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

 

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

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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New Year Special Update: 2016 in Review – Weekly Update for January 3, 2017

2017-01-03-blog-imageFirst things first: Happy New Year! We’re thankful for all of you keeping up with us in 2016 and looking forward to what this next year holds. We appreciate your time and thoughts throughout the past year, and we are excited to work together to accomplish your financial goals in 2017.

Looking back on the final trading week of a very eventful year, we saw low volume and a break from the recent rallies for domestic indexes. While international stocks in the MSCI EAFE added 0.56%, all major U.S. indexes declined. The S&P 500 lost 1.10%, the Dow was down 0.86%, and the NASDAQ gave back 1.46%. For the first time since November 4, the indexes posted three straight days of losses. Despite these last-minute decreases, 2016 ended very differently than it began.

Last January, domestic indexes rang in the New Year with quite unpleasant performances. While the S&P 500 and NASDAQ dropped, the Dow experienced its worst-ever five-day start to a year, losing 1079 points on fears of an economic slowdown in China and plummeting oil prices.

By market close on December 30, 2016, all three indexes showed healthy growth for the year:

  • S&P 500: Up 9.5%
  • Dow: Up 13.4%
  • NASDAQ: Up 7.5%

In addition to this equity growth, last week showed us a number of encouraging economic indicators for 2016, including:

Consumer Confidence Surge: On December 27, Consumer Confidence beat expectations to reach 113.7 — a 13-year high. This metric indicates that consumers feel more positively about jobs, personal finances, business conditions, and more.

U.S. Dollar Increase: The dollar was up for the fourth straight year, showing a 3.7% increase for 2016 after hitting a 14-year high on December 20.

Crude Oil Recovery: After a rough start to the year, oil experienced its largest annual increase since 2009. In fact, three-dozen U.S. gas and oil producers in the S&P energy index gained more than 40% during 2016.

We all know that 2016 brought its fair share of surprises — from victories for Brexit and Donald Trump, to our recent stock market rally and beyond. However, the year ended with domestic indexes up and a number of positive economic indicators. As we look toward our future in 2017, we see opportunities for continued growth, as well as many questions that no one can yet answer.

  • Will President Trump reduce regulation and taxes?
  • Will OPEC keep its pledge to lower oil output?
  • How will China’s economy perform?
  • Could more “Brexits” be on the horizon?

The questions remain, but no matter the answers, we are here to help guide you through the year—and toward your goals—with proactive, strategic support. If you want to talk about what we experienced in 2016, or what we anticipate for the year ahead, we would love to get in touch with you. Please reach out to us at hello@hzcapital.com or give us a call at 419-425-2400.

ECONOMIC CALENDAR:

Monday: Markets Closed in Observance of New Year’s Day
Tuesday: PMI Manufacturing Index, ISM Manufacturing Index, Construction Spending
Wednesday: ADP Employment Report
Thursday: PMI Services Index, ISM Non-Manufacturing Index
Friday: Employment Situation, International Trade, Factory Orders

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Is the Bull Market Too Old? – Weekly Update for May 2, 2016

Image courtesy of FreeDigitalPhotos.net/hywards

Image courtesy of FreeDigitalPhotos.net/hywards

As of Friday, the S&P 500 is on the second-longest bull market run in history, surpassing the 1949-1956 bull market that lasted 2,607 days. The longest bull market in history ran between 1987 and 2000, lasting nearly 4,500 days.

After months of volatility and challenges on the horizon, can the bulls keep running?

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In the pro-bull column, we have a few major points to consider:

Bull markets don’t just die of old age. History shows us that bull markets ended because of a variety of shocks like oil price spikes, recessions, bursting asset bubbles, geopolitical issues, and extreme leveraging. While the past doesn’t predict the future, we should evaluate threats to market performance instead of worrying about birthdays.

Economic indicators support growth. Recessions have accompanied or presaged many previous bear markets. Currently, economic indicators like a growing job market, low gas prices, and a healthy housing market point to sustainable—though moderate—economic growth. Even when recession risks are higher this year, most economists don’t see an economic downturn in the short-term future.

We have experienced healthy pullbacks. One of the markers of a bull market top is elevated investor optimism and unsustainably high stock valuations. Since the last S&P 500 market high in May of 2015, markets have retrenched several times as investors have taken stock of global risks to growth. We haven’t seen the irrational exuberance that often foreshadows a bear market turn.

In the pro-bear column, we also have some points to weigh in our thinking:

Threats to economic growth from China and Europe may prove too much for markets. We don’t know that we have seen the worst out of China, and a hard landing of the world’s second-largest economy would send ripples throughout the global economy that could threaten markets. Europe is grappling with political, economic, and security issues that could threaten the EU.

The Federal Reserve may bungle monetary policy. The Fed is performing a very delicate dance to bring interest rates closer to historic levels. Raise rates too fast and the economy could stumble; raise them too slowly and the Fed could leave itself unable to fight off another economic slowdown. A monetary policy misstep could trigger a market downturn.

Corporate profits may continue to fall. U.S. companies are struggling to find growth amid challenging global conditions; earnings declined year-over-year for the fifth quarter in a row last quarter, and continued weakness could cause investors to become bearish about U.S. stocks.

Our view

The simple truth is that no one can predict market tops or bottoms; plenty of people say they can, but it’s all a matter of educated (or uneducated) guesswork. Instead of trying to call markets, what we do is take a look at overall domestic and international fundamentals and create portfolio strategies that align with our clients’ overall goals. We can assume that the current bull market will come to an end someday; to reach the #1 spot it would have to continue through 2021, and that’s a pretty big stretch. Rather than worrying about when the end might come, we’ll adjust portfolio strategies as needed and prudently position our clients for risk.

If you have any questions about market strategies for volatile times, please give our office a call. We’d be happy to speak to you.

ECONOMIC CALENDAR:

Monday: PMI Manufacturing Index, ISM Mfg. Index, Construction Spending

Tuesday: Motor Vehicle Sales

Wednesday: ADP Employment Report, International Trade, Productivity and Costs, Factory Orders, ISM Non-Mfg. Index, EIA Petroleum Status Report

Thursday: Jobless Claims

Friday: Employment Situation

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HEADLINES:

Durable goods orders rise. March orders for long-lasting factory goods like airplanes, appliances, and electronics rebounded but grew less than expected, indicating the manufacturing slump isn’t over.

Economy grew 0.5% in first quarter. Gross Domestic Product (GDP), the primary measure of overall economic growth, grew just 0.5% on an inflation-adjusted basis, showing that the economy slowed after the fourth quarter of 2015. GDP growth estimates will be adjusted as new data arrives.

Consumer sentiment falls in April. One measure of consumer sentiment shows that Americans were less optimistic about their financial prospects last month. Falling sentiment could mean less consumer spending this quarter.

Federal Reserve holds interest rates steady. The Fed’s Open Market Committee voted to keep rates where they are out of concern about slowing economic growth. Though rates could increase this summer, some think that the Fed will wait until December to hike.

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.

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.

 

 

Markets Tumble on China Fears – Weekly Update for January 11, 2016

Image courtesy of FreeDigitalPhotos.net/Stuart Miles

Image courtesy of
FreeDigitalPhotos.net/Stuart Miles

U.S. equities experienced a brutal tumble last week after more bad news emerged from China. For the week, the S&P 500 lost 5.96%, the Dow dropped 6.19%, and the NASDAQ fell 7.26%.[i]

China’s ongoing economic woes are causing major turmoil in stock markets around the world. Disappointing data from China included reports that factory activity dropped for the 10th consecutive month, squashing hopes of a 2016 resurgence.[ii]

In this week’s update, we’ve compiled a list of questions and answers to help you make sense of last week’s turmoil:

What do China’s stock market problems mean for U.S. investors?

In short: not much. China’s stock market halted twice last week when emergency “circuit breakers” kicked in to limit volatility.[iii] However, most U.S. investors are not directly invested in Chinese stocks and are not affected by their markets. Chinese stocks are notoriously volatile and have experienced flash crashes in the past.

Why did U.S. markets react badly to news from China?

We live in an interconnected world where information is transmitted instantly and market overreactions are common. Thursday’s selloff came after the Chinese central bank announced yet another devaluation of the yuan, adding to investor fears about the health of the world’s second-largest economy.[iv] The move could also spark a global currency war as other countries devalue their currencies to compete with cheaper Chinese goods.[v]

The question on everyone’s minds: How will China’s slowdown affect the rest of the world? Investors see weakness in China and fear how it will affect U.S. corporations and our domestic economy. With the 2016 growth picture already modest, investors are poised to react negatively to any news that seems even slightly threatening.

Should I be worried about the U.S. economy?

Probably not. China is our third-largest export market but accounts for just 0.8% of our GDP.[vi] While a severe slowdown in China won’t be good for global growth, the U.S. economy is on track for modest growth this year. We’ll know more about how our economy fared last quarter at the end of the month.

What we do know is that the labor market continues to improve, adding 292,000 jobs in December. October and November numbers were also revised upward, indicating that growth is sustained.[vii] Since domestic consumption accounts for two-thirds of U.S. economic activity, we can hope that these improvements will translate into higher consumer spending.

It’s not clear yet whether China is moving into a recession. Exports have largely fueled its past economic growth, and political leaders are struggling to wean the country off foreign demand.[viii]  Will leaders be successful in transitioning to a more consumer-led economy? We’ll see.

What should I do as an investor?

For now, stay calm and focused on your personal goals. Regardless of what you might be hearing on the news, last week’s drop was not panic selling. Investors are caught up in global growth worries as they have been for months.

We cannot predict when markets will return to positive growth, and it’s possible that volatility and weakness may persist in the weeks to come. What we know is that historically, markets have not usually entered bear territory (sustained drops of 20% or more) unless accompanied by a recession.[ix] Though we cannot rule out prolonged market weakness, a severe drop would be a historical anomaly.

Fourth-quarter earnings season will move into high gear in the coming weeks and investors will have plenty of other news to digest. We are closely monitoring markets and taking a hard look at fundamental factors. If we believe that changes need to be made to your portfolio, we will contact you directly. If you have experienced any life changes or shifts in your perspectives on risk, please let us know.

As always, if you have any questions about markets or concerns about your personal situation, please give us a call.

ECONOMIC CALENDAR:

Tuesday: JOLTS

Wednesday: EIA Petroleum Status Report, Beige Book, Treasury Budget

Thursday: Jobless Claims, Import and Export Prices

Friday: PPI-FD, Retail Sales, Empire State Mfg. Survey, Industrial Production, Consumer Sentiment, Business Inventories

1-11-16

HEADLINES:

Motor vehicle sales ride wave to blockbuster December. Auto manufacturers ended a record year last month, selling 17.47 million new vehicles and beating the previous record in 2000. Cheaper gas and pent-up demand contributed to improved sales.[x]

Factory orders slip in November. Orders for manufactured goods dropped 0.2% in November, pointing to continued weakness in the manufacturing sector.[xi]

Construction spending falls in November. Spending on construction projects fell for the first time in 17 months, dipping 0.4% in November. While home construction was up, non-residential categories fell.[xii]

Manufacturing activity slumps. A gauge of manufacturing activity dropped for the second month in a row in November as global weakness weighs on U.S. manufacturers.[xiii]

[i] http://finance.yahoo.com/q/hp?s=%5EGSPC&a=11&b=28&c=2015&d=11&e=31&f=2015&g=d

http://finance.yahoo.com/q/hp?a=11&b=28&c=2015&d=11&e=31&f=2015&g=d&s=%5EDJI%2C+&ql=1

http://finance.yahoo.com/q/hp?a=11&b=28&c=2015&d=11&e=31&f=2015&g=d&s=%5EIXIC%2C+&ql=1

[ii] http://www.businesstoday.in/markets/global-markets/asian-markets-on-january-4-trade-china-factory-data-slips/story/227697.html

[iii] http://www.reuters.com/article/us-china-markets-idUSKBN0UM02K20160108

[iv] http://www.reuters.com/article/us-usa-stocks-idUSKBN0UL1BD20160108

[v] http://www.cnbc.com/2016/01/09/sp-500-in-a-world-of-pain-so-sell-any-rally-technician.html

[vi] https://www.uschina.org/china-hub/exports-china-share-gdp

[vii] http://www.foxbusiness.com/economy-policy/2016/01/08/december-jobs-report/

[viii] http://blogs.wsj.com/economics/2016/01/04/imf-chief-economists-2016-warning-watch-out-for-china-and-emerging-market-volatility/

[ix] http://www.businessinsider.com/sp-500-bear-markets-and-recessions-2015-8

[x] http://www.foxbusiness.com/industries/2016/01/05/fiat-chrysler-december-vehicle-sales/\

[xi] http://www.marketwatch.com/story/factory-orders-slip-02-in-november-2016-01-06

[xii] http://www.myfoxboston.com/news/us-construction-spending-falls-04-percent-in-november/12998889

[xiii] http://www.foxbusiness.com/economy-policy/2016/01/04/us-manufacturing-falls-deeper-into-contraction-territory/

Global Growth Worries Weigh on Markets Weekly Update – December 14, 2015

Image courtesy of FreeDigitalPhotos.net/Master isolated images

Image courtesy of FreeDigitalPhotos.net/Master isolated images

Markets ended a volatile week sharply down after oil hit near-seven-year lows and a major corporate merger highlighted global growth woes. For the week, the S&P 500 fell 3.79%, the Dow dropped 3.26%, and the NASDAQ lost 4.06%.[i]

Worries about the global economy took center stage last week as oil prices skidded to multi-year lows on warning of a supply glut. U.S. crude oil futures dropped over 10% lower for the week on expectations that oil prices may suffer from declining demand, high production volume, and a warm weather forecast.[ii]

Also underscoring the global weakness was the news that two of America’s largest corporate behemoths – Dow Chemical [DOW.WD] and DuPont [DD] – have agreed to combine in one of the largest mergers in U.S. history.[iii] Though the deal may yield cost-cutting benefits to shareholders, investors largely viewed it as a move to battle darkening global growth.[iv]

All this gloom and doom about the global economy complicates the upcoming Federal Reserve decision about raising interest rates. In August, when a surprise move by the Chinese to devalue the yuan sent shockwaves through financial markets, the Fed declined a rate hike.[v] Now, the Chinese are loosening the yuan again, raising concerns about the health of the world’s second-largest economy.[vi]

Will global woes derail the Fed’s intent to raise rates? We’ll have to see.

Official statements from the Fed have emphasized that the Fed is closely weighing the strengthening domestic economy against global concerns in their rate decisions. Currently, Wall Street odds strongly favor a December rate hike, with one firm putting the probability at 79%.[vii] (Data as of 12/12/15)

In the week ahead, all eyes will be on the Fed’s meeting, and investors will focus on the official announcement and Janet Yellen’s press conference on Wednesday afternoon. Investors will also look carefully at manufacturing and industrial production data to see whether global woes are affecting critical domestic industries.

ECONOMIC CALENDAR:

Tuesday: Consumer Price Index, Empire State Mfg. Survey, Housing Market Index, Treasury International Capital

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

Thursday: Jobless Claims, Philadelphia Fed Business Outlook Survey

12-14-15

HEADLINES:

Retail sales rise in November. Americans boosted their spending in November, offering retailers hope for the season. Excluding gasoline, whose price has declined sharply, retail sales are up 0.3%.[viii]

Consumer sentiment ticks upward in December. Consumers regained some confidence this month, which hopefully bodes well for the critical holiday shopping season.[ix]

Business inventories flat in October. After a tiny increase in inventory purchases in September, businesses left their stockpiles flat in October as total business sales fell. The weakness could impact growth in the fourth quarter.[x]

Jobless claims jump to five-month high. Weekly claims rose 13,000 last week though the increase doesn’t necessarily indicate worsening conditions. Claims tend to be volatile around the holidays and underlying data remains positive.[xi]

[i] http://finance.yahoo.com/q/hp?s=%5EGSPC&a=11&b=7&c=2015&d=11&e=11&f=2015&g=d

http://finance.yahoo.com/q/hp?a=11&b=7&c=2015&d=11&e=11&f=2015&g=d&s=%5EDJI%2C+&ql=1

http://finance.yahoo.com/q/hp?a=11&b=7&c=2015&d=11&e=11&f=2015&g=d&s=%5EIXIC%2C+&ql=1

[ii] http://www.cnbc.com/2015/12/10/us-crude-oil-holds-near-2009-lows-as-global-glut-persists.html

[iii] http://www.usatoday.com/story/money/business/2015/12/11/dupont-dow-chemical-merger/77137888/

[iv] http://www.cnbc.com/2015/12/11/us-markets.html

[v] http://qz.com/572388/investors-have-already-begun-worrying-about-the-feds-second-rate-hike/

[vi] http://www.cnbc.com/2015/12/11/china-yuan-falls-to-lowest-since-august-2011-versus-dollar.html

[vii] http://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html (Data as of 12/12/15)

[viii] http://www.foxbusiness.com/economy-policy/2015/12/11/november-retail-sales/

[ix] http://www.foxbusiness.com/economy-policy/2015/12/11/consumer-sentiment-ticks-up-in-december/

[x] http://www.foxnews.com/us/2015/12/11/us-businesses-left-stockpiles-unchanged-in-october-while-sales-fell-raising/

[xi] http://www.foxbusiness.com/economy-policy/2015/12/10/weekly-jobless-claims/

Stocks Finish Strong on Surprising Jobs Report Weekly Update – November 9, 2015

Image courtesy of FreeDigitalPhotos.net/jscreationzs

Image courtesy of
FreeDigitalPhotos.net/jscreationzs

Markets ended last week on a high note, marking the sixth straight week of gains and the longest winning streak for the major averages since late 2014.[i] For the week, the S&P 500 grew 0.95%, the Dow gained 1.40%, and the NASDAQ grew 1.85%.[ii]

Since August’s pullback, the S&P 500 has regained 12.40%.[iii] While headwinds still exist, and we don’t think that stock investors should breathe a sigh of relief yet, we’re happy to see that markets have regained some lost ground.

Underpinning the renewed investor optimism are some strong domestic fundamentals. After a lousy September report, a surprisingly strong October employment report showed that the economy gained 271,000 jobs. The number came in well above expectations of 180,000 and shows that the labor market continues to improve. Even better, wages grew 2.5% from a year ago – the highest year-over-year increase since 2009.[iv] The strong jobs report gave immediate rise to speculations about interest rate hikes.

In a speech before the House, Federal Reserve Chair Janet Yellen said that a December rate hike is still on the table. Will pulling the trigger roil markets? Maybe. Though the past can’t predict the future, we can look back and see that investors have often reacted nervously to any move (or expectation of a move) by the Fed. While a rate increase is a vote of confidence in the economy, it’s also a source of worry for some economists. China’s slowing growth and fragility among other emerging market economies mean that raising borrowing costs could have ripple effects across the global economy.

In her testimony, Yellen emphasized that the U.S. economy is growing well, though she indicated that soft global trade and exports are potential headwinds. Overall, it looks like the Fed isn’t committing to a date for a rate hike yet and will wait to see what the data shows in the coming weeks.[v]

ECONOMIC CALENDAR:

Tuesday: Import and Export Prices

Thursday: Jobless Claims, JOLTS, EIA Petroleum Status Report, Treasury Budget

Friday: PPI-FD, Retail Sales, Business Inventories, Consumer Sentiment

11-9

HEADLINES:

Productivity grows slowly in Q3. Third-quarter output per worker grew 1.6%, possibly indicating why wage growth remains stubbornly weak. Labor productivity grew 3.5% in the second quarter.[vi]

Sluggish demand drags on China. New data highlights China’s decelerating economy as imports fall 16% and exports fall 3.6% in October. Trade dropped 9% overall, marking the eighth straight month of decline.[vii]

Manufacturing brakes in October. A measure of factory activity showed that the sector slowed last month to the lowest level since 2013. However, a rise in new orders offers hope for the fourth quarter.[viii]

Construction spending rises in September. Spending on new construction skyrocketed, growing faster than expected. September activity reached the highest level since 2008, suggesting that third-quarter economic growth might be higher than originally estimated.[ix]

[i] http://www.cnbc.com/2015/11/06/us-markets.html

[ii] http://finance.yahoo.com/q/hp?s=%5EGSPC&a=10&b=2&c=2015&d=10&e=6&f=2015&g=d

http://finance.yahoo.com/q/hp?a=10&b=2&c=2015&d=10&e=6&f=2015&g=d&s=%5EDJI%2C+&ql=1

http://finance.yahoo.com/q/hp?a=10&b=2&c=2015&d=10&e=6&f=2015&g=d&s=%5EIXIC%2C+&ql=1

[iii] Source: Yahoo Finance. S&P 500 price return between August 25, 2015 and November 6, 2015

http://finance.yahoo.com/q/hp?s=%5EGSPC&a=07&b=25&c=2015&d=10&e=8&f=2015&g=d

[iv] http://www.foxbusiness.com/economy-policy/2015/11/06/us-adds-271000-jobs-in-october-strong-upside-surprise/

[v] http://www.theguardian.com/business/2015/nov/04/janet-yellen-december-rate-hike-still-on-table

[vi] http://www.reuters.com/article/2015/11/05/usa-economy-idUSL1N1301N520151105

[vii] http://www.foxnews.com/world/2015/11/08/as-prices-drop-and-demands-slump-china-october-import-and-export-fall/

[viii] http://www.foxbusiness.com/economy-policy/2015/11/02/us-manufacturing-sector-growsslows-more-than-expected-in-october/

[ix] http://www.foxbusiness.com/economy-policy/2015/11/02/us-manufacturing-sector-growsslows-more-than-expected-in-october/