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

Markets Fall on Ukraine Fears, Still End Positive Weekly Update – August 18, 2014

Image courtesy of FreeDigitalPhotos.net/Salvatore Vuono

Image courtesy of
FreeDigitalPhotos.net/Salvatore Vuono

Despite a late-week selloff due to renewed concerns about the situation in Ukraine, the major indices ended the week on a positive note. For the week, the S&P 500 gained 1.22%, the Dow grew 0.66%, and the Nasdaq added 2.15%.1

Geopolitical tensions in Europe ratcheted up when Ukrainian forces engaged an armored Russian column that crossed the border. Russia denies that any military vehicles entered Ukraine and that the mission was humanitarian. Although the full picture has yet to emerge, investors are worried that the engagement may cause further escalation of tensions.2

Retail sales slumped in July as consumers took a break from buying automobiles. However, with employment growth on a steady upward trend, economists think that sales will likely rebound later in the quarter.3 The weak retail data begs the question: How are U.S. retailers doing? Not so well, it turns out. Overall, many retailers are suffering from low consumer demand and low margins in an intensely competitive promotional environment. Online retailers like Amazon have forced competitors to lower prices and offer special discounts, eroding margins and hurting earnings.4

Low-cost retailers like Wal-Mart (WMT) and Family Dollar are also struggling, mirroring the economic struggles of their largely working-class customers. Many low-income consumers have yet to fully recover from the financial crisis and stagnant wage growth is limiting their buying power. Though its overall Q2 earnings were respectable, Wal-Mart slashed its forward guidance, indicating that the giant is mired in a nationwide slowdown.5

This week, investors will be focusing on the release of the Federal Reserve Open Market Committee meeting minutes on Wednesday, as well as a major gathering of central bank leaders in Jackson Hole, Wyoming. Fed chair Janet Yellen and embattled European Central Bank President Mario Draghi will both speak at the meeting.6 Given Europe’s weak Q2 economic results, investors will be waiting to see whether Draghi has the stomach to step in with stronger quantitative easing strategies.

ECONOMIC CALENDAR:

 

Monday: Housing Market Index

Tuesday: Consumer Price Index, Housing Starts

Wednesday: EIA Petroleum Status Report, FOMC Minutes

Thursday: Jobless Claims, PMI Manufacturing Index Flash, Philadelphia Fed Survey, Existing Home Sales

CaptureHEADLINES:

Jobless claims tick upward to six-week high. Applications for unemployment benefits climbed slightly last week, interrupting the positive trend we’ve seen the last few weeks, though most economists still think employment trends are moving in the right direction. Weekly data is often noisy, and economists prefer to look at longer-term trends.7

EU economic growth fades. Economic activity in the Eurozone slowed in the second quarter as Germany’s economy slid into reverse and France stagnated. Economists’ worry that sanctions against Russia will damage the fragile EU recovery, putting more pressure on Europe’s economic recovery.8

Low doc loans return. So-called “stated income” mortgages are returning as lenders chase applications that they can no longer afford to ignore. These mortgages, which allow applicants to show bank statements instead of pay stubs or tax returns may help expand the pool of mortgage applicants as lending volume falls.9

Consumer sentiment falls, but the news isn’t all bad. Sentiment among U.S. consumers fell to its lowest level since last November, but a gauge of current economic conditions remains positive. While lowered sentiment could threaten demand, economists believe consumer spending could still grow this year.10