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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What Will the Fed Do Gradually? Weekly Update – March 23, 2015

Image courtesy of FreeDigitalPhotos.net/hywards

Image courtesy of
FreeDigitalPhotos.net/hywards

Markets finally snapped their three-week losing streak and rebounded as investors bought the dip and rallied after a Fed meeting. For the week, the S&P 500 gained 2.66%, the Dow rose 2.13%, and the NASDAQ added 3.17%.1

The Federal Reserve Open Market Committee met last week and issued a statement that supports future interest rate hikes. Though rates won’t come up at the next meeting in April, a June hike is possible if the economic tea leaves show continued improvement.2

What could an interest rate hike mean for markets? While we can’t predict the future, we can look backwards to see what hints history can provide. Back in June 2013, then Fed Chairman Ben Bernanke started talking about the need to gradually trim back bond-buying operations. This “taper talk” led to a brief selloff of 5% as jittery investors started worrying about how the economic recovery would survive without the Fed’s easy money.3

What’s happened since then? The Fed started tapering (wrapping up in October 2014), the unemployment rate has continued to fall, and the economy continues to expand. Since the day in 2013 that Bernanke announced his tapering intentions, the S&P 500 has gained 29.41% and has reached multiple all-time highs along the way.4

Right now, investors are experiencing similar rate hike jitters as they adjust to the new reality of higher interest rates. While we don’t know how soon the Fed will start hiking rates, we do know that they’ll do it in a gradual way. Will interest rate hikes torpedo the economic recovery? No. Will they affect short-term market performance? Probably.

We can’t control market performance. All we can do is focus on your personal goals, keep an eye on the overall environment, and stay flexible and on the lookout for opportunities that arise.

As we approach the end of the quarter, we can expect more market volatility as investors weigh the effects of another cold winter on economic growth and corporate earnings. Analysts will also be waiting for Friday’s final estimate of fourth quarter 2014 economic growth as well as follow-up comments from Fed economists who might give further insight into the timing of rate hikes.

ECONOMIC CALENDAR:

Monday: Existing Home Sales

Tuesday: Consumer Price Index, PMI Manufacturing Index Flash, New Home Sales

Wednesday: Durable Goods Orders, EIA Petroleum Status Report

Thursday: Jobless Claims

Friday: GDP, Consumer Sentiment

 

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HEADLINES:

Jobless claims hold steady. The number of Americans filing claims for unemployment benefits edged up slightly to 291,000 last week. The four-week moving average, a less volatile measure, increased to 304,750, dropping 7.5% over the last year.5

Foreclosures fall to lowest rate since 2006. The number of properties going into foreclosure fell in February to levels not seen since before the housing crisis. Since 2006 marked the peak of the housing bubble, the low in foreclosures may be an important milestone for the housing market.6

Homebuilder confidence dips in February. A measure of optimism among U.S. builders fell unexpectedly last month as construction firms worried about industry issues. However, builders are still broadly confident about housing market gains.7

Manufacturing growth slows. Though overall U.S. industrial production increased in February due to increased utility output during the cold winter, manufacturing gains have slowed over the last six months. A strong U.S. dollar may be contributing to falling overseas demand.8