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

June 2014 Monthly Video Update

Markets Rally on Housing Data Weekly Update – May 26, 2014

Image courtesy of FreeDigitalPhotos.net/Stuart Miles

Image courtesy of
FreeDigitalPhotos.net/Stuart Miles

Despite some volatility, markets rallied on better-than-expected housing numbers, putting the S&P 500 above 1900 for the first time.1  For the week, the S&P 500 gained 1.21%, the Dow gained 0.70%, and the Nasdaq grew 2.33%.2

The housing market took center stage last week on upbeat reports on new and existing home sales. Sales of new homes in the U.S. rose 6.4% in April after slumping for the previous two months.3 Existing home sales grew for the first time in 2014, creeping up a modest 1.3% in April.4 Though analysts don’t expect this “spring thaw” to rescue the housing sector, they hope that it will lead to stronger growth in the second quarter.5 High prices and rising mortgage rates have sidelined many buyers, but stronger labor market trends could strengthen home buying trends.

Initial jobless claims spiked more than expected last week, however, continuing claims dropped to their lowest level since December 2007. The four-week moving average of initial claims also dropped, indicating that unemployment trends are generally moving in the right direction.6

However, a recent poll revealed that nearly half of unemployed Americans are thinking about or have given up the job hunt. Feelings of discouragement and hopelessness are preventing many survey respondents from continuing to seek work; even when jobless benefits have run out. The survey also indicated that many long-term unemployed are not willing to relocate or pursue education that could help them land a job. Mismatches between available jobs and worker skills could be contributing to unemployment and under-employment trends.7

The Fed released meeting minutes from the April Federal Open Market Committee (FOMC) meeting, and while the report contained no surprises, investors were reassured by the meeting’s focus on an exit strategy for quantitative easing. The minutes also emphasized the desire by some Fed insiders to give the public more information on future Fed plans in order to give markets more time to digest key policy shifts.8

Looking ahead at the holiday-shortened week, investors will be taking a close look at Thursday’s Gross Domestic Product (GDP) report as well as key consumer sentiment numbers. Strong spending and consumer confidence data would support hopes that economic activity is picking up in the second quarter.

ECONOMIC CALENDAR:

Monday: U.S. Financial Markets closed for Memorial Day holiday

Tuesday: Durable Goods Orders, S&P Case-Shiller HPI, Consumer Confidence, Dallas Fed Mfg. Survey

Thursday: GDP, Jobless Claims, Pending Home Sales Index, EIA Petroleum Status Report

Friday: Personal Income and Outlays, Chicago PMI, Consumer Sentiment

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HEADLINES:

Gas prices close to three-year norm. For the third year in a row, average gas prices are within a few cents of $3.64 over the Memorial Day holiday. Steady gas prices are a result of stable crude oil prices, which have been supported by rising output from the U.S., Canada, and Brazil.9

Beef prices heading north. Long-lasting drought conditions in California and other major agricultural states are boosting the price of summer staples like beef, pork, and fruits. The USDA expects overall food inflation to increase to 3.5% in 2014.10

U.S. manufacturing growth picks up. A measure of factory activity in the U.S. hit a three-month high in May and grew at the fastest pace since early 2011. Expansion in the manufacturing sector could lead to higher GDP growth this quarter.11

Vacation rental scams on the rise. Scammers are using Craigslist and other online classifieds to lure in vacationers with low prices on rentals in hot areas. To protect yourself, rent through a reputable agency or verify owner details and always pay with a credit card for extra protection.12

 

Why Are Bond Yields So Low? Weekly Update – May 19, 2014

Image courtesy of FreeDigitalPhotos.net/suphakit73

Image courtesy of
FreeDigitalPhotos.net/suphakit73

After several days of negative performance, stocks rallied in the last two days to close generally flat. For the week, the S&P 500 lost 0.03%, the Dow fell 0.55%, and the Nasdaq gained 0.46%.1

Economic data last week was generally ho-hum except for two reports. Weekly jobless claims plunged to their lowest level in seven years, giving investors hope that the labor market is moving into high gear. Keep in mind that this measure is highly volatile, and it’s wise to wait and see if the trend continues.2

Another report showed an unexpected jump in April housing starts, which could indicate the beginning of resurgence in the housing market. Groundbreaking on new houses surged 13.2% in April as warmer weather and rentals buoyed demand for multi-unit buildings.3

Investors who watch bond markets have probably noticed a puzzling downward trend in bond yields. Despite several new records for major stock indexes and an economy that might be reaching escape velocity, the yield on benchmark 10-Year Treasury bonds have been on a downward trend since the beginning of the year.

 

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To give you a quick refresher, bond yields and bond prices are inversely related, meaning that as demand for bonds goes up, yields come down. Conversely, bond yields go up when demand falls. Typically, stronger economic performance leads to higher Treasury yields. Given recent stock market highs and better economic performance, we should see demand for Treasury bonds to go down as investors embrace risk and seek greater returns elsewhere. In fact, we’re seeing the opposite.

There are a few factors that may be contributing to the demand for Treasuries:4

  • Inflation is still muted. Higher inflation generally leads to higher interest rates and higher bond yields.
  • The Fed doesn’t appear to be in a hurry to raise interest rates, putting downward pressure on yields.
  • The European Central Bank has pledged to lower interest rates to spur economic activity, driving up demand for U.S. bonds.
  • U.S. debt is attractive to investors seeking high liquidity and lower default risk.
  • Global jitters from the crisis in Ukraine are pushing investors into Treasury bonds.

What does this all mean for investors?

It’s hard to know exactly where bond yields will go, but many analysts think that demand will remain high for the foreseeable future. Lower borrowing costs may spur business activity as companies are able to lower financing costs and prospective homebuyers can find mortgages at attractive rates.While the relationship between bond markets and stock markets is complex, lower bond yields might support higher stock prices as investors seek higher returns. On the other hand, frazzled investors may see plummeting Treasury yields as a sign that the economy is not picking up and turn bearish on equities.5

Looking ahead, this week is fairly light on economic data, but the housing market will be in the spotlight as analysts determine whether home sales data supports the upward trend in housing starts. Elsewhere, several important Fed economists, including Janet Yellen, will be speaking about the economy throughout the week, and the minutes from the most recent FOMC meeting will be released.6

ECONOMIC CALENDAR:

 

Wednesday: EIA Petroleum Status Report, Janet Yellen Speaks 11:30 AM ET, FOMC Minutes

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

Friday: New Home Sales

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HEADLINES: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.

Consumer sentiment slips in May. An important gauge of consumer sentiment dropped below expectations as gloom over stagnant wage growth clouded consumer confidence.7

Economists raise Q2 GDP estimate. Fed economists believe that the economy is growing at a faster pace in the second quarter than originally thought. Analysts see the economy growing at an annualized rate of 3.3%, up from 3.0%.8

Retail sales edge up slightly in April. After two straight months of strong gains, retail sales hit the brakes last months, rising just 0.1%. Consumers reined in spending across multiple categories, but analysts still believe consumers are on track to spend more this quarter.9

Industrial production declines in April. Manufacturing fell 0.6% in April after two straight months of gains. Analysts are taking a wait-and-see approach to see if the general upward trend in activity continues next month.10