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The Impact of Oil and Elections – Weekly Update for November 12, 2018

November 12, 2018 by Adam Zuercher Leave a Comment

Last week, markets experienced a 4-day winning streak before dropping on Friday, November 9. Despite those losses, domestic indexes posted gains for the week. The S&P 500 increased 2.13%, the Dow added 2.84%, and the NASDAQ was up 0.68%. International stocks in the MSCI EAFE had slight growth, ending the week up 0.20%.

From interest rates to corporate profits, investors had a number of topics to consider.  In this update, we want to focus on two key details that drove markets: oil prices and midterm election results.

  1. Oil Prices Declined

Oil prices continued to fall last week, posting the most consecutive daily declines in at least three decades. In fact, West Texas Intermediate (WTI) futures, a key oil benchmark, is officially in bear market territory. WTI has fallen more than 20% below its highest point over the past year.

What does this drop mean for markets?

Some investors believe the price declines are another sign that the global economy is slowing down. Historically, people have used oil prices as one way to decipher economic health because they can correlate with global growth. When crude oil prices drop, greater economic challenges are often ahead.

This recent decline may have a less concerning explanation. The United States sanctioned Iran last week while allowing eight nations to continue buying oil from the country for now. All of these waivers resulted in 1 million more barrels of Iranian oil being on the market than expected, the opposite of the anticipated tightening supply.

Bottom line: The oil price decline may be more of a symptom of disrupted supply and demand, rather than an indication of the global economy’s health.

  1. Midterm Elections Brought Few Surprises

The long-awaited midterm elections occurred last week, and the results matched expectations for a split Congress. These results contributed to the midweek market rally we experienced.

How could the results affect markets?

Post-midterm market results are generally strong. Over the past 18 midterm elections, stocks have always had positive returns from their lows in October to the year’s end. Some investors even believe that October’s struggles were a sign of the markets pricing in the election results about a month early.

Taking a historical, long-term view, the current arrangement of a Republican president and a split Congress has resulted in 12% annual returns since 1936. The chart below shows how markets have performed through each potential party-control scenario.

Although stocks have often done well when Washington experiences gridlock, the current scenario also makes a government shutdown or increased investigations into President Trump more likely. With either of these actions, market volatility could follow.

Bottom line: The election results could help bolster market performance. The split Congress also brings potential for political uncertainty that increases volatility for investors.

In many ways, this week’s market behavior underscores the complex, interconnected relationships between geopolitics and the markets. If you have any questions or would like to dive deeper into how these situations affect your financial life, we’re here to talk.

ECONOMIC CALENDAR

Monday: U.S. Holiday: Veterans Day observed

Wednesday: CPI

Thursday: Retail Sales, Import and Export Prices, Business Inventories, Jobless Claims

Friday: Industrial Production

 

 

Filed Under: Uncategorized, Weekly Market Update Tagged With: composite, consumer, dow jones, earnings, economic growth, election, Federal Reserve, Federal Reserve Open Market Committee, finance, Finances, Findlay economic update, GDP, impact, Markets, oil, S&P 500

SPECIAL UPDATE: 5 Years Later… Weekly Update – March 10, 2014

March 10, 2014 by Adam Zuercher

Image Courtesy of FreeDigitalPhotos.net/StuartMiles
Image Courtesy of FreeDigitalPhotos.net/StuartMiles

March 9, 2014 marked the five-year anniversary of the lowest point of the S&P 500 after the financial crisis, and we are taking this opportunity to highlight just how far markets have come since those dark days. As of Friday’s close, the S&P 500 has gained just over 177.0% since the market bottom on 3/9/09.[1. yahoofinance.com]

Source: Yahoo Finance

The stock market growth we’ve experienced over the past five years has also been accompanied by some important gains in the economy. Today, the U.S. economy is worlds away from where it was in 2009, when we faced Gross Domestic Product (GDP) growth of a dismal -3.0%.[2. http://databank.worldbank.org/data/views/reports/tableview.aspx] The latest data we have shows that the economy accelerated by 4.1% and 2.4%, respectively, in the third and fourth quarters of 2013.[3. https://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm] The unemployment rate has also dropped from 8.7% in March 2009, to a five-year low of 6.6% in January 2014.[4. http://data.bls.gov/timeseries/LNS14000000]

Considering the strength of the gains stocks have made over the last five years, the big question on many investors’ minds is: How much longer can the bull market continue?

Though it’s possible that we’re approaching the end of the bull market, historically, this bull run isn’t necessarily that old. The chart below shows the number of calendar days between the beginning and end of recent bull markets in the S&P 500 – broadly defined as a period in which the S&P 500 gains at least 20% without a 20% decline in between. You can see that the current one hasn’t even cracked the top five.

Source: CNN Money, Bespoke Investment Group

While we can’t be certain that this bull market will continue, we can look at current economic fundamentals and market trends and make educated guesses about what may come. A lot of cash poured out of markets between 2008 and 2012, and not all of it is back in play. Though many investors have put their money back into stocks, there are still significant amounts of cash on the sidelines, suggesting that equities may still have growth ahead of them.[5. http://blogs.wsj.com/moneybeat/2014/03/04/bull-markets-five-year-anniversary-in-five-charts/]

Economically, the U.S. is chugging along steadily. Gross Domestic Product (GDP) growth is modest but fairly robust. The Federal Reserve is confident enough about economic performance that it’s taking steps to remove monetary props. Job growth is slowly gaining steam. U.S. companies are doing reasonably well, and have been able to carve out earnings growth despite tough business conditions. And finally, market growth has been fairly broad-based, meaning recent gains haven’t been shackled to the performance of a few high-flying sectors.[6. http://www.marketwatch.com/story/what-this-stock-bull-market-needs-to-live-a-6th-year-2014-03-06?pagenumber=2]

Looking ahead, here are some factors that have the potential to promote further growth this year:

  • U.S. GDP growth needs to pick up steam and reach 3.0% by the end of 2014.
  • Housing, manufacturing, and auto sales need to maintain their gains.
  • Congress must work toward meaningful, long-term tax reform to encourage business spending and the return of foreign earnings sitting abroad.
  • Stock valuations and price-to-earnings ratios need to remain stable and supportive of stock market gains.[7. http://www.marketwatch.com/story/what-this-stock-bull-market-needs-to-live-a-6th-year-2014-03-06]

While we can’t be certain about which way markets will move, we can be fairly certain that volatility will be sticking around for a while. There is a lot of uncertainty in global markets right now and uncertainty frequently translates into volatility. While volatility can be stressful, it’s important to keep it in perspective, and to try and think long-term.

Overall, we’re very pleased with how far markets have come in the past five years and we look forward to supporting you for the next five years and beyond.
ECONOMIC CALENDAR:

Wednesday: EIA Petroleum Status Report, Treasury Budget

Thursday: Jobless Claims, Retail Sales, Import and Export Prices, Business Inventories

Friday: PPI-FD, Consumer Sentiment

 

Data as of 3/7/2014

1-Week

Since 1/1/14

1-Year

5-Year

10-Year

Standard & Poor’s 500

1.00%

1.61%

21.61%

34.96%

6.23%

Dow

0.80%

-0.75%

14.82%

29.65%

5.53%

NASDAQ

0.65%

3.82%

34.16%

47.03%

11.18%

U.S. Corporate Bond Index

-1.02%

1.15%

-2.71%

4.86%

0.40%

International

0.22%

0.83%

14.19%

27.02%

7.63%

Data as of 3/7/2014

1 mo.

6 mo.

1 yr.

5 yr.

10 yr.

Treasury Yields (CMT)

0.06%

0.09%

0.13%

1.65%

2.80%

Notes: All index returns exclude reinvested dividends, and the 5-year and 10-year returns are annualized. Sources: Yahoo! Finance and Treasury.gov. International performance is represented by the MSCI EAFE Index. Corporate bond performance is represented by the DJCBP. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly.

HEADLINES:

China’s exports plummet on global uncertainty. Exports from the world’s second-largest economy tumbled 18.1% in February, stoking fears about China’s economic recovery. Analysts hope that seasonal variations around the Lunar New Year Holiday are responsible for the unexpected decline.[8. http://www.cnbc.com/id/101474303]

U.S. household wealth jumps. The total net worth of U.S. households rose to a new high at the end of 2013, reaching $80.66 trillion as stock market and housing gains boosted wealth. Increases in housing value make it easier for Americans to borrow against equity, hopefully foreshadowing increases in consumer spending.[9. http://www.cnbc.com/id/101472629]

Planned layoffs drop in February. The number of American companies planning to lay off employees fell last month, in a positive sign for the labor market. The number of planned job cuts fell by 24.0% as compared to February 2013.[10. http://www.cnbc.com/id/101471385]

Utility bill scams on the rise. Higher winter energy bills are contributing to an increase in email scams. Fake billing notices from utility companies are arriving in inboxes across the country; clicking on links within the email could download malicious software or reveal sensitive personal information.[11. http://www.cnbc.com/id/101473487]

Filed Under: Economy, Investing, Personal Finance, Weekly Market Update Tagged With: economy, finance, investments, Markets, S&P, stock market

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