Hixon Zuercher Capital Management

Fee-only Registered Investment Advisor in Findlay, Ohio 45840

Trade and Interest Rates – Weekly Update for June 18, 2018

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Last week stocks showed mixed results as political headlines continued to dominate the news. The Dow lost 0.89% and the S&P 500 was almost flat with a 0.02% gain. The NASDAQ, on the other hand, reached a record high on Thursday and ended the week up 1.32%. Both the S&P 500 and NASDAQ experienced their 4th week of gains in a row. International stocks in the MSCI EAFE lost ground, posting a 0.52% decline.

Two Key Perspectives From Last Week

  1. Trade tension continued.
    Spats with U.S. allies—including Canada—and ongoing threats of a trade war with China captured investors’ attention last week. On Friday, equities briefly stumbled when the U.S. pledged new tariffs on Chinese goods, and China responded by promising the same level of tariffs on the U.S. A true trade war could slow global economic growth, but the current tariff tension may be little more than negotiation tactics.
  1. Interest rates increased.
    On Wednesday, June 13, the Federal Reserve raised its benchmark interest rates for the 2nd time this year. Fed Chairman Powell said, “…the economy is doing very well. Most people who want to find jobs are finding them and unemployment and inflation are low.” The Fed believes economic growth will continue at a faster rate than they last predicted. They also project that unemployment will fall to 3.6% by the end of 2018. The Fed may raise rates twice more this year. 

The Takeaway

Getting caught up in the news cycles and international headlines is easy, but they often provide little perspective on what may actually lie ahead for investors. Instead of trying to predict market performance, we encourage you to focus on the data.

This week, we’ll gain new perspectives on the housing market, as well as employment. The insight will continue to help us build a picture of where the economy is today—and how to help our clients make the most of their opportunities. 

ECONOMIC CALENDAR

Monday: Housing Market Index
Tuesday: Housing Starts
Wednesday: Existing Home Sales
Thursday: Jobless Claims

Strength, Growth, and Tension – Weekly Update for June 11, 2018

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As last week ended, tension between the U.S. and some of its greatest allies was on the rise. Trade remained a hot-button topic ahead of the G-7 meeting in Canada, but investors seemed largely unfazed by the drama. In fact, all 3 domestic indexes posted strong results: The S&P 500 added 1.62% and the NASDAQ gained 1.21%, with both indexes notching their 3rd week of gains in a row. The Dow ended Friday up 2.77% for the week—recording both its highest level and largest weekly gain since March. International stocks were also up, with the MSCI EAFE increasing by 0.91%.

While geopolitical headlines keep unfolding, new data continues to indicate that the U.S. economy is on solid ground. Let’s examine a few updates we received last week:

  1. The trade deficit decreased in April.
    The latest trade data was largely positive, with the trade deficit hitting a 7-month low and coming in nearly $3 billion lower than expected. In April, exports reached their highest level in history. The economists at First Trust believe that this strong performance could push the 2nd-quarter Gross Domestic Product (GDP) as high as 5%.
  1. The labor market continues to tighten.
    The latest Job Openings and Labor Market Survey (JOLTS) gave an interesting perspective on our current labor market. Right now, more jobs are available than unemployed people looking for them. Since JOLTS began almost 20 years ago, this has never happened before. The data indicates that employers are struggling to hire people for open jobs—and that the economy is at full employment.
  1. The services sector is expanding.
    May data from the ISM non-manufacturing index showed that the services sector has experienced its 2nd-best beginning of a year since the index launched in 1997. Business activity and new orders had very positive performance, which could contribute to continuing service-sector growth for the months ahead. The report also showed prices increasing and provided more data that employers are having a hard time filling jobs in this tight labor market.

What is ahead this week?

We will receive two major central bank reports this week—and the historic U.S.–North Korea summit is on the docket as well.

President Trump and North Korea’s leader Kim Jong Un are meeting on Tuesday. The talks should cover North Korea’s nuclear program, but no one can say for sure what market impact it may have.

On a more predictable note, most analysts expect the Federal Reserve to announce its latest interest rate hike on Wednesday. While the markets have likely priced in this increase already, the Fed’s projections for the rest of 2018 could affect investor sentiment.

Meanwhile, on Thursday, experts expect the European Central Bank (ECB) will announce a plan to finally wind down its quantitative easing. If the ECB doesn’t share a timeline for ending this recession-era program, investors may interpret the move as a sign that policymakers are concerned about the EU’s economic outlook.[ix]

With a lot to consider this week, we encourage you to remember that many data updates indicate our economy is performing well. As the information unfolds, we’re here to help you separate relevant reports from headline hype. Contact us any time if you have questions about how these details may affect your financial life.

ECONOMIC CALENDAR

Tuesday: Consumer Price Index
Wednesday: FOMC Meeting Announcement
Thursday: Jobless Claims, Retail Sales
Friday: Industrial Production, Consumer Sentiment

Jobs Report Calms Volatility – Weekly Update for June 4, 2018

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Markets experienced heightened volatility this week, with both the S&P 500 and Dow dropping 0.82% and 1.60% respectively. Meanwhile, the NASDAQ rose 0.24% as international markets took a small dip with the MSCI EAFE losing 1.10%.

The markets’ highs and lows came from a variety of economic and geopolitical developments. The U.S. jobs report posted solid gains while international trade concerns continued to cause some unease. In this market update, we’ll break down the major stories to help you understand what moved markets.

Impressive Jobs Report

Outstanding non-farm payroll employment numbers rolled in on Friday, and the data supports a strong U.S. economy. Here is a snapshot of some key numbers:

  • Unemployment dropped to 3.8%—its lowest recording in 18 years.
  • Payroll growth jumped to 223,000, far beyond the expected 188,000.
  • Average hourly earnings climbed 2.7%; as a result, the Fed will likely raise interest rates two more times in 2018.

Taken together, the data gives investors and analysts a positive outlook. With more people working, consumption could rise, which could increase demand on production and keep people employed. Some analysts believe that this cycle should continue, barring any unforeseen disruptions. Meanwhile, the solid data helped ease market tensions and keep the U.S. dollar up, despite concerns of a potential global trade war. 

New International Tariffs

On Tuesday, President Trump said the U.S. would implement a 25% tax on $50 billion worth of products from China, including high-tech investments. This decision seemed to surprise China, as rumors of a trade war had recently calmed. U.S. and Chinese officials were unable to resolve their dispute over tariffs on Sunday, June 3.

The Trump administration also announced tariffs on metals from Canada, Mexico, and the European Union—all U.S. allies. In an attempt to reduce our trade deficit, Trump placed a 25% tax on steel and a 10% tax on aluminum. International leaders reacted quickly to the news, claiming they may strike back on U.S. goods like orange juice, motorcycles, bourbon, apples, and other products.

What’s Ahead?

Next week, we will focus on Tuesday’s job openings and Wednesday’s international trade reports. Other indicators like jobless claims and factory orders will help balance out a relatively quiet week for economic data. In addition, we will continue to track developments on trade negotiations and the potential summit between President Trump and North Korean leader Kim Jong-un.

If you have questions about how any of this information may affect you, please contact us. We are happy to help you.

ECONOMIC CALENDAR

Monday: Factory Orders
Tuesday: ISM Non-Manufacturing Index, JOLTS
Wednesday: International Trade Report
Thursday: Jobless Claims

Stocks Up, Signals Mixed – Weekly Update for May 29, 2018

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Geopolitical uncertainty affected stocks last week, as the historic summit between the U.S. and North Korea began to look less likely. On Thursday, May 24, President Trump announced that the summit was off, and stocks stumbled in reaction. The next day, Trump said the meeting might still occur next month, leaving investors questioning the eventual outcome.

Also on the geopolitical front, an announcement that Saudi Arabia and Russia would consider easing back oil supply restrictions affected stocks. U.S. crude oil prices dropped in response, pulling energy stocks down with them.

Despite these developments, major domestic indexes increased last week. The S&P 500 gained 0.31%, the Dow added 0.15%, and the NASDAQ grew by 1.08%. International stocks dropped, with the MSCI EAFE decreasing by 1.60%.

What kept U.S. stocks in positive territory for the week?

Solid corporate earnings helped drive upward movement.

A number of companies experienced double-digit stock growth last week after releasing their latest data. This strong performance helped balance the declines and uncertainty that the week’s geopolitical headlines created.

What other economic perspectives did we receive?

From durable goods to home sales, various data came out last week:

  • The factory sector could drive economic growth, as steel and aluminum tariffs are contributing to rising value of orders and inventories for metals.
  • Business confidence and 2nd-quarter investment could increase, as strong core durable goods orders may indicate good news for companies.
  • Housing is underperforming, as growth in home sales volume and prices have softened recently.

Overall, last week provided a mix of insight about the current economic strength and geopolitical environment. In this week’s 4 trading days, we’ll gain more perspectives on consumer confidence, Gross Domestic Product, manufacturing, and employment. We will use this data to continue building our understanding of what may lie ahead in the markets—and how to prepare our clients for the future. If you have any questions, we are here to talk.

ECONOMIC CALENDAR

Monday: U.S. Markets Closed for Memorial Day
Tuesday: Consumer Confidence
Wednesday: GDP, ADP Employment Report
Thursday: Jobless Claims
Friday: Employment Situation, PMI Manufacturing Index, ISM Mfg Index, Construction Spending

Tackling Trade and Treasuries – Weekly Update for May 21, 2018

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Major domestic indexes went down last week after all three gained more than 2% the previous week. The S&P 500 dropped 0.54%, the Dow gave back 0.47%, and the NASDAQ lost 0.66%. International stocks also stumbled; the MSCI EAFE decreased by 0.61%.

Two familiar topics were on many investors’ minds last week: trade and treasuries. Here is a recap of the key details and their market impacts.

  1. U.S. and China Resumed Trade Talks

    Background:
    Tension between the world’s 2 largest economies continued last week as the U.S. and China launched another round of trade discussions. Both countries have threatened billions of dollars of tariffs on the other’s products, but so far, neither has acted.

    On Saturday, May 19, the countries released a joint statement saying they would take measures to “substantially reduce the United States’ trade deficit in goods with China.” The Chinese state media called the agreement a “win-win.” Then on Sunday, May 20, U.S. Treasury Secretary Steven Mnuchin announced that they had “put the tariffs on hold.” The weekend’s developments imply both countries will continue working to close the trade deficit by increasing China’s imports of U.S. agricultural commodities and energy.

    Market Impact:
    As the trade talks unfolded on Thursday and Friday, investors received very little information. This uncertainty affected investor sentiment and contributed to stocks ending lower on Friday. Now that the countries have shared some details about the negotiations, we will focus on how investors digest the news in next week’s trading. Mnuchin’s assertion that the trade war is on hold for now should be welcome news for investors.

  2. U.S. Treasury Yields Spiked

    Background:
    The 10-year Treasury yield closed at 3% or higher every day last week. Early Friday, it reached its highest point in almost 7 years as data continued to demonstrate the labor market’s strength. We learned last week that the number of people receiving jobless benefits is at its lowest since 1973. Unemployment is also currently at an almost 17-year low. The numbers suggest the economy is likely reaching full employment.So, how does labor data affect Treasuries? Typically, employers have to pay higher wages when unemployment is low. As wages increase, other prices in the economy often rise, which can trigger inflation. This can cause Treasury prices to suffer as their fixed payments become less valuable, causing yields to rise.

    Market Impact:
    Treasury yields affect markets in a variety of ways. When they increase quickly, concerns can arise that the economy is accelerating too fast, which can cause the Federal Reserve to raise interest rates. In addition, for 10-year Treasuries, yields above 3% are a psychological benchmark. Some people believe stocks become less appealing when Treasuries can provide this level of income.

What’s Ahead

For now, we will continue to analyze whether yield increases are a sign of a strengthening economy or rising inflation rates.

We know that trade disputes and Treasury yields are complex, constantly changing topics. So, if you have questions about how these details affect your financial life, we are here to talk.

ECONOMIC CALENDAR

Wednesday: New Home Sales, FOMC Minutes
Thursday: Existing Home Sales, Jobless Claims
Friday: Durable Goods Orders, Consumer Sentiment

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