Hixon Zuercher Capital Management

Fee-only Registered Investment Advisor in Findlay, Ohio 45840

Could Weather Cause Headwinds? – Weekly Update September 12, 2017

by

2017-09-12 Blog Image FINALFirst of all, we would like to state that our deepest sympathies, thoughts, and prayers are with all those affected by the devastation from hurricanes Harvey and Irma. Words cannot express how sorry we are. We love you, and we are with you.

Last week, the markets closed for Labor Day, and in the subsequent four trading days, all three domestic indexes gave back some recent gains. The S&P 500 declined 0.61%, the Dow lost 0.86%, and the NASDAQ slid 1.17%. International stocks in the MSCI EAFE faired better, ending Friday up 0.78% for the week.

On Wednesday, September 6, we received solid data from the services sector, with the ISM Non-Manufacturing Index showing growth in 15 of the 18 industries it tracks. The trade deficit also stayed relatively static for July, avoiding the widening trade gap forecasters predicted. Both reports may indicate that the economy continues to be on stronger ground than many people believe.

But last week’s new economic reports were not what drove many headlines or captured people’s attention. Between Hurricane Harvey’s devastation in Texas and Louisiana, Irma bearing down on Florida and the Southeast, and new hurricanes Jose and Katia forming offshore, weather was on everyone’s minds. Understanding the economic effects these weather events can create is important for proactively planning ahead.

How Hurricanes Affected the Markets

  • Insurance Companies Stumbled—Then Recovered
    Large natural disasters can be incredibly costly for insurance companies. Last week, despite Friday’s price recovery, many insurance stocks and ETFs lost considerable ground, as investors contemplated whether insurers would be able to withstand the costs of Hurricanes Harvey and Irma.
  • Materials Suppliers Jumped
    While hurricanes are challenging for insurers, they can drive growth for companies who will help provide materials when rebuilding begins. With Hurricane Irma predicted to “devastate” areas of the U.S., a number of building suppliers added over 1% to their stock prices on Friday.
  • Restaurant Stocks Struggled
    Several major restaurant brands saw their stock prices drop last week. Restaurants with a large number of locations in hurricane-damaged areas could experience lower sales throughout the rest of 2017.

What to Expect for Long-Range Impacts

With Hurricane Irma battering the southern states and Harvey’s waters still receding, we are far from knowing the final tally of either hurricane’s destruction. However, some estimates indicate that recovery could cost as much as $100 billion or more—for each storm.

Due to these massive recovery efforts, natural disasters like this can end up having a net-positive effect on the economy. Ultimately, industries such as construction, transportation, and logistics often benefit from rebuilding. Meanwhile, industries such as insurance and hospitality may suffer due to the losses they experience.

While the costs from damages will be immense, the true economic impact will be important to track as the weather events continue. In the meantime, we also believe that paying attention to the human side of weather catastrophes is just as important. We send our thoughts and best wishes to everyone affected by these storms, and we hope for as swift a recovery as possible.

Should you have any questions or concerns about how severe weather events could affect your financial future, we are always ready to talk.

ECONOMIC CALENDAR

Tuesday: JOLTS
Wednesday: PPI-FD
Thursday: Consumer Price Index
Friday: Retail Sales, Industrial Production, Business Inventories, Consumer Sentiment

The Economy Picks Up Speed – Weekly Update for September 5, 2017

by

2017-09-05 Blog Image FinalLast week gave a number of things for both investors and non-investors to think—and worry—about. From North Korea’s missiles to Hurricane Harvey’s devastation to an unemployment uptick, the headlines were busy. Yet, despite these circumstances, U.S. stocks posted gains again this week—and the NASDAQ ended Friday with a new record high and 2017’s best weekly performance. Overall, the S&P 500 added 1.37%, the Dow was up 0.80%, the NASDAQ gained 2.71%, and the MSCI EAFE increased by 0.55%.

So, what did we learn about the economy last week that helped contribute to these gains?

Big News: GDP Hits 2-Year High

On August 30, the Commerce Department released its second reading of Q2 Gross Domestic Product. After sluggish growth in the first quarter of 2017, consumer and business spending helped advance our economy in April through June. In fact, the revised reading increased to a 3% annual growth rate, which beat expectations and represented the fastest growth since Q1 of 2015.

As we predicted in last week’s market update, larger core durable goods orders contributed to this positive GDP report.

Solid Support: Manufacturing Index Jumps

The Institute for Supply Management’s manufacturing index, which measures business expansion or contraction, reached a 6-year high in August. According to Economist Andrew Hunter, this growth spike could generate GDP growth as high as 4% in the third quarter. That pace would be far above the average during the current economic recovery and would mean the economy is growing more quickly than many people expected.

Of course, we are still in Q3, and any number of details could affect economic growth. We have many important happenings on the horizon that the markets will be watching, including debt-ceiling decisions, tax-reform outcomes, and much more. However, recent data indicates that both consumers and businesses are opening their wallets—and the economy is growing. After 9 years of economic recovery where growth has often been lackluster, this quickening pace is welcome news.

Looking ahead, we will continue to focus on uncovering the best opportunities for your long-term goals. As more data and insight come in, we will keep you informed every step of the way.

ECONOMIC CALENDAR

Monday: U.S. Markets Closed for Labor Day
Tuesday: Factory Orders
Wednesday: ISM Non-Mfg Index
Thursday: Productivity and Costs, Bloomberg Consumer Comfort Index

Markets Bounce Back – Weekly Update for August 28, 2017

by

2017-08-28 blog image FINALAfter several weekly losses, the major domestic indexes all ended in positive territory on Friday, August 25. The S&P 500 gained 0.72%, the Dow was up 0.64%, and the NASDAQ added 0.79% for the week. International stocks in the MSCI EAFE also increased by 0.58%.

Last week provided a number of economic updates, and a report from Fed Chair Janet Yellen helped push the markets higher. Rather than providing a rundown of every report, we want to focus on two in particular that give key information on economic health—and a reminder to look beyond the headlines.

Beyond the Headlines in Housing and Manufacturing

Housing Drops

  • The headlines: Sales of both new and existing homes fell in July.
  • The deeper story: Relatively few existing houses are available for purchase. In addition, builders are focusing on more lavish new homes rather than the modest ones that many buyers seek. As a result, the median price of a new home hit its highest July level ever, climbing to $313,700—6% higher than this time last year. Existing home prices are also 6.2% above where they were in July 2016.
  • The takeaway: High prices may be excluding first-time homebuyers from the market—especially for new houses.

Manufacturing Declines

  • The headlines: Durable goods orders plunged by 6.8%.
  • The deeper story: The headline’s stated monthly decline is largely due to a sharp drop-off in orders for transportation equipment, in particular for civilian aircraft. However, if you dig deeper, you will see that July’s civilian aircraft decrease follows a massive 129.3% increase in June, calming any concerns about the aircraft industry. Overall, orders for core goods beat expectations and could help drive a higher reading for second quarter GDP.
  • The takeaway: Orders and shipments for many key goods increased in July, which points to positive sentiment among businesses—and good news for the economy.

On the Horizon

This week, we will receive the second reading of second-quarter GDP, as well as both Consumer Confidence and Consumer Sentiment updates. Furthermore, according to President Trump’s Chief Economic Advisor, an announcement on tax reforms will occur on August 30. Together, these reports could affect market behavior and indicate both where the economy has been and what may be on the horizon.

As always, while we pay attention to today’s headlines and updates, our focus remains solidly on how to move you toward the future you desire. Should you have any questions, we are here to help.

ECONOMIC CALENDAR

Tuesday: Consumer Confidence
Wednesday: GDP, ADP Employment Report
Thursday: Personal Income and Outlays
Friday: Motor Vehicle Sales, PMI Manufacturing Index, ISM Mfg Index, Consumer Sentiment

Markets Turn Jittery – Weekly Update for August 14, 2017

by

2017-08-14 blog imageLast week, rising tension between North Korea and the U.S. rattled the world’s markets. As the two countries traded tough words, concerns escalated and markets reacted emotionally to the news. Though stress is building internationally, we remain committed to focusing on the market fundamentals that drive long-term value.

We recently published a special update outlining the details of how markets have reacted to other significant geopolitical events. History shows that markets can fall in the wake of alarming news but do recover, given time. We encourage you read through the post and talk to us if you have questions or concerns. You can find the special update HERE.

Amidst the pressure last week, volatility returned to markets—and all three major U.S. market indexes turned south. The Dow dropped 1.06%, the S&P 500 fell 1.43%, and the NASDAQ declined 1.50%. Global markets also reacted as the MSCI EAFE lost 1.59% for the week.

Though international developments dominated headlines, economic news important to markets and investors continued to roll out. The data reflects a solid economy, but some possible headwinds are on the horizon. Here are the highlights:

  • Impressive Corporate Earnings: Q2 corporate earnings reports both domestically and internationally were impressive. Reported corporate earnings in the U.S. increased an average of over 10% for the second quarter in a row—their first time doing so since 2011.
  • Low Inflation: The consumer price index, which measures changes to the average price of specific goods and services, rose only 0.1% in July. Expectations for a 0.2% increase failed to materialize as housing and travel costs, wireless services, and auto sales all slumped in July. At 1.7%, year-over-year inflation remains below the Federal Reserve’s targeted 2% growth rate. Continued low inflation may cause the Fed to rethink its plans to raise interest rates.
  • Rising Demand for Labor: Labor markets continue to be a key economic driver as evidenced by sharply rising job openings. June’s job openings jumped to 6.2 million from 5.7 million in May. Year-over-year, job openings climbed an impressive 11.3%. Moreover, jobless claims remain at historic lows.
  • High U.S. Household Debt: The current outstanding consumer debt of $12.7 trillion is now higher than the previous record reached in 2008. This debt load could wind up being a drag on consumer spending and the economy as a whole.

What Is Ahead

Tense geopolitical headlines may continue, but there will be plenty of market news, too. Retail, manufacturing, and housing data will come out this week, and Friday’s August consumer sentiment numbers will be of interest. Though the markets may move with emotions, economic fundamentals should continue to be the base for long-term value.

No matter what questions you may have, we always welcome you to reach out and contact us. We are here to help.

ECONOMIC CALENDAR

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

Markets Remain Bullish – Weekly Update for August 7, 2017

by

2017-08-07 Blog image

Another week of economic performance brought more news that the markets continue their bullish streak. After eight consecutive record-high closings, the Dow rose above 22,000 for the first time ever and finished the week up 1.20%. The S&P 500 was up 0.19% for the week, and the NASDAQ slightly fell by 0.36%. Meanwhile, the MSCI EAFE closed with a 0.82% increase.

The positive news continued with other upbeat reports. Manufacturing and employment each posted impressive numbers, suggesting a favorable Q3 start. And investors are looking ahead to possible Fed action on unwinding its balance sheet and bumping interest rates up again in December.

Here are key market developments that emerged last week:

Manufacturing Is On the Rise

Manufacturing is gaining speed as a key economic factor for Q3 and Q4. In June, new factory orders rose to almost a 10% annual increase, the best rate in the last 3 years. Unfilled orders also jumped 1.3% on rising demand for transportation equipment and capital goods. In addition, business confidence is at a 6-month high and inventories are up, though inflationary pressure remains soft. As a result, factory payrolls jumped 16,000 in July on top of June’s 12,000 increase.

Jobs Reports Remain Robust

Last Friday’s Employment Situation report marks the 5th time this year that payroll growth surpassed 200,000. While analysts predicted payrolls would grow by an additional 178,000, the actual number came in at 209,000. The solid employment increase helped lower the unemployment rate to 4.3%—the best rate since 2001.

Average hourly earnings also rose last week. The welcomed 0.34% increase on the month was the highest increase since October. Analysts hoped that low unemployment numbers would push yearly wage growth to over 3%, but year-to-date numbers continue to hover around growth of 2.5%.

Federal Reserve Weighs Options

Expect the Fed to raise interest rates in December by an additional ¼ point, though Fed Chair Janet Yellen has indicated that low inflation remains a concern for the economy. Despite robust financial markets, low unemployment, and a flourishing job market, inflation sits below the targeted 2% increase, with modest increases in both wage growth and consumer spending. Some analysts think that soft inflation could give pause to a year-end Fed rate hike.

Many observers believe the Federal Reserve will begin in September to shrink its $4.5 trillion balance sheet. The Fed balance sheet consists primarily of U.S. treasury bonds and mortgage-backed securities. To reduce this position, the Fed can either sell those securities, or it can opt not to reinvest securities as they mature.

What Is Ahead

Domestically

Widespread positive indicators are at the heart of a solid start to Q3. In addition to rebounding manufacturing activity and robust employment data, other aspects of the economy are brightening:

Internationally

In addition, economies around the world are moving in the right direction. The euro economies are showing continued strength, while emerging economies are expanding at their fastest rate since 2014.

As always, we encourage you to continue focusing on your long-term goals. Should you have any questions about the economy or your financial life, we are here for the conversation.

Economic Calendar

Tuesday: Job Openings and Labor Turnover Survey (JOLTS)
Thursday: Jobless Claims
Friday: Consumer Price Index

What’s Next?

Subscribe Schedule a Meeting Ask a Question

Connect With Us

Call Us (419) 425-2400