Hixon Zuercher Capital Management

Fee-only Registered Investment Advisor in Findlay, Ohio 45840

More Record Highs – Weekly Update for October 16, 2017

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Last Friday, all 3 major domestic indexes continued their streak of weekly gains and record highs. The S&P 500 added 0.15%, and the Dow was up 0.43%. Meanwhile, both indexes posted their 5th weekly gain in a row. In addition, the S&P 500 and Dow each hit intraday trading records on Friday. The NASDAQ also increased 0.24%, ending on a record high with a 3rd straight week of growth. International stocks in the MSCI EAFE rose as well, gaining 1.61% for the week.

What drove market performance last week?

We received a number of new reports last week, including data showing jumps in the Producer Price Index, Consumer Price Index, and Retail Sales. Recovery efforts from hurricanes contributed to the gains in all three of these readings. And they could continue to affect the markets for a while.

In addition to this new data, two key events contributed to the markets’ continuing growth: 1) a positive start to earnings season and 2) high consumer sentiment numbers.

  1. Earnings Season Started Strong
    Companies have started releasing their 3rd quarter earnings reports, and so far, 87% of them beat bottom-line expectations. Corporate earnings have been strong since Q4 2016, and this quarter will likely continue that trend. However, the growth rate may not match what we have seen for the past few earnings seasons.

 

  1. Consumer Sentiment Hit 13-Year High
    After 8 years of economic growth, many consumers are feeling more content about their circumstances. The University of Michigan’s consumer sentiment poll for September revealed that consumers held positive perspectives overall—across income, age, and political spectrums. Last month’s reading has the highest consumer sentiment since 2004.

We believe that the ongoing record highs we are witnessing are a good reminder to not let headlines or fear drive your financial choices. This year has certainly provided a variety of geopolitical drama to distract from the economic fundamentals. Nonetheless, in 2017, U.S. share prices have gained $3 trillion in value so far. At the same time, investors have taken $45 billion out of their ETFs and mutual funds—essentially missing this market rally.

Investors exit markets for myriad reasons. But when emotion drives choices, rather than true strategy, those decisions can have a lasting affect on long-term goals. If you have questions about how the markets are performing—or what choices you should be considering right now—we are always here to talk.

Economic Calendar

Tuesday: Industrial Production, Housing Market Index
Wednesday: Housing Starts
Thursday: Jobless Claims
Friday: Existing Home Sales

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

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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 Cautious but Resilient – Weekly Update for August 21, 2017

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2017-08-21 Blog ImageFrom domestic unrest to international terrorism, last week provided many headlines that could easily rattle the markets. While we did see days with volatility and declines, the major indexes remained relatively flat. For the week, the Dow was down 0.84%, the S&P 500 dropped 0.65%, and the NASDAQ fell 0.64%. On the international front, the MSCI EAFE remained virtually the same last week as the week before, recording a microscopic 0.0014% increase.

Why didn’t the markets react to the geopolitical turmoil by turning sharply negative? As we’ve shared before: Headlines shouldn’t drive long-term market behavior—economic fundamentals should. Last week, we received reports indicating the economy continues to be strong in a number of areas.

Here is a closer look at last week’s important economic news:

  • Robust Retail Sales: July retail sales rose 0.6%, beating expectations and showing strength in a variety of retail categories.
  • Strong Business Inventories: Factory, warehouse, and retail business inventories all jumped for a combined 0.5% increase in June. The data looks promising—inventory levels tend to rise in positive economic environments.
  • Uneven Industrial Activity: Industrial production rose 0.2% in July. This growth was lower than expected due to declining motor vehicle production dragging on the index.
  • Mixed Housing Data: The housing market index surged by 4 points as home-builders experience an increasing demand from buyers. But despite the growing appetite for new construction, July’s housing starts slipped, in part because builders are struggling to find experienced labor and new sites to build on.

Looking Ahead

This week, we will receive more data that helps deepen our perspectives on housing market health, Q3 expectations, and the Fed’s upcoming plans.

In this time of dramatic headlines and geopolitical uncertainty, we want to remind you that you are in control of your wealth and financial future. No matter what the talking heads want you to believe, stay focused on market fundamentals. Please call or email if you have any questions concerning specific market data or larger, developing issues.

ECONOMIC CALENDAR  

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

Markets Turn Jittery – Weekly Update for August 14, 2017

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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

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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?

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