How Rising Interest Rates Can Inspire Your Portfolio – Weekly Update for March 20, 2017

For the fifth time in six weeks, domestic stock indexes ended last week in positive territory. The S&P 500 gained 0.24%, the NASDAQ added 0.67%, and the Dow eked out a 0.06% increase. International equities in the MSCI EAFE grew by a sizable 1.99%.

Over the week, we received a series of economic updates that gave a mostly positive view of the economy’s progression, including the following data for February:

In addition, the most recent data indicated that fewer people filed for unemployment benefits the week of March 11. We have now experienced 106 straight weeks of unemployment claims staying below 300,000 people, which is a healthy labor market indicator.

Given this information—and the wealth of economic data released recently—the markets expected the Federal Reserve’s March 15 decision to raise benchmark interest rates. Last week’s 0.25% increase is only the third jump since the Great Recession, and the pace of hikes is quickening. The Fed has now raised rates in December 2015, December 2016, and March 2017 and expects at least two more increases this year.

Like with all economic data, understanding the context is critical. While interest rates are on the rise, they are still low, as you can see in the chart below.

How will rising rates affect your financial life?

When the Fed raises rates, they are demonstrating a belief in the economy’s strength. As with all changes to monetary policy, the outcomes can be complex and interconnected. While no one can predict the future, here are a few places where interest rates may affect your finances:

  1. Stocks

Stocks rose following the Fed’s announcement, with the S&P 500 gaining 0.84% on Wednesday. A strong economy is good for stocks; but anticipating exactly what lies ahead is impossible because so many outside forces impact equities. Right now, however, the markets are performing well and responding positively to increasing rates.

  1. Bonds

Generally speaking, as interest rates rise, bond yields go up and their prices go down—with long-term bonds suffering the most. However, those are not hard-and-fast rules for how to move forward. Your specific needs and strategies will determine the best way to move forward with bonds in a rising interest rate environment.

  1. Revolving Debt

If you have revolving debt—credit cards, home equity line of credit, etc.—and your interest rates are variable, you will likely see a difference in your payments very soon. In fact, a 0.25% increase like we experienced last week may cost consumers an additional $1.6 billion in credit-card finance charges in 2017 alone.

  1. Cash

When revolving debt interest rates go up, banks may quickly adjust the interest rates they charge, but they often wait to increase the interest rates they pay. Right now, the average savings account pays 0.11% interest, but some institutions offer rates up to 1.25%. Finding opportunities to capture a larger return on your cash is possible.

If you have questions about why the Fed is raising rates and how their choices may affect your life, we are always here to talk. Our goal is to give you the insight you need to feel informed and in control of your financial future.

ECONOMIC CALENDAR
Wednesday: Existing Home Sales
Thursday: New Home Sales
Friday: Durable Goods Orders

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

January Reporting & An Up Market – Weekly Update for February 21, 2017

Another week, another round of record highs. Despite concerns about how France’s upcoming presidential election could affect the European Union’s stability, U.S. stocks ended the week up yet again. The S&P 500 gained 1.51%, the Dow added 1.75%, and the NASDAQ increased 1.82%—growth that represents record highs for all three indexes. International equities in the MSCI EAFE also posted positive returns, with 0.78% growth for the week.

A number of data reports also came out last week, and they tell a mostly encouraging story about the economy right now.

JANUARY INCREASES

Consumer Price Index Up by 0.6%

The Consumer Price Index (CPI), which measures the average prices of specific consumer goods and services, beat expectations and experienced its largest month-over-month jump since 2013. The index is now 2.5% higher than a year ago, a sign that inflation could be picking up.

Producer Price Index Up by 0.6%

Whereas the CPI evaluates price changes from a consumer’s perspective, the Producer Price Index (PPI), measures changes from the seller’s perspective. For January, the PPI also beat expectations, with energy experiencing a 4.7% increase.

Retail Sales Up by 0.4%

The monthly Retail Sales report shows growth or contraction in consumer demand for goods and can help indicate whether the economy is expanding. In addition to January’s 0.4% growth, the latest report included upward revisions for November and December 2016. Overall, Retail Sales are up 5.6% over January 2016.

Small Business Optimism Index Up by 0.1 points

Each month, the National Federation of Independent Business (NFIB) releases the results of its Small Business Optimism Index, which shows results from its member surveys. This report measures the mood of small business owners—the largest employers in the U.S.—and January’s results are the highest reading since December 2004. Last month’s growth comes on the back of December’s 7.4 point jump, the survey’s largest ever increase. In other words, small business owners are interested in hiring and expanding, good news for American workers and the economy.

JANUARY DECREASES

Industrial Production Down by 0.3%

Last month, industrial firms, such as factories and mines, produced a lower volume of raw goods. If you dig deeper, however, the data is likely less concerning than what it may seem at first. For example, warmer-than-normal temperatures in the contiguous U.S.—a factor that does not have to do with the economy—contributed to utility output’s 5.7% decrease, the largest drop since 2006.[xv]

Housing Starts Down by 2.6%

The number of new houses beginning construction fell in January, but future construction permits increased by 4.6%—higher than any time since November 2015.[xvi] Housing Starts are also up 10.5% over January 2016.[xvii] While the most recent report shows a monthly dip, the data indicates that housing has grown over the past year and will continue to grow in the future.

As you can gather from the balance between data increases and decreases, the January reports we received last week indicate an economy that is growing. We will continue to monitor the pace of growth and stay on top of political developments as we strive to determine what changes or opportunities may be on the horizon.

ECONOMIC CALENDAR

Monday: U.S. Markets Closed for Presidents Day Holiday
Wednesday: Existing Home Sales
Friday: New Home Sales, Consumer Sentiment

January Jobs Jump – Weekly Update for February 6, 2017

Political headlines continued to fill the news last week, and while domestic markets declined during mid-week trading, they rebounded on Friday, February 3. Overall, the week showed only modest movement, as the S&P 500 added 0.12%, the NASDAQ was up 0.11% to end at a record high, and the MSCI EAFE grew by 0.01%. The Dow was down by 0.11% but still managed to end above 20,000 after dipping below this benchmark between Tuesday and Thursday.

So, why did domestic markets perform well on Friday? A better-than-expected jobs report.

The January Jobs Report

Depending on which survey you look at, economic experts predicted the economy would add an average of between 175,000 and 180,000 jobs in January. Instead, on Friday, the Bureau of Labor Statistics’ report showed the economy added 227,000 jobs last month—far higher than predicted. This increase means job growth has continued for 76 months in a row.

You gain a much clearer picture, however, when you look beyond the big headlines and see what other data tells us. Here’s a quick rundown of what we found:

Hourly Earnings Increased, but by a Very Small Margin

Average hourly earnings grew by only 3 cents in January—and showed a 2.5% increase over last year. This monthly growth is less than a third of what we saw in December 2016. However, one industry in particular may have caused these slower gains, as a 1% decrease in financial industry earnings depressed overall wage growth.

Unemployment Increased, but for a Potentially Positive Reason

When you hear that unemployment increased from 4.7% in December to 4.8% in January, this may sound like bad news. However, a major reason for this increase is that labor force participation grew by 0.2% in January, the first increase in months. In other words, after sitting on the sidelines, more people are now rejoining the labor force and creating additional opportunities for economic growth.

Jobs Are Available, but Workers May Need Training or Relocation

While labor force participation increased last month, its 62.9% rate is still near the lowest level in decades. According to Glassdoor Chief Economist Andrew Chamberlain, approximately 5.5 million jobs remain open in the U.S.—close to a record number. Some of these jobs, such as retail and food service, don’t require much training, but they aren’t always located near where unemployed workers live. Other jobs in the hot fields of healthcare and technology require training and skills that many workers simply do not have right now. As a result, closing the gap between open jobs and willing workers is a complex challenge for employers and job-searchers alike.

The Bottom Line

The labor market is continuing to improve, but the pace remains slower than what most people would prefer. Nonetheless, the Bureau of Labor Statistics’ latest revisions show that private-sector payrolls have increased for 83 straight months, the longest growth streak since the 1920s.

How any potential new pro-growth policies affect the labor market remains to be seen, as does how to fill the millions of open jobs available right now. In the meantime, people are working more hours for higher pay than they were this time last year, and job participation is growing.

ECONOMIC CALENDAR:
Monday: Labor Market Conditions Index
Tuesday: International Trade
Wednesday: EIA Petroleum Status Report
Friday: Import and Export Prices, Consumer Sentiment

 

New Year, New Market Highs – Weekly Update for January 9, 2017

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The first trading week of 2017 is over, and during this time, all three major domestic indexes hit record highs. The DOW reached 19,999.63 in intra-day trading on Friday, January 6 —just 0.37 away from achieving 20,000 for the first time. On the same day, the S&P 500 and NASDAQ both closed at record highs. For the week, the S&P 500 was up 1.70%, the Dow gained 1.02%, and the NASDAQ added 2.56%. International stocks in the MSCI EAFE increased by 1.77%.

To say that 2017 has started differently than 2016 would be an understatement. This time last year, we ended the week with all three indexes dropping at least 5.96% on fears about China’s economy.

What else happened last week?

In addition to record highs in the markets, we received a number of economic reports, which provided a mix of positive and less-than-ideal data.

Jobs Grew, But Missed Projection: The Bureau of Labor Statistics reported that U.S. employers added an estimated 156,000 non-farm jobs in December. This number missed economists’ projections of 178,000 new jobs but also marked the 75th straight month of job growth.

Unemployment Increased: The percentage of individuals actively seeking jobs in the U.S. increased by 0.1% in December, meeting expectations that it would reach 4.7%.

Wages Grew: One bright spot in this week’s labor report was a 0.4% increase in average hourly earnings. After sluggish growth through much of the economic recovery, wages increased by 2.9% in 2016.

Trade Deficit Increased: In November, U.S. exports declined as our imports grew, pushing the trade deficit to a nine-month high. The inflation-adjusted trade deficit is now $3.2 billion bigger than a year ago, an increase that could deflate Gross Domestic Product for the fourth quarter of 2016.

Manufacturing Hit Two-Year High: For the fourth consecutive month, the ISM manufacturing index showed growth in the manufacturing industry. December’s reading of 54.7 beat expectations.

Services Sector Beat Expectations: The ISM non-manufacturing index, which surveys economic data from executives in 60 service sectors, grew for the 83rd straight month. December’s measure of 57.2 matched November’s reading and beat economists’ predictions of a drop to 56.6.

Overall, beginning a new year with record highs in the markets is encouraging for all of us as investors. Many of the fundamentals seem to point to an economy that is picking up speed—but only time will tell how our new presidential administration’s policies will affect us in the future.

We hope to see continued growth and stability, and no matter what lies ahead, we will be here to guide you toward the goals and priorities that matter most to you.

ECONOMIC CALENDAR:

Monday: Labor Market Conditions Index, Consumer Credit

Tuesday: JOLTS

Thursday: Import and Export Prices

Friday: PPI-FD, Retail Sales, Consumer Sentiment

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Rising Rates and Your Portfolio – Weekly Update for December 19, 2016

rates-are-upLast week was mixed for the markets, as the Dow increased by 0.44%, while the S&P 500 lost 0.06%, the NASDAQ dropped 0.13%, and the MSCI EAFE gave back 0.55%. We also saw a variety of data released, giving a similarly mixed view of recent economic activity. Retail sales and the Consumer Price Index showed modest gains, while industrial production and housing starts both declined.

The biggest headline from last week, however, was a development the market anticipated for quite some time: The Federal Reserve decided to raise its benchmark interest rates—for only the second time since 2006.

Why did the Fed raise rates?

The Federal Open Market Committee (FOMC), the group of Fed officials who meet to determine interest rates and other policies choices, has a mandate to “foster maximum employment and price stability.” In its quest to uphold this mandate, the FOMC aims to keep inflation at 2%, as this level can help support accurate financial forecasting and decisions while preventing harmful deflation.

The act of adjusting interest rates can help control inflation and support economic strength. At its most basic, when the Fed lowers rates, they are indicating that the economy is contracting—and when they raise rates, they are indicating that the economy is growing.

When describing her organization’s decision to raise rates this month to a range of 0.5 – 0.75%, Fed Chairwoman Janet Yellen said, “My colleagues and I are recognizing the considerable progress the economy has made. We expect the economy will continue to perform well.” The FOMC also said they may introduce three additional interest rate increases in 2017, up from their previous prediction of two raises.

In other words, the Federal Reserve believes our economy is on the right track and inflation may begin to rise. They are using the tool of interest rate increases to help keep employment and inflation at healthy levels.

How did the markets react to the interest rate increase?

Overall, investors seemed to react reasonably to the interest rate increase. The VIX, a measure of expected volatility in the markets, increased by 4.6%—but it remains at low levels. In other words, the likelihood of great volatility seems slim.

One area of the market, however, did not respond well to the Fed’s interest rate increase and inflation increase prediction: bonds. This summer, global bond markets experienced a rally in response to a variety of factors, including potential slowing economic growth worldwide. But since the U.S. election, the value of government debt has dropped by more than $1 trillion, as investors now expect greater inflation and a quickening economy. Essentially, the faster the economy and inflation grow, the less value that long-term government debt holds—contributing to the bond market’s recent losses.

How could the rate increase affect you?

Rising interest rates have both positive and negative effects for individuals. If you have money earning interest in the bank, you can expect to earn a slightly higher return. Conversely, if you borrow money—such as taking out a new mortgage or refinancing existing liabilities—your interest rate may be higher than before the Fed’s announcement.

In addition, the interconnected relationships between equities, bond markets, and other financial vehicles will evolve as interest rates increase. These shifts can be much more complex, and we are here to help you stay on top of any changes and align your financial life with the current market environment.

ECONOMIC CALENDAR

Monday: Janet Yellen speaks at 1:30 p.m. ET
Wednesday: Existing Home Sales
Thursday: Durable Goods Orders, GDP
Friday: New Home Sales, Consumer Sentiment

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Enjoying the Rally, Focused on the Future – Weekly Update for December 5, 2016

2016-12-05-blog-imageAfter a three-week run where all major U.S. indexes posted significant gains, we saw more mixed results last week. The Dow was up 0.10%, but the S&P 500 lost 0.97% and the NASDAQ was down 2.65%. The MSCI EAFE’s measure of international developed markets also dropped 0.24%.

Rallies such as the one we’ve experienced since Donald Trump’s election can’t go on forever, so we aren’t too concerned about these minor pullbacks. In fact, as we’ve recently said, when you look more deeply at the data, we see many reasons to believe that our economy is moving in the right direction.

Good News This Week

Positive economic news for the U.S. continued to come in this week, including reports that:

Of course, despite the ongoing indications that our economy is doing well, everything isn’t perfect in the U.S. We’d like to see the economy growing even faster than it is. And while unemployment is low, the measure of people who are underemployed is still too high at 9.3%.[vi]

Overall, we continue to see signs that our plow-horse economy may be picking up speed and building greater strength in the process.

Potential Risk: Italian Referendum

 From our perspective, the most immediate risk to market performance could be the Italian Referendum. On December 4, Italians voted against Prime Minister Matteo Renzi’s constitutional amendment that would have reduced their Senate’s size and power while limiting the regional governments’ strength. From Renzi’s perspective, this move would stop the gridlock so common in Italy’s government while helping to stabilize the country, improve investor confidence, and speed economic recovery.

As 2016 has shown us with the unexpected victories of Brexit and Donald Trump, populist sentiments are on the rise worldwide. The Italian “No” vote not only represents a concern with concentrating power in the federal government but also a general pushback against the ruling party and status quo.

Now that “No” has prevailed, we may see additional instability in Europe. Prime Minister Renzi has promised to step down, leaving big questions about who will lead Italy and how they will find a new leader. In addition, some of Italy’s largest banks may now be at risk of insolvency, as they have fewer tools for lifting the $380 billion of bad loans that weigh them down.

No one knows what the long-term outcomes of this vote will be for Italy or Europe. We anticipate that some ripples of volatility may wash up on our shores in the process. We hope that, similar to Brexit, the initial market reaction will not last for long and that investors will quickly return to a focus on growth and fundamentals.

How to Move Forward With Confidence

From the first quarter’s stock-market volatility to a number of surprising votes, this year has presented many opportunities for emotions to enter investing. We understand how tempting it may be to sell when equities aren’t performing well —and to pursue greater growth when they are. Ultimately, emotions have no place in investing.

Recently, we’ve spoken to many clients who want to ride the post-election growth train. Just as we’re here to help you from despairing when stocks tumble, we also want to help control euphoria when the markets rally. Rallies can’t continue forever, and impulsive choices can challenge your security. As always, we want you to take the right amount of risk for your unique circumstances and stay focused on the long-term goals that we’re pursuing together.

If you have any questions about how current events are affecting your financial life, we are here to talk. Please contact us any time.

ECONOMIC CALENDAR:

 Monday: ISM Non-Manufacturing Index
Tuesday: International Trade, Productivity and Costs
Wednesday: Gallup U.S. Job Creation Index
Friday: Consumer Sentiment

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What Does Year-End Hold For Our Strengthening Economy? – Weekly Update for November 21, 2016

interest-rates-could-riseFor the second straight week, the major domestic indexes all ended in positive territory: The S&P 500 was up 0.81%, the Dow increased 0.11%, and the NASDAQ added 1.61%. While American indexes performed well, MSCI EAFE’s international equities declined 1.58%.

With the long, drawn-out presidential election behind us, investors are beginning to look past politics and pay closer attention to the economic fundamentals. As we’ve shared in recent market updates, the economy shows many signs of strength and growth. In the past few weeks alone:

Of course, the economy is far from perfect — and growth is still slower than we’d like — but the overarching message is that the economy is doing well.

Thus, we were not surprised this week when Federal Reserve Chair Janet Yellen said an interest rate hike “could well become appropriate relatively soon.” Despite what talking heads might warn on television, you should not be afraid of increasing interest rates.

The last increase, which took place in December 2015, may have contributed to the volatility we experienced at the beginning of this year. However, the markets have certainly recovered from their momentary stumble — with all major domestic indexes posting at least 6% increases year to date.

Volatility could increase for a short time after the next interest rate increase, but it also may not. Right now, we see the markets reacting positively despite a 90% chance of the Fed increasing rates next month.

In other words, we believe investors are seeing a potential rate increase as the good news that it is, because it indicates faith in our economy. When Yellen and the Fed decide to raise rates, they are demonstrating belief that the economy is strong enough to move back toward historically normal levels.

We’ve become so accustomed to this post-recession rate world that it’s easy to forget just how unusually low our current 0.5% rate is. Even if we move to 0.75% next month, borrowing money is still incredibly inexpensive, and we have additional room for future increases.

We are heartened to see the economy continue to grow, and President-Elect Trump’s policies may quicken the pace beyond what we’ve experienced in the recovery so far. Of course, as we’ve seen many times this year, a likely outcome isn’t the same as a guaranteed one, so we’ll have to wait and see what the Fed decides in December.

In the meantime, we encourage you to look beyond pundits’ histrionics and headlines to see that our economy is strengthening. We are here to help you make the most of it.

ECONOMIC CALENDAR:

Tuesday: Existing Home Sales
Wednesday: Durable Goods Orders, New Home Sales, Consumer Sentiment
Thursday: Markets Closed for Thanksgiving
Friday: International Trade in Goods

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Stay the Course: Choosing Confidence in an Uncertain Market – Weekly Update for November 7, 2016

2016-11-07-blog-pictureWe’re in the middle of an interesting moment for the markets, where short-term volatility and uncertainty might lead you to believe that the economy is faltering. After all, the major stock indexes lost ground last week, with the S&P 500 losing 1.94%, the Dow dropping 1.50%, the NASDAQ dipping 2.77%, and the MSCI EAFE declining 1.59%. On top of these losses, the S&P 500 posted its longest losing streak since 1980.

Of course, we never like to see the markets go down. However, we believe that when you look beneath the surface, the economy is still doing far better than what this week’s performance implies. Behind the losses and ongoing election exhaustion, we see a number of strong indicators that the economy is growing. This week, we learned that the trade deficit shrank, the service sector grew for the 81st consecutive month, and manufacturing continued its steady growth.

On Friday, November 4, we also got to see new data on jobs and payrolls — the last significant economic report before Election Day.

What did the jobs report show us?

  • Unemployment Rate Dropped

The unemployment rate hit 4.9%—only 0.1% above the Federal Reserve’s target unemployment rate.

  • Economy Added 161,000 Jobs

While this job creation rate was below economists’ predictions, we don’t think it is cause for concern. The growth was matched by revised August and September reports that added another 44,000 jobs.

  • Hourly Earnings Increased

Earnings increased by 0.4%, pushing them 2.8% higher than this time last year. We haven’t seen an earnings increase this large since 2009.

  • People Left Their Jobs at Higher Rates

Last month showed the highest number of people who voluntarily left their jobs since 2007. This statistic matters because it can show that people are more confident they’ll be able to find new jobs.

Our Takeaway

For years, this plow horse economy has been adding new jobs at a slow and steady pace. Now that we’ve almost reached the benchmark unemployment rate, people are finally starting to see their wages increase and new opportunities arise. Typically, better jobs mean more disposable income, which equals increased consumer spending—and economic growth.

The rest of 2016 might not be a smooth ride, as the election and potential interest rate increase remain on investors’ minds. We hope you find comfort knowing that beneath this short-term volatility, we see growing economic strength.

 

ECONOMIC CALENDAR:

Monday: Gallup U.S. Consumer Spending Measure, Consumer Credit

Tuesday: U.S. Presidential Election

Wednesday: Wholesale Trade, EIA Petroleum Status Report

Thursday: Treasury Budget

Friday: Banks Closed but Markets Open, Consumer Sentiment

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Quarter End Questions – Weekly Update for October 3, 2016

2016-10-3-blog-imageThe presidential debate, surging oil prices, and concerns about a global bank all took their toll on the market last week; however, we were pleased to see a positive quarter end for stocks. For the week, the S&P 500 gained 0.17%, the Dow grew 0.26%, the NASDAQ edged up 0.12%, but the MSCI EAFE lost 0.87%.

Why did Deutsche Bank affect markets?

Last week, concerns about one of the world’s largest banks caused investors to worry that a new “Lehman moment” might spark a new financial crisis. Germany’s scandal-prone banking giant is facing financial penalties in the U.S. for the role it played in the financial crisis; the bank’s problems are causing key clients to distance themselves and analysts wonder about the firm’s financial health. Investors reacted to Deutsche Bank’s woes negatively, setting off a 200-point drop in the Dow Jones Industrial Average on Thursday.

A similar loss of confidence in Lehman Brothers in 2008 caused counterparties (major clients) to ask the cash-strapped firm for their money back, triggering its collapse and the beginning of the financial crisis. However, Deutsche Bank is not Lehman, and the world is a different place than it was in late 2008. International financial institutions are not as dangerously interconnected as they were then, and global regulators are much better positioned to respond to situations that arise.

Markets agreed with that assessment and rebounded on Friday. While news from Deutsche Bank may still create headlines, we think the worst has passed. If you have any questions about Deutsche Bank or other financial firms, please reach out to us so we can respond to your concerns.

What does the data say about the economy in the third quarter?

With the third quarter officially in the rearview mirror, analysts are turning their attention to the data. Here’s what we know so far:

The third estimate of second-quarter economic growth showed that Gross Domestic Product (GDP) grew a stronger-than-expected 1.4%, up from initial estimates. Even better, some economists think the economy could have accelerated and grown 2.8% in the third quarter, which would put it closer to the pace we want to see. The latest September data on consumer sentiment, an important indicator of future consumer spending, shows that Americans are more confident in their financial prospects, possibly opening the door to higher spending in the critical holiday shopping season.

What might the final months of the year bring?

As we enter the final three months of 2016, markets are contending with some headwinds we’re watching. We can expect plenty of headlines around the presidential election as we get closer to November. Political beliefs aside, elections represent a lot of uncertainty, especially with wild-card candidates. Markets may react with relief after election uncertainty resolves; however, concerns about the changes a new administration will bring may also trigger further volatility.

Britain’s prime minister announced her intention to begin negotiating the UK’s Brexit from the European Union next spring. By 2019, Britain could be a sovereign nation once again, bringing a slew of changes to the EU. Ultimately, we don’t expect to see too much volatility around the Brexit until next year.

Oil prices might have finally hit bottom and be poised to rally this fall. Major oil producers, including Saudi Arabia and Iran, seem ready to coordinate production to bring oil prices back up. If a pact is made (and held), oil could head back toward $60/barrel next year, which would bring relief to beleaguered U.S. energy companies. However, higher oil process could bite consumers by making gas more expensive at the pump. It’s likely that oil prices will play a role in market movements in the weeks to come.

The week ahead is packed with data, including the September jobs report, which may factor into future Federal Reserve interest rate decisions. As always, we’ll keep you updated.

ECONOMIC CALENDAR:

Monday: Motor Vehicle Sales, PMI Manufacturing Index, ISM Manufacturing Index, Construction Spending

Wednesday: ADP Employment Report, International Trade, Factory Orders, ISM Non-Manufacturing Index, EIA Petroleum Status Report

Thursday: Jobless Claims

Friday: Employment Situation

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HEADLINES:

New home sales tumble in August. Sales of newly constructed homes fell 7.6% in August after surging in July to the highest level in nearly nine years. The retreat isn’t unexpected and further volatility in the housing sector may occur.

Durable goods orders slip. U.S. factories saw fewer orders in August for long-lasting goods like aircraft, appliances, and electronics. However, a core category that represents business investment grew for the third straight month.

Weekly jobless claims edge higher. The number of Americans filing new claims for unemployment benefits rose slightly last week but held at stable levels, supporting the view that the labor market continues to improve.

Pending home sales drop. The number of homes under contract slumped in August, suggesting that home sales fell across the board. Since pending sales forecast future activity, it’s likely the drop in housing activity will be felt in the weeks ahead.