Hixon Zuercher Capital Management

Fee-only Registered Investment Advisor in Findlay, Ohio 45840

The Bull Market Continues – Weekly Update for August 27, 2018

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Last week marked a noteworthy milestone in our economy: On Wednesday, August 22, the bull market entered its 3,453rd day, the longest such run in U.S. history. In the past 9 plus years, domestic indexes have come quite a ways since the dark days of the financial crisis. The S&P 500 is now more than 4 times the level that it was when the bull market began on March 9, 2009.

In fact, both the S&P 500 and NASDAQ closed last week with new record highs. The S&P 500 added 0.86%, the Dow increased 0.47%%, and the NASDAQ gained 1.66%. International stocks in the MSCI EAFE also grew, increasing 1.52% for the week.

This domestic growth occurred against a backdrop of geopolitical events. Investors considered new tariffs between China and the U.S., as well as legal developments potentially related to President Trump. However, economic updates seemed to hold the most sway over market performance last week.

What did we learn about the economy last week?

Beyond passing a major milestone in the bull market, we also received some key economic updates, including:

  • The Fed’s interest rate increases should continue at a gradual pace.
    In talks last week, Fed Chairman Jerome Powell called the economy “strong” and said inflation isn’t overheating. He indicated the central bank intends to maintain its current pace of interest-rate raises. Markets increased after his remarks.
  • The labor market remains strong.
    New claims for unemployment fell for the 3rd week in a row and were below expectations, continuing on July’s trend that included the lowest numbers since 1969. This data indicates that, despite U.S. companies facing ongoing trade tension, the labor market remains on solid ground.
  • Business investment may be on the rise.
    Data for durable goods orders includes details that can hint at how businesses plan to approach spending. This so-called “non-defense capital goods excluding aircraft” grew far more than anticipated in July. The reports indicate that business investments started the 3rd quarter on solid ground.

These updates may help support economists’ perspectives that the bull market still has life left. If you have questions about where your financial life stands today and in the future, we’re here to talk.

ECONOMIC CALENDAR

Tuesday: Consumer Confidence
Wednesday: GDP
Thursday: Personal Income and Outlays, Jobless Claims
Friday: Consumer Sentiment

Trade and Turkey Drive Markets – Weekly Update for August 20, 2018

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Challenges in emerging markets affected both U.S. and global stock performance last week, with the S&P 500 experiencing several down days. By market close on Friday, however, two of the three major domestics posted gains for the week. The S&P 500 added 0.59%, the Dow increased 1.41%, and the NASDAQ lost 0.29%. Meanwhile, the MSCI EAFE international stocks slipped 1.18%.

As several reports deepened our understanding of the economy’s underlying health, investors balanced the news with updates on Turkey and trade disputes. Here are some key highlights of the various developments:

Economy: Mixed Picture

The latest unemployment data beat expectations, indicating continuing strength as the labor market is near full employment. However, new home construction missed its 7.4% projected growth, increasing only 0.9% in July—following June’s 12.3% decline. Nevertheless, more positive news emerged: Thanks to tax cuts, a solid labor market, and economic growth, retail sales increased 6.4% in July year-over-year. Retail sales have now risen for the past 6 months.

Turkey: Sanctions and a Tumbling Lira

On Monday, August 13, the Turkish lira hit its lowest point ever against the U.S. dollar. The U.S. has threatened more sanctions on Turkey if the country does not release U.S. Pastor Andrew Brunson. In addition, Turkey’s inflation is swelling, and President Recep Tayyip Erdogan may be suppressing the central bank’s ability to increase interest rates.  The lira may continue to decline in value until interest rates rise. Some analysts are optimistic that these developments won’t create contagion in other markets. Not only is Turkey’s economy relatively small and investors have priced in some risk, opportunities still exist to help calm Turkey’s challenges.

Trade Update: Positive Movement

Later in the week, we received positive updates on trade challenges with China and the North American Free Trade Agreement (NAFTA). Mexican economy minister, Ildefonso Guajardo, announced that he hoped to finalize some NAFTA negotiations by this week. In addition, officials from the U.S. and China will be meeting in Washington, D.C. this week to discuss the ongoing trade disputes. These talks come before the anticipated meeting in November between President Trump and Chinese Leader Xi. A trade war with China has been one of the market’s largest concerns, so if the tension lessens, that is likely good news for equities.11

Looking Ahead

This week, we’ll receive more information about the housing market that reveals how this key industry is currently performing. We will also continue to track developments in trade and Turkey. As always, if you have any questions about what you read here⎯or what you’re hearing elsewhere⎯we’re available to talk.

ECONOMIC CALENDAR

Wednesday: Existing Home Sales
Thursday: New Home Sales, Jobless Claims
Friday: Durable Goods Orders

Mixed Results as Turkey Stumbles – Weekly Update for August 13, 2018

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Stocks ended the week in mixed territory as trouble with Turkey’s currency affected U.S. equity performance on Friday, August 10. For the week, the S&P 500 lost 0.25%, the Dow declined 0.59%, and the NASDAQ increased 0.35%. International stocks in the MSCI EAFE stumbled, giving back 1.57%.

Although last week brought relatively few economic updates, we did learn that the labor market continues to improve and consumer prices are on the rise. While this news may have affected market performance, the challenges facing Turkey’s economy had an outsize impact on global stocks.

What happened to the Turkish lira?

The Turkish lira dropped 14% to 6.46 per dollar, the weakest on record with the largest drop in more than 17 years. The lira ended the week at a record low against the U.S. dollar. Tension between the U.S. and Turkey played a part in the decline as President Trump tweeted plans to double tariffs on Turkish steel and aluminum imports. This potential tariff hike followed a stalled conversation between the two countries concerning an imprisoned U.S. pastor who Turkey believes supported a 2016 attempted coup.

How did investors react?

The resulting drop in the lira’s value concerned investors and led to losses in markets worldwide. Friday, the S&P 500 marked its largest daily decline since June after getting close to a new record high.

Why do investors care?

The lira’s drop is another sign that emerging markets are experiencing challenges in their economies. Some investors worry that Turkey’s economic crisis could spread to other countries or affect interest in other emerging markets.

Should you be concerned?

Probably not for now. U.S. companies don’t have a tremendous amount of exposure to Turkish markets.

We know that global dynamics can be complex and understanding their specific effects on your financial life may seem challenging. If you have any questions, contact us any time.

ECONOMIC CALENDAR

Tuesday: Import and Export Prices
Wednesday: Retail Sales, Industrial Production, Housing Market Index
Thursday: Housing Starts, Jobless Claims
Friday: Consumer Sentiment

Stocks Up as Data Comes In – Weekly Update for August 6, 2018

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Domestic markets ended last week in positive territory, as the S&P gained 0.76%, the Dow was up 0.05%, and the NASDAQ increased 0.96%. This performance marked the 5th week in a row that the S&P 500 and Dow posted gains. Meanwhile, international stocks in the MSCI EAFE stumbled, losing 1.47% for the week.

Once again, trade and corporate earnings were in the news last week. We learned that the U.S. is considering increasing tariffs on $200 billion of Chinese imports. In response, China announced their own tariffs ranging from 5%-25% on $60 billion of U.S. products.

Corporate earnings season also continued, and so far, more than 78% of S&P 500 companies have beaten estimates. If the trend holds, the 2nd quarter will likely average more than 20% growth in earnings per share. Companies have also detailed positive perspectives for the rest of 2018, showing that this strong corporate performance should continue.

Of course, last week’s trade and earnings weren’t the only topics on investors’ minds. We also received a number of data reports that shaped our understanding of the economy’s health.

Key Findings from Last Week

  • Consumers are earning and spending more. The latest data for personal consumption and personal income revealed both measures increased by 0.4% in June. In addition, the report included revised data from 2013-2017, which indicated that people earned $1.05 trillion more during that time period than initially thought.
  • Tariff concerns are affecting manufacturing. The manufacturing sector continues to expand at a faster rate than in 2017, but the pace of growth slowed more than anticipated in July. Respondents to the ISM Manufacturing Index survey shared concerns about tariffs, steel and aluminum disruptions, and transportation challenges.
  • The Federal Reserve is on track for a September rate hike. The Fed didn’t raise rates this month, but projections show a 93.6% chance that it will do so in September. The latest jobs report detailed steady wage increases, which helped ease Fed concerns about inflation.

This week is relatively light on economic data, but we will continue to analyze last week’s reports and the remaining corporate earnings releases. If you have any questions about where the economy is today or what may lie ahead, we’re here to talk.

ECONOMIC CALENDAR

Tuesday: JOLTS
Thursday: Jobless Claims
Friday: Consumer Price Index 

Examining Economic Growth – Weekly Update for July 30, 2018

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Markets experienced a push-and-pull last week between data indicating strong economic growth and lagging performance from several tech stocks’ earnings reports. Domestic indexes had mixed results, as the S&P 500 gained 0.61%, the Dow was up 1.57%, and the NASDAQ dropped 1.06%. International stocks in the MSCI EAFE had more of an uptick, gaining 1.32% for the week.

On Friday, July 27, we received the initial reading of 2nd quarter Gross Domestic Product (GDP). The report indicated that the economy grew at a 4.1% annual rate between April and June. This reading was the fastest pace in almost 4 years⎯and significantly higher than 1st quarter growth. Markets, however, had a relatively mild reaction to the GDP data due to rumors predicting even higher results.

Let’s dig beyond the headline GDP growth number to see what else it tells us about our current economic circumstances.

2nd Quarter GDP Details

  • The tax cut helped drive growth.
    The recent $1.5 trillion tax cut contributed to the latest GDP performance. Both consumers and businesses spent more in the 2nd quarter. Some economists believe this result will not last; without further tax cuts, consumers and companies won’t have additional funds at their disposal.
  • Trade tension affected GDP.
    This year’s ongoing trade drama impacted the economy during the 2nd quarter, but perhaps not the way you might expect. Many soybean farmers tried to get ahead of coming tariffs by shipping their crops to China earlier than normal. This move helped GDP increase between April and June.
  • Inflation slowed.
    When examining inflation, the Fed uses the personal consumption expenditures (PCE) without food and energy, also known as the core PCE. The 2nd quarter reading was 2%, down from 2.2%. Between healthy economic growth and solid inflation numbers, the Fed is likely still on track for two more rate hikes in 2018.

Seeing strong growth this late in an economic expansion is good news. However, now we will have to see whether the growth can continue at this rate. When discussing the GDP readings, President Trump predicted even better results in future quarters. Some economists, on the other hand, believe trade wars and consumer spending could provide headwinds.

We can’t predict the future, but we do know that economic fundamentals continue to be strong. This week, we will receive a number of new readings⎯from manufacturing to employment to motor vehicle sales⎯and earnings season will roll on.  

If you would like to discuss any of these details and how they may impact you, we’re ready to help.

ECONOMIC CALENDAR

Tuesday: Personal Income and Outlays, Consumer Confidence
Wednesday: Motor Vehicle Sales, ADP Employment Report, PMI Manufacturing Index, ISM Mfg Index
Thursday: Factory Orders, Jobless Claims
Friday: Employment Situation, International Trade, PMI Services Index, ISM Non-Mfg Index

 

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