy or tax adjustments, many of these details are still unclear. Rather than addressing speculation, we prefer to analyze and share key data that we do have details on from last week: the trade deficit.

What happened? The most recent trade deficit numbers came in last week, showing that in December 2016 the following occurred:

Why should you care? As we discussed a few weeks ago, trade is integral to our economy—and we saw a decrease in net exports slow GDP growth in the fourth quarter of 2016. Essentially, when the U.S. imports more goods than we export, the economy may not perform as well.

However, analyzing the trade deficit is not a simple “lower is better, higher is worse” circumstance. In a healthy economy, the trade deficit can increase, as Americans’ incomes grow and they buy more imported goods. Understanding what signs are positive and which are negative can help you better know where we stand.

What can we learn from this week’s findings? The trade deficit is larger than a year ago, but the increases are less dramatic than what some headlines may imply. For instance, a MarketWatch article shared that “U.S. trade deficit hits highest level in four years.” But when you look at the changes on a graph, the difference may seem less extreme than the headline implies.

Ultimately, while the balance between imports and exports is meaningful, the volume of trade matters greatly as well. December’s increasing trade volume—both imports and exports—can show us that both U.S. and global economies are improving.

Looking ahead, changes to trade deals and corporate tax rates could have significant effects on the trade balance and volume. We will continue to evaluate this monthly metric to look for insight into our economy’s fundamental strength. As always, we will work to keep you informed so you know what is happening and how we are pursuing your goals in an evolving world.

ECONOMIC CALENDAR:

Tuesday: Producer Price Index
Wednesday: Consumer Price Index, Retail Sales, Industrial Production, Housing Market Index
Thursday: Housing Starts
Friday: E-Commerce Retail Sales

February 2017 Market Update Video

 

In this month’s video, Josh will discuss some of the major headlines that influenced markets in January — and provide some insight into what these developments could mean for you as an advisor.

If you have any questions or concerns after watching this video, please get in touch with us. We would love to talk to you. You can give us a call at (419) 425-2400, or send us an email.

Thank you for watching!

January Jobs Jump – Weekly Update for February 6, 2017

Political headlines continued to fill the news last week, and while domestic markets declined during mid-week trading, they rebounded on Friday, February 3. Overall, the week showed only modest movement, as the S&P 500 added 0.12%, the NASDAQ was up 0.11% to end at a record high, and the MSCI EAFE grew by 0.01%. The Dow was down by 0.11% but still managed to end above 20,000 after dipping below this benchmark between Tuesday and Thursday.

So, why did domestic markets perform well on Friday? A better-than-expected jobs report.

The January Jobs Report

Depending on which survey you look at, economic experts predicted the economy would add an average of between 175,000 and 180,000 jobs in January. Instead, on Friday, the Bureau of Labor Statistics’ report showed the economy added 227,000 jobs last month—far higher than predicted. This increase means job growth has continued for 76 months in a row.

You gain a much clearer picture, however, when you look beyond the big headlines and see what other data tells us. Here’s a quick rundown of what we found:

Hourly Earnings Increased, but by a Very Small Margin

Average hourly earnings grew by only 3 cents in January—and showed a 2.5% increase over last year. This monthly growth is less than a third of what we saw in December 2016. However, one industry in particular may have caused these slower gains, as a 1% decrease in financial industry earnings depressed overall wage growth.

Unemployment Increased, but for a Potentially Positive Reason

When you hear that unemployment increased from 4.7% in December to 4.8% in January, this may sound like bad news. However, a major reason for this increase is that labor force participation grew by 0.2% in January, the first increase in months. In other words, after sitting on the sidelines, more people are now rejoining the labor force and creating additional opportunities for economic growth.

Jobs Are Available, but Workers May Need Training or Relocation

While labor force participation increased last month, its 62.9% rate is still near the lowest level in decades. According to Glassdoor Chief Economist Andrew Chamberlain, approximately 5.5 million jobs remain open in the U.S.—close to a record number. Some of these jobs, such as retail and food service, don’t require much training, but they aren’t always located near where unemployed workers live. Other jobs in the hot fields of healthcare and technology require training and skills that many workers simply do not have right now. As a result, closing the gap between open jobs and willing workers is a complex challenge for employers and job-searchers alike.

The Bottom Line

The labor market is continuing to improve, but the pace remains slower than what most people would prefer. Nonetheless, the Bureau of Labor Statistics’ latest revisions show that private-sector payrolls have increased for 83 straight months, the longest growth streak since the 1920s.

How any potential new pro-growth policies affect the labor market remains to be seen, as does how to fill the millions of open jobs available right now. In the meantime, people are working more hours for higher pay than they were this time last year, and job participation is growing.

ECONOMIC CALENDAR:
Monday: Labor Market Conditions Index
Tuesday: International Trade
Wednesday: EIA Petroleum Status Report
Friday: Import and Export Prices, Consumer Sentiment

 

The Dow’s New Record – Weekly Update for January 30, 2017

After a brief pause during inauguration week, stocks continued to climb last week. The S&P 500 added 1.03%, the NASDAQ was up 1.90%, and the MSCI EAFE increased by 1.29%. The Dow also grew, adding 1.34%, ending the week above while hitting 20,000 for the first time ever.

Consumer confidence matched this positive performance, as the University of Michigan Consumer Sentiment measurement beat expectations in January and reached the highest levels since 2004. However, one piece of data we received last week gave a less rosy view of the economy: initial gross domestic product (GDP) reports.

What Happened: GDP Missed Projections

On Friday, we received the first report on real GDP for the fourth quarter of 2016. Growth declined significantly to come in at 1.9%—down from the third quarter’s reading of 3.5%.

Looking Deeper

Many aspects of our economy showed solid growth in the fourth quarter. Household purchases grew, business-equipment spending advanced for the first time in over a year, and inventory accumulation increased. Net exports, however, pulled growth down by 1.7%—the biggest drag since 2010—as we saw a jump in imports coupled with a decline in exports. Working to increase U.S. exports is important because it can help strengthen America’s economy, support additional jobs, and promote sustainable growth.

Without net exports pulling down economic expansion, fourth-quarter GDP could have been even higher than in the third quarter. Trade is integral to our economy, and changes in the balance between imports and exports measurably effect growth. The new administration’s potential plans to tax Mexican imports, change trade relationships with China, and restrict visitors from certain countries could affect our imports and exports—and thus our economy.

Between lagging GDP and the Dow reaching historic levels, this week showed us a range of perspectives on where the economy now stands. The markets will always have uncertainty and unanswered questions, and—as always—we must stay focused on the fundamentals that drive performance in the long term. For now, we will continue monitoring policy developments and the trade deficit to determine how they may impact economic growth in 2017 and beyond. We will also pay close attention to the economic data upon which we build our strategies for pursuing your goals.

ECONOMIC CALENDAR:

Monday: Personal Income and Outlays

Tuesday: Consumer Confidence

Wednesday: ADP Employment Report, ISM Manufacturing Index, FOMC Meeting Announcement

Thursday: Productivity and Costs

Friday: Employment Situation, Factory Orders, ISM Non-Manufacturing Index

Economic Data Under President Trump – Weekly Update for January 23, 2017

A new presidential era began last Friday with Donald Trump’s inauguration, and the market reaction was far more restrained than its response to his election. For weeks after the presidential election, we saw markets defy expectations and post significant gains. In fact, the Dow grew by over 1,500 points between November 8 and December 12.

In the four days of trading last week, major U.S. indexes continued the sideways performance we’ve seen since December. For the week, the S&P 500 was down 0.15%, the Dow lost 0.29%, and the NASDAQ gave back 0.34%. International stocks in the MSCI EAFE also declined by 0.48%.

Despite these weekly losses, Friday’s market performance marked one milestone not seen since John F. Kennedy’s election: index gains on inauguration day. Nonetheless, we still see a market that has been in a holding pattern for weeks. The S&P 500 has barely moved since the day before the Fed raised rates on December 14. If you analyze this graph of the Dow’s performance, you see a similar scenario – the index grew sharply after the election, but the red box shows performance stalling since December.

Why has the Trump Bump paused?

The markets are incredibly complex and multifaceted, so one answer cannot fully explain their performance. However, after rallying in anticipation of Trump’s promises for lower taxes, decreased regulation, and increased government spending, investors are now waiting to see which policies will come to fruition. No one knows for sure what policy changes or political developments lay ahead. We must look closely at fundamentals to see beyond the headlines and find a clearer view of where the U.S. economy stands today.

What are the fundamentals telling us?

During the current corporate earnings season, 63 companies have reported their fourth-quarter results so far. Of these companies, 63% beat earnings-per-share estimates and 46% exceeded their sales estimates.

Last week, we also saw:

This week, three factors will give us a deeper view of economic performance: 1) fourth-quarter GDP reports, 2) consumer sentiment data, and 3) home sales figures. By analyzing data rather than focusing on hype and predictions, we remain committed to your long-term financial health.

What should you focus on?

No matter your political perspectives, moments of change can elicit emotional reactions from even the most rational investors. As always, emotions have no place in investing.

Consider this: After President Obama’s election in 2008, the S&P 500 dropped 15.5% by inauguration day, as his transition period coincided with the deepening financial crisis. Investors who allowed emotions to take over at that point and left the markets could have missed the S&P 500’s 12% average annual growth each year Obama was in office.

We believe now is the time to continue focusing on your unique risk tolerance, your long-term goals, and the economic fundamentals, not who is in office.

We will continue to monitor economic and market evolution as it occurs, and we will closely watch the political division that seems to grip our country. In the meantime, we are here to answer any questions you may have and help you find the clarity you need.

ECONOMIC CALENDAR:

Tuesday: Existing Home Sales

Thursday: New Home Sales, International Trade in Goods

Friday: GDP, Durable Goods Orders, Consumer Sentiment

December Earnings & a Presidential Week – Weekly Update for January 17, 2017

2017-01-09 Blog ImageAs we look back on markets last week, we see mixed results with none of the major domestic indexes gaining or losing more than 1%. The S&P 500 was down 0.10% for the week, and the Dow gave back 0.39%, yet again failing to reach 20,000. On the other hand, the NASDAQ increased by 0.96% and reached its sixth record close in 2017 on Friday—pushed by a 1.36% rally for Facebook after Raymond James upgraded its stock. International stocks in the MSCI EAFE added 0.82%.

What We Saw Last Week

Big banks reported earnings. Earnings season is upon us. On Friday, we saw JPMorgan Chase, Bank of America, and PNC Financial beat profit expectations. These positive results add some weight to the post-election financials rally, where financial-sector equities in the S&P 500 have added 17% since the election. A number of other banks will report this week, and we will look to see if their performance also matches the growth we have seen so far.

Retail sales grew. The December monthly retail sales report showed a 0.6% increase, slightly below the 0.7% consensus expectations. With this growth, retail sales are now up 4.1% in the past year. However, not all retailers are performing well. General merchandise stores are suffering as consumers continue to shop online and move away from in-person retail stores. We see the results of this trend in declining retails sales numbers and large companies announcing store closures, including Macy’s, Sears, CVS, and many more.

Consumer sentiment was high but divided. The University of Michigan’s monthly report on consumer sentiment was 98.1, just below predictions but still near highs we have not seen since 2004. One interesting finding in the report is a strong partisan divide in consumer confidence. Richard Curtin, director of the consumer survey, described “extreme differences” between people’s expectations for whether new political policies would help or hurt the economy. He reminded people that the most impact on consumer sentiment will come from “actual changes in the economy” as a result of Trump’s work, which we will have to wait a few months to see.

What We’re Looking at in the Week Ahead

Earnings season continues. The markets will be watching earnings closely during this four-day trading week—specifically to see if other major financial institutions also beat expectations. Some analysts believe that to keep the current market rally going and demonstrate that there is weight behind the post-election growth, we’ll need to see excellent reports from most companies.

A number of high-profile companies report this week, including:

  • Morgan Stanley
  • Goldman Sachs
  • Citigroup
  • American Express
  • Netflix
  • IBM
  • UnitedHealth Group
  • General Electric Co.

Donald Trump becomes President. While earnings reports will be important to track, another event looms larger in many people’s minds: Donald Trump’s inauguration. After he takes the oath of office Friday morning and becomes President of the United States, we will begin to see how the market’s expectations for Trump’s policies match reality.

From trade to taxes to infrastructure and beyond, the next few months will give us a number of insights into how U.S. policies may change. Uncertainty remains, and we will watch for political developments that may affect the markets. In addition, we will continue to focus on the fundamentals that provide deep insight into how the economy is performing—and how we can strive to keep you on track toward your goals.

ECONOMIC CALENDAR:

Monday: U.S. Markets Closed in Observance of Martin Luther King, Jr. Day
Wednesday: Consumer Price Index, Industrial Production, Housing Market Index
Thursday: Housing Starts

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New Year, New Market Highs – Weekly Update for January 9, 2017

2017-01-09-blog-image

The first trading week of 2017 is over, and during this time, all three major domestic indexes hit record highs. The DOW reached 19,999.63 in intra-day trading on Friday, January 6 —just 0.37 away from achieving 20,000 for the first time. On the same day, the S&P 500 and NASDAQ both closed at record highs. For the week, the S&P 500 was up 1.70%, the Dow gained 1.02%, and the NASDAQ added 2.56%. International stocks in the MSCI EAFE increased by 1.77%.

To say that 2017 has started differently than 2016 would be an understatement. This time last year, we ended the week with all three indexes dropping at least 5.96% on fears about China’s economy.

What else happened last week?

In addition to record highs in the markets, we received a number of economic reports, which provided a mix of positive and less-than-ideal data.

Jobs Grew, But Missed Projection: The Bureau of Labor Statistics reported that U.S. employers added an estimated 156,000 non-farm jobs in December. This number missed economists’ projections of 178,000 new jobs but also marked the 75th straight month of job growth.

Unemployment Increased: The percentage of individuals actively seeking jobs in the U.S. increased by 0.1% in December, meeting expectations that it would reach 4.7%.

Wages Grew: One bright spot in this week’s labor report was a 0.4% increase in average hourly earnings. After sluggish growth through much of the economic recovery, wages increased by 2.9% in 2016.

Trade Deficit Increased: In November, U.S. exports declined as our imports grew, pushing the trade deficit to a nine-month high. The inflation-adjusted trade deficit is now $3.2 billion bigger than a year ago, an increase that could deflate Gross Domestic Product for the fourth quarter of 2016.

Manufacturing Hit Two-Year High: For the fourth consecutive month, the ISM manufacturing index showed growth in the manufacturing industry. December’s reading of 54.7 beat expectations.

Services Sector Beat Expectations: The ISM non-manufacturing index, which surveys economic data from executives in 60 service sectors, grew for the 83rd straight month. December’s measure of 57.2 matched November’s reading and beat economists’ predictions of a drop to 56.6.

Overall, beginning a new year with record highs in the markets is encouraging for all of us as investors. Many of the fundamentals seem to point to an economy that is picking up speed—but only time will tell how our new presidential administration’s policies will affect us in the future.

We hope to see continued growth and stability, and no matter what lies ahead, we will be here to guide you toward the goals and priorities that matter most to you.

ECONOMIC CALENDAR:

Monday: Labor Market Conditions Index, Consumer Credit

Tuesday: JOLTS

Thursday: Import and Export Prices

Friday: PPI-FD, Retail Sales, Consumer Sentiment

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January 2017 Monthly Market Update Video

Happy New Year! We hope that you had a wonderful holiday season, and feel ready to take on the new year.

In this month’s video, we’ll discuss some of the major headlines that influenced markets in December — and provide insight in  to what these developments could mean for you as an investor.

If you have any questions or concerns after watching this video, send us an email, or give us a call at 419-425-2400. We would love to talk with you.