Hixon Zuercher Capital Management

Fee-only Registered Investment Advisor in Findlay, Ohio 45840

Volatile Markets Continue – Weekly Update for March 5, 2018

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Volatility continued last week as markets posted their 1st weekly loss in 3 weeks. Despite some recovery on Friday, the S&P 500 dropped 2.04%, the NASDAQ slipped 1.12%, and the Dow lost 3.05% for the week. Internationally, the MSCI EAFE fell 2.91%.

Last week’s ups and downs began with continued questions over whether the Fed will raise interest rates. By the week’s end, however, rumors of an international trade war dominated the attention of investors.

Fed Suggests Raising Interest Rates

New Fed Chair Jerome Powell testified on Tuesday that inflation and a strong economy may lead to interest rate hikes sooner than expected. Whether the Fed will impose a 4th hike this year caused investor uncertainty and led to mid-week market drops. Powell noted, however, that increased market volatility will not influence the Fed’s decisions regarding rate increases.

Trump Announces Tariffs on Imports

Investor attention shifted on Thursday as President Trump announced plans to impose a 25% tariff on steel and a 10% tariff on aluminum imports. While the move could protect American metal workers, some analysts worry it may also trigger a possible trade war.

Countries around the world reacted to the news, with some announcing their own plans for U.S. tariffs in response. Over the weekend, the President reacted by noting possible tariffs on imported autos, where the U.S. has a deficit. Some analysts worry this could further hurt an already negative trade gap in our Gross Domestic Product (GDP).

Signs of Strength

Despite the developments with tariffs and rising interest rates, we did receive encouraging economic reports: 

  • Strong Consumer Sentiment: Last month’s consumer sentiment report hit its 2nd highest recording in over 10 years. Upon the approved tax bill, companies gave nearly $30 billion in bonuses, boosting consumer incomes and attitudes.
  • Outstanding Jobless Claims: Last week’s reported jobless claims were the lowest in 49 years. A healthy demand for labor and few layoffs have helped keep unemployment numbers low.

What’s ahead?

Expect more market volatility going forward as investors follow the Fed’s interest rate plans to keep potential inflation in check. The President has also promised to announce specific details concerning the proposed new tariffs this week. If you have questions concerning how these developing economic policies may impact your financial life, we are always here to help.

ECONOMIC CALENDAR

Monday: ISM Non-mfg Index
Tuesday: Factory Orders
Wednesday: ADP Employment Report
Thursday: Jobless Claims

Interest Rates, Treasuries, and Inflation – Weekly Update for February 26, 2018

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Last week, the Presidents’ Day holiday meant markets were only open for 4 trading days, and during that time, we received comparatively few economic reports. Nonetheless, major domestic indexes showed considerable volatility and posted losses for 3 straight days. By Friday, however, stocks rebounded and ended the week in positive territory. For the week, the S&P 500 gained 0.55%, the Dow added 0.36%, and the NASDAQ was up 1.35%. International stocks in the MSCI EAFE lost ground, dropping 0.50%.

What drove market performance last week?

Once again, inflation and interest rates were on many investors’ minds. In particular, multiple reports from the Federal Reserve contributed to performance.

On Wednesday, the Fed released minutes from its January meeting, which indicated that officials had concerns about inflation. The minutes revealed that between rising inflation and economic growth, the Fed sees justification for continued interest-rate increases. In reaction to the news, 10-year Treasury note yields hit their highest level in 4 years.

How do treasury yields and stock prices affect each other?

To say that the interaction between treasuries and stocks is complex would be an understatement. At its most basic, prices for stocks and bonds usually move in opposite directions. When stock prices go up, bond prices drop—and vice versa. For treasuries and other bonds, yields rise when their prices drop. As a result, when the stock market jumps, treasury yields often do, too.

Last Wednesday, however, rising yields may have contributed to a drop in the markets. Why?

Some investors become concerned when 10-year Treasury yields hit 3%, since that percentage level has aligned with bear markets for the past several decades. On Wednesday, the yields hit 2.94%—just a sliver away from that “warning” level.

Please note that the rate-driven analysis triggering this concern is likely far too simple and may not accurately predict what’s ahead. With that said, the concern still has the ability to affect investor reactions.

What happened later in the week?

Friday, the Fed shared more information with a new report on its monetary policy. The details helped allay some investors’ fears of interest rates increasing too quickly. In reaction, yields on 10-year Treasury decreased to 2.87%—and the S&P 500 had its largest gain in weeks.

What’s on the horizon?

After receiving multiple perspectives from the Fed last week—but relatively few new data updates—we should gain significant economic insight this week. From a Gross Domestic Product reading to perspectives on manufacturing and consumer confidence, investors will have many fresh data points to analyze. We will monitor these updates closely and continue to help you stay informed about where the economy stands and what to expect in your financial life.

ECONOMIC CALENDAR

Monday: New Home Sales
Tuesday: Durable Goods Orders, Consumer Confidence
Wednesday: GDP
Thursday: Motor Vehicle Sales, PMI Manufacturing Index, ISM Mfg Index
Friday: Consumer Sentiment

Markets Slide As Bond Yields Rise – Weekly Update for February 5, 2018

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After 4 straight weeks of gains, the markets have slipped. As of Friday, the S&P 500 lost 3.85%, the Dow dropped 4.12%, and the NASDAQ decreased by 3.53%. International stocks in the MSCI EAFE also took a 2.78% hit. Domestically, the losses spanned sectors and asset classes. For the S&P 500, all 11 of the index’s industries lost ground last week. This decline came after the S&P 500 had its best January performance in over 20 years.

So, what happened?

Looking at the markets’ sizable losses, you might expect that discouraging economic data came out last week—or some geopolitical drama spooked investors. On the contrary, the drops came in response to news that seems positive on the surface: Job and wage growth are picking up.

Reviewing the Jobs Report

On Friday, the Bureau of Labor Statistics reported that we added 200,000 new jobs in January and beat expectations. Average hourly wages also increased, bringing 2.9% growth in the past 12 months—the largest rise since 2008–2009.

Analyzing the Reaction

When labor data came out, bond yields jumped and 10-year Treasury yields hit their highest level in 4 years. Stocks sank in reaction to these interest rate gains.

Concerns about inflation are fueling this reaction. As wages grow, companies may increase their prices to support their rising labor costs—contributing to an inflationary cycle. With inflation can come rising interest rates.

As a result of this news, some investors became concerned that the Federal Reserve may increase interest rates this year more than initially expected.

Putting the Performance in Perspective

After the unusually calm market environment we experienced in 2017, last week’s declines may feel unsettling. However, price fluctuations are normal and the economy continues to be strong.

In addition, as domestic indexes reach high levels, viewing their declines in terms of points, rather than percentages, can cause unnecessary concern. You may have read reports that the Dow dropped 665.75 points on Friday, contributing to its 6th biggest points decline in history. But even after losing nearly 1100 points in 5 days, the Dow was only down 4.12% for the week and remained up 3.24% for the year.

Of course, every economic environment has risks, and no market can go up forever. We are aware of the risks that increasing inflation and interest rates may bring, and we are here to help you navigate what the future holds.

ECONOMIC CALENDAR

Monday: ISM Non-Mfg Index
Tuesday: International Trade
Wednesday: EIA Petroleum Status Report
Thursday: Jobless Claims

 

Stocks Up as Shutdown Looms – Weekly Update for January 22, 2018

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We’re only a few weeks into 2018, and stocks are showing quite a strong performance so far. Last week, major domestic indexes posted gains yet again, with all 3 up at least 5% this year. By Friday, the S&P 500 had added another 0.86%, and both the Dow and NASDAQ were up 1.04%. All 3 indexes hit new record highs at least once during the week.

In addition to the solid performance for U.S. equities, we’re also experiencing synchronized global growth. European and Asian stocks grew last week, and China’s growth data was more positive than expected. Overall, international stocks in the MSCI EAFE added a healthy 1.24% last week. Year to date, the MSCI is up 4.95%.

What happened last week?

Two key topics drove conversations: corporate earnings and a government shutdown.

  1. Corporate Earnings
    In the U.S., corporate earnings season dominated much of the economic news as reports continue to show companies doing well. For organizations that released their 4th-quarter results, 79% beat earnings projections and 89% exceeded sales estimates.
  1. Government Shutdown
    The Federal government shut down on Saturday morning, January 20th, after the House and Senate failed to pass a bill to extend funding. This shutdown is the first since 2013. 

How did these occurrences affect the markets?

While a potential shutdown loomed last week, overall, investors had little reaction to its possibility. Volatility did increase last week as investors waited to see whether or not the House and Senate would reach a compromise on government funding. However, the solid news from corporate earnings seemed to outweigh concerns about the Federal government. Rather than focusing on drama in Washington, many traders are paying attention to the strength in U.S. corporations’ fundamentals.

As more data unfolds, we will continue to monitor the relationship between government policy and economic performance. As always, if you have any questions about how current events and market developments may be affecting you, contact us any time.

ECONOMIC CALENDAR

Wednesday: Existing Home Sales
Thursday: New Home Sales, Jobless Claims
Friday: Durable Goods Orders, GDP

Stocks Start 2018 with Jump – Weekly Update for January 8, 2018

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The first week of 2018 is behind us, and across the globe, stocks experienced a strong start to the year. International stocks in the MSCI EAFE gained 2.44% last week. In the U.S., our major indexes also leapt forward, hitting a number of records and milestones.

Domestic Index Performance for the First Week of 2018

S&P 500:

  • Gained 2.60%
  • Hit 2,700 for the first time
  • Posted its largest weekly gain since December 2016

Dow:

  • Gained 2.33%
  • Hit 25,000 for the first time
  • Had its best yearly start since 2006

NASDAQ:

  • Gained 3.38%
  • Hit 7,000 for the first time
  • Posted its largest weekly gain since December 2016
  • Had its best yearly start since 2006 

What drove markets last week?

A variety of factors affected the markets last week—from tax reform to commodity prices. Interestingly, considering the indexes’ positive performance, one of the biggest economic headlines seemed to provide negative data: The U.S. economy added fewer jobs than anticipated.

On the surface, this report may seem like bad news for the economy. The missed projection, however, is likely less of a big deal than it appears at first. While hiring was lower than expected, wages picked up and the unemployment rate remained at 4.1%—the lowest rate since 2000.

Ultimately, this jobs report may be positive news for the markets. It shows that the economy is still adding jobs but not at a blistering pace. As a result, slower job growth could keep the Federal Reserve from raising interest rates too aggressively. Cleveland Fed President Loretta Mester said she believes, “We’re basically at maximum employment from the view of monetary policy.” She anticipates 3 to 4 rate increases this year. If the Fed continues with its gradual rate increases, this move could have a favorable affect on stocks.

As we move forward in 2018, we will continue monitoring a myriad of economic perspectives that may impact you, including any changes to monetary policy. For now, we are pleased to see the markets’ positive start to the year and look forward to guiding you through whatever lies ahead.

ECONOMIC CALENDAR

Tuesday: JOLTS
Thursday: Jobless Claims
Friday: Consumer Price Index, Retail Sales

 

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