Keep Ahead of the Headlines – Weekly Update for March 27, 2017

Last week, all four of the indexes we discuss in these market updates saw their performance stumble. The S&P 500 lost 1.44%, the Dow was down 1.52%, the NASDAQ gave back 1.22%, and the MSCI EAFE declined 0.07%.

On Tuesday, March 21, the S&P 500 and Dow recorded 1% declines for the first time since Oct. 11, 2016. By Friday, the S&P had posted its worst week since the election. At the same time, 10-year Treasury yields fell and the dollar dropped for the second straight week.

What happened?

As is typically the case, no simple answer can easily explain market behavior. Last week’s healthcare headlines—and the House of Representatives’ decision not to vote on the American Health Care Act of 2017—may have caught the attention of many people on Wall Street. As a result, pundits will likely spend significant time debating what lies ahead for health care, tax reform, and other governmental policies. However, we would encourage you to look at the economic fundamentals rather than allowing news coverage to determine your financial confidence.

Recent Economic News

We did not receive a tremendous amount of new data between March 20 and 24, but three new reports did stand out: Durable Goods, New Single-Family Home Sales, and Existing Home Sales.

  1. Durable goods orders increased 1.7%.

Orders for durable goods (items expected to last) beat expectations in February and are up 5% since this time last year. While commercial aircraft orders accounted for a significant portion of the increase, data throughout the report may indicate that business investment and confidence is on the rise.

  1. New single-family home sales increased 6.1%.

In February, sales of new single-family homes hit their second-fastest growth since 2008. Even as home prices and mortgage rates rise, demand for new homes has grown by 12.8% in the past 12 months.

  1. Existing home sales dropped 3.7%.

Coming off of January, where we saw the fastest pace of existing home sales since 2007, the report missed expectations in February. Low inventory of available houses is pushing prices higher and may be keeping some potential buyers from moving forward. In the past year, median prices have risen 7.7%; meanwhile, sales are 5.4% higher.

This week, we will receive the Q4 GDP final reading, as well as insight into personal income, consumer sentiment, and consumer confidence. This and other forthcoming data provides the foundation necessary for clearly understanding the economic environment.

We understand how compelling the news and political conversations can be, and there is no denying that policies can affect the economy. However, we are here to help you gain the perspectives you need to know where you stand in your unique financial life—rather than what the headlines may urge you to believe.

ECONOMIC CALENDAR

Tuesday: Consumer Confidence, International Trade in Goods
Wednesday: Pending Home Sales Index
Thursday: GDP
Friday: Personal Income and Outlays, Consumer Sentiment

Bull Market’s 8th Anniversary – Weekly Update for March 13, 2017

After at least four consecutive weeks of growth, the three major domestic indexes all lost ground this week. The S&P 500 was down 0.44%, the Dow lost 0.49%, and the NASDAQ declined 0.15%. Meanwhile, international stocks in the MSCI EAFE grew by 0.38%.

This week, the Fed meets to determine whether or not to raise benchmark interest rates for the first time in 2017. Right now, the market gives a 93% chance of a rate hike.

In this update, rather than analyzing what lies ahead or what happened last week, we would like to acknowledge just how far the U.S. economy has come since 2009.

On March 9, we marked the 8-year anniversary of when markets during the Great Recession hit the bottom on their lowest day. At that point in the economic meltdown, the Dow and S&P 500 had both lost more than 50% of their value since October 2007. Every investor likely remembers the fear that gripped the U.S. and global economies, as questions lingered of how low we could go.

Today, we can see just how far the markets and economy have come since March 2009—and the growth investors could have missed if they avoided the markets. Take, for instance, the S&P 500.

On March 9, 2009, the index fell to 676.53. Eight years later it rebounded to 2364.87.  With reinvested dividends, that growth represents an average annual increase of 19.45%. And the fundamental data tells a very similar story.

Four Economic Measures: From March 2009 to Today

  1. Gross Domestic Product
  • March 2009: We learned the economy had fallen by a 6.3% annual rate during the fourth quarter of 2008—its largest decline in 26 years.
  • Today: GDP recovery has been more plodding than many people might prefer, but nonetheless, nearly every quarter has shown growth since 2009. And over the past two years, GDP has increased at a 3.2% annual rate.
  1. Home Prices
  1. Unemployment
  1. Total Employment

Throughout this economic recovery, people have seemed concerned the bull market was about to end. When discussing the bottom of the market 5 years ago, in the March 12, 2012 Weekly Update, we wrote about many analysts’ worries that a pullback was imminent. Even last year, one MarketWatch columnist wrote an article titled “Happy Birthday Bull Market—Now Write Your Will,” warning that the markets would not reach new peaks in the near future. The S&P 500 has gained around 19% in the months since then.

Of course, no one can predict exactly when this bull market will begin to decline. And at 8 years old, only one recovery has lasted longer since World War II.

As always, we will continue to offer the advice we believe suits your best interests in every market environment: Focus on your long-term goals and personal needs, not headlines and emotions. We have come a long way in 8 years, and we will continue to guide you through the market’s changing times and inevitable fluctuations. If you have questions about where you stand today or how to prepare for tomorrow, we are here to talk.

ECONOMIC CALENDAR

Tuesday: FOMC Meeting Begins
Wednesday: Consumer Price Index, Retail Sales, Housing Market Index, FOMC Meeting Announcement
Thursday: Housing Starts
Friday: Consumer Sentiment

March 2017 Market Update Video

Since February was a record-breaking month for the economy, Josh and I decided we wanted to try to break a record of our own. Watch our video to find out how we did!

Also in this month’s video, we’ll discuss some of the major headlines that influenced markets in February — and provide insight into what these developments could mean for you as an investor.

If you have any questions about your portfolio after viewing this video, please give us a call at 419-425-2400, or send us an email. We would love to talk with you.

Too Close to Call: Fed’s Decision on Interest Rates – Weekly Update for March 6, 2017

On Wednesday, March 1, the three major domestic indexes all had their best performance in 2017 and reached record highs yet again. In fact, the S&P 500 hit 2,400 for the first time ever on the same day the Dow went above 21,000 for the first time. While the markets cooled slightly on Thursday and Friday, all three indexes were up for the week. The S&P 500 added 0.67%, the Dow increased by 0.88%, and the NASDAQ was up 0.44%. International equities in the MSCI EAFE also grew, adding 0.39% for the week.

In the midst of more record performance, we received a number of data updates that help improve our understanding of the true economic environment and potential for the Fed to increase interest rates next week.

What We Learned Last Week

  • Fourth Quarter 2016 GDP Readings Stayed the Same

On February 28, we received the second reading of Gross Domestic Product (GDP) for the fourth quarter of 2016. The consensus expectation was for the reading to increase to 2.1% from the 1.9% growth in January’s Advance report. However, the newest data did not show any change in Q4 GDP.

  • Manufacturing Activity Increased

The ISM manufacturing survey beat expectations to come in at 57.7 for February—the highest reading in 2.5 years and the best yearly start since 2011. Levels over 50 indicate expansion, so this data provides a positive signal for our manufacturing sector.

  • Service Sector Activity Increased

In February, the service sector grew for the 86th straight month, with the ISM non-manufacturing survey coming in at 57.6. Both new orders and business activity had faster expansion, and the employment index also increased.

  • Consumer Confidence Hit a More Than 15-Year High

The latest consumer confidence numbers from the Conference Board have not been this high since July 2001. Fewer people think that jobs are “hard to get,” and many “consumers expect the economy to continue expanding in the months ahead.” Of course, consumer confidence is no guarantee for future circumstances; instead, it measures sentiment and currently indicates that many people feel more positively about the economy.

  • Personal Income Went Up

The latest personal income data indicated a 0.4% increase in January—for a 4.0% yearly increase. In addition, the Personal Consumption Expenditure (PCE) deflator, which measures consumer inflation, grew by 0.4% in January, the largest monthly increase since 2011. The Federal Reserve follows the PCE deflator very closely, so this recent jump could be another sign that a March interest-rate increase could be more likely to occur.

These data updates are only a few of the economic details we learned last week, but together, they may help explain why the Fed could increase rates in the March 14 – 15 meeting. As recently as Tuesday morning, the odds of a rate hike were only 35%. By Friday, they had increased to 81%, due to strong economic data and remarks from Fed representatives. On Friday, Fed Chairwoman Janet Yellen said that if employment and inflation continue to change as they expect, then a change to the “federal funds rate would likely be appropriate.”[xviii]

Combined with the recent PCE deflator increases, this Friday’s employment data should help provide more context for the Fed’s decision. However, as we have seen before, no one truly knows what the Fed will decide until they make their announcement after the meeting. For now, we will monitor the data and wait to hear the Fed’s announcement on March 15.

Economic Calendar

Monday: Factory Orders
Tuesday: International Trade
Wednesday: Productivity and Costs
Thursday: Import and Export Prices
Friday: Employment Situation

Upcoming Reports Impacting the Market – Weekly Upate for February 27, 2017

Once again, domestic markets reached record highs last week. The S&P 500 was up by 0.69% and the NASDAQ increased by 0.12%. With its 0.96% week-over-week growth, the Dow has posted gains for 11 straight days and is currently experiencing its longest record streak since 1987. On the other hand, international equities in the MSCI EAFE lost ground, dropping by 0.25% for the week.

Last week did not offer much new information on economic fundamentals. With the exception of January increases for new single-family homes and the fastest pace of existing home sales since 2007, we do not have a tremendous amount of new data to share.

In the absence of this data, focusing on the roiling political conversations becomes much easier. As we have said before, we encourage you to pay attention to how the economy is performing—not what the headlines are blaring. Rather than recount the policy debates and political back-and-forth, we will discuss three important economic developments on our horizon: revised GDP, February CPI, and Fed interest rate deliberations.

What’s Ahead?

February 28: Revised Q4 2016 GDP

On Tuesday, we will receive the second growth estimate of the U.S. economy during the fourth quarter of 2016, which came in at 1.9% in the first estimate. Consensus is that the revised estimate will increase to 2.1%, but we will have to wait until March 30 to see the third and final measurement of Q4 economic growth.

The Bottom Line: GDP is key in measuring the U.S. economy’s strength. Any upward revisions would signal our economy is growing faster than the initial readings indicated.

March 15: February Consumer Price Index (CPI)

In January, the CPI experienced its largest month-over-month jump since 2013. The upcoming February report will help to show whether prices are continuing to increase and how the cost of living is changing.

The Bottom Line: The CPI measures changes to the average cost of specific goods and services that consumers purchase and is a key indicator for inflation. This data
affects the bond and equity markets, labor contracts, Social Security payments, tax brackets, and more 

March 15: Federal Open Market Committee (FOMC) Meeting Announcement

From March 14 – 15, the FOMC will meet and determine whether or not to raise the Federal Reserve’s benchmark interest rates. After the meeting concludes, Fed Chair Janet Yellen will announce their decision—a move that market participants will watch very closely. Yellen recently commented that “Waiting too long to [raise rates] would be unwise.” However, Wall Street does not expect an increase in March and shows a less than 1 in 5 chance of this move.

The Bottom Line: When the Fed changes its benchmark interest rate, the effects reverberate throughout our economy. According to Barron’s, the FOMC interest-rate policy meetings “are the single most influential event for the markets.” If the Fed decides to raise rates, this choice would affect interest rates now and also imply that monetary policy will continue to tighten throughout 2017.

These upcoming details are only a few of the noteworthy economic details on the horizon. If you have questions about what other fundamental data we are tracking or believe could affect your financial life, we are always here and would love to connect!

ECONOMIC CALENDAR

Monday: Durable Goods Orders, Pending Home Sales Index
Tuesday: GDP, Consumer Confidence
Wednesday: Motor Vehicle Sales, PMI Manufacturing Index, ISM Mfg Index,
Friday: PMI Services Index, ISM Non-Mfg Index

February 2017 Market Update Video

 

In this month’s video, Josh will discuss some of the major headlines that influenced markets in January — and provide some insight into what these developments could mean for you as an advisor.

If you have any questions or concerns after watching this video, please get in touch with us. We would love to talk to you. You can give us a call at (419) 425-2400, or send us an email.

Thank you for watching!

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

Economic Data Under President Trump – Weekly Update for January 23, 2017

A new presidential era began last Friday with Donald Trump’s inauguration, and the market reaction was far more restrained than its response to his election. For weeks after the presidential election, we saw markets defy expectations and post significant gains. In fact, the Dow grew by over 1,500 points between November 8 and December 12.

In the four days of trading last week, major U.S. indexes continued the sideways performance we’ve seen since December. For the week, the S&P 500 was down 0.15%, the Dow lost 0.29%, and the NASDAQ gave back 0.34%. International stocks in the MSCI EAFE also declined by 0.48%.

Despite these weekly losses, Friday’s market performance marked one milestone not seen since John F. Kennedy’s election: index gains on inauguration day. Nonetheless, we still see a market that has been in a holding pattern for weeks. The S&P 500 has barely moved since the day before the Fed raised rates on December 14. If you analyze this graph of the Dow’s performance, you see a similar scenario – the index grew sharply after the election, but the red box shows performance stalling since December.

Why has the Trump Bump paused?

The markets are incredibly complex and multifaceted, so one answer cannot fully explain their performance. However, after rallying in anticipation of Trump’s promises for lower taxes, decreased regulation, and increased government spending, investors are now waiting to see which policies will come to fruition. No one knows for sure what policy changes or political developments lay ahead. We must look closely at fundamentals to see beyond the headlines and find a clearer view of where the U.S. economy stands today.

What are the fundamentals telling us?

During the current corporate earnings season, 63 companies have reported their fourth-quarter results so far. Of these companies, 63% beat earnings-per-share estimates and 46% exceeded their sales estimates.

Last week, we also saw:

This week, three factors will give us a deeper view of economic performance: 1) fourth-quarter GDP reports, 2) consumer sentiment data, and 3) home sales figures. By analyzing data rather than focusing on hype and predictions, we remain committed to your long-term financial health.

What should you focus on?

No matter your political perspectives, moments of change can elicit emotional reactions from even the most rational investors. As always, emotions have no place in investing.

Consider this: After President Obama’s election in 2008, the S&P 500 dropped 15.5% by inauguration day, as his transition period coincided with the deepening financial crisis. Investors who allowed emotions to take over at that point and left the markets could have missed the S&P 500’s 12% average annual growth each year Obama was in office.

We believe now is the time to continue focusing on your unique risk tolerance, your long-term goals, and the economic fundamentals, not who is in office.

We will continue to monitor economic and market evolution as it occurs, and we will closely watch the political division that seems to grip our country. In the meantime, we are here to answer any questions you may have and help you find the clarity you need.

ECONOMIC CALENDAR:

Tuesday: Existing Home Sales

Thursday: New Home Sales, International Trade in Goods

Friday: GDP, Durable Goods Orders, Consumer Sentiment

January 2017 Monthly Market Update Video

Happy New Year! We hope that you had a wonderful holiday season, and feel ready to take on the new year.

In this month’s video, we’ll discuss some of the major headlines that influenced markets in December — and provide insight in  to what these developments could mean for you as an investor.

If you have any questions or concerns after watching this video, send us an email, or give us a call at 419-425-2400. We would love to talk with you.

Steady Holiday for the Market – Weekly Update for December 27, 2016

2016-11-28-blog-image-1In the last full trading week of 2016, domestic markets were relatively quiet, with many people out of the office for the holidays. Nonetheless, all three major domestic indexes ended the week in positive territory. The S&P 500 was up 0.25%, the Dow gained 0.46%, and the NASDAQ added 0.47%. International equities in the MSCI EAFE were also up, increasing by 0.36%. The Dow continued to flirt with surpassing the 20,000 mark for the first time—reaching within fewer than 13 points at its highest trading point on Wednesday, December 21—before closing at 19,933.81 for the week.

Outside of the markets, we received a number of reports that painted a mostly positive view of the U.S. economy.

Good News

  • GDP revised up again: For its final report on economic growth in the third quarter, the Commerce Department adjusted the GDP up for the second time—to a 3.5% annual rate. This analysis shows the fastest economic growth in two years.
  • Consumer sentiment hits nearly 13-year high: The monthly index measuring consumers’ views on the current and future state of the economy increased by 4.7 points to reach 98.2 for December. This reading is the highest since January 2004.
  • New home sales beat expectations: Economists predicted that new home sales for November would increase by 2.1%, but last week’s data showed the increase was in fact 5.2%. Consumers anticipating higher interest rates in the future could be contributing to the expectation-beating results.

Mixed News

  • Personal incomes stayed flat: Despite economists’ predictions that personal incomes would increase by 0.3% in November, the Bureau of Economic Analysis’ data showed them flatten. Even with last month’s stagnation, personal incomes are up 3.5% for the year.
  • Durable goods orders declined: After increasing by 4.8% in October, durable goods orders dropped by 4.6% in November—due largely to a 73.5% decrease in civilian aircraft orders. While no one likes to see a decrease, the report had several positive highlights, including an unexpectedly large increase in orders for U.S.-made capital goods.

Overall, even though last week was fairly slow for trading, we continue to see signs that the economy is improving—even if it is still far from perfect. We look forward to discovering what 2017 holds for investors and hope for more record highs and an economy that picks up speed as time goes on.

ECONOMIC CALENDAR:

Monday: Markets Closed in Observance of Christmas Holiday
Tuesday: Consumer Confidence
Wednesday: Pending Home Sales Index
Friday: Bond Market Closes at 2 p.m. ET

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