February 2017 Market Update Video

 

In this month’s video, Josh will discuss some of the major headlines that influenced markets in January — and provide some insight into what these developments could mean for you as an advisor.

If you have any questions or concerns after watching this video, please get in touch with us. We would love to talk to you. You can give us a call at (419) 425-2400, or send us an email.

Thank you for watching!

December Earnings & a Presidential Week – Weekly Update for January 17, 2017

2017-01-09 Blog ImageAs we look back on markets last week, we see mixed results with none of the major domestic indexes gaining or losing more than 1%. The S&P 500 was down 0.10% for the week, and the Dow gave back 0.39%, yet again failing to reach 20,000. On the other hand, the NASDAQ increased by 0.96% and reached its sixth record close in 2017 on Friday—pushed by a 1.36% rally for Facebook after Raymond James upgraded its stock. International stocks in the MSCI EAFE added 0.82%.

What We Saw Last Week

Big banks reported earnings. Earnings season is upon us. On Friday, we saw JPMorgan Chase, Bank of America, and PNC Financial beat profit expectations. These positive results add some weight to the post-election financials rally, where financial-sector equities in the S&P 500 have added 17% since the election. A number of other banks will report this week, and we will look to see if their performance also matches the growth we have seen so far.

Retail sales grew. The December monthly retail sales report showed a 0.6% increase, slightly below the 0.7% consensus expectations. With this growth, retail sales are now up 4.1% in the past year. However, not all retailers are performing well. General merchandise stores are suffering as consumers continue to shop online and move away from in-person retail stores. We see the results of this trend in declining retails sales numbers and large companies announcing store closures, including Macy’s, Sears, CVS, and many more.

Consumer sentiment was high but divided. The University of Michigan’s monthly report on consumer sentiment was 98.1, just below predictions but still near highs we have not seen since 2004. One interesting finding in the report is a strong partisan divide in consumer confidence. Richard Curtin, director of the consumer survey, described “extreme differences” between people’s expectations for whether new political policies would help or hurt the economy. He reminded people that the most impact on consumer sentiment will come from “actual changes in the economy” as a result of Trump’s work, which we will have to wait a few months to see.

What We’re Looking at in the Week Ahead

Earnings season continues. The markets will be watching earnings closely during this four-day trading week—specifically to see if other major financial institutions also beat expectations. Some analysts believe that to keep the current market rally going and demonstrate that there is weight behind the post-election growth, we’ll need to see excellent reports from most companies.

A number of high-profile companies report this week, including:

  • Morgan Stanley
  • Goldman Sachs
  • Citigroup
  • American Express
  • Netflix
  • IBM
  • UnitedHealth Group
  • General Electric Co.

Donald Trump becomes President. While earnings reports will be important to track, another event looms larger in many people’s minds: Donald Trump’s inauguration. After he takes the oath of office Friday morning and becomes President of the United States, we will begin to see how the market’s expectations for Trump’s policies match reality.

From trade to taxes to infrastructure and beyond, the next few months will give us a number of insights into how U.S. policies may change. Uncertainty remains, and we will watch for political developments that may affect the markets. In addition, we will continue to focus on the fundamentals that provide deep insight into how the economy is performing—and how we can strive to keep you on track toward your goals.

ECONOMIC CALENDAR:

Monday: U.S. Markets Closed in Observance of Martin Luther King, Jr. Day
Wednesday: Consumer Price Index, Industrial Production, Housing Market Index
Thursday: Housing Starts

Capture

Stocks Drop on Retail Earnings Woes – Weekly Update for May 16, 2016

Image courtesy of FreeDigitalPhotos.net/sixninepixels

Image courtesy of FreeDigitalPhotos.net/sixninepixels

Stocks fell again for the third week in a row, driven lower by poor earnings reports from some major department store retailers. For the week, the S&P 500 lost 0.51%, the Dow fell 1.16%, the NASDAQ dropped 0.39%, and the MSCI EAFE lost 0.46%.

Despite a growing economy and strong labor market, Americans didn’t shop as much as retailers expected last quarter, leaving some puzzled over the disconnect. Many retail giants posted dismal earning results for the first quarter. Among the problems: same-store sale declines, falling traffic, and an inability to predict apparel trends. Even industry insiders aren’t sure what’s going on, and some say that the retail doldrums are bringing back memories of the last recession. However, economists may have some answers.

Though consumers are doing much better than they did in the immediate post-recession recovery, some worry lingers, causing people to save more instead of spending. As the cost of housing and healthcare has increased, many Americans also don’t have as much discretionary money to spend.

The good news is that Americans are still spending—just not the same way they did in the past. An increasing number—particularly Millennials—prefer to spend what they have on things like services, dining out, and concerts. Americans are shifting to online spending, which hurts brick-and-mortar retailers that rely on foot traffic. While Commerce data shows that overall retail sales grew 3.0% since last April, the category that includes online retailers and shopping apps grew 10.2%.

More current data also paints a more reassuring picture. The most recent report by the Commerce Department shows that monthly retail sales increased 1.3% in April, much higher than the 0.8% increase Wall Street expected. So-called core spending, a retail sales control category that economists use to estimate underlying consumer spending, grew 0.9%, causing economists to raise their forecasts for second-quarter economic growth.

The chart below shows the most current unofficial forecast of Q2 Gross Domestic Product (GDP) maintained by the Federal Reserve Bank of Atlanta. You can see that the forecast has been revised upward over the last two weeks as new data is released.

ID-100283702

So, does the fact that retailers had a bad quarter indicate we’re in a recession? Not really. Americans are spending money; they’re just changing where and how they spend, and the retail industry needs to adapt to those changing preferences.

Looking ahead, we have some housing and manufacturing data coming out this week as well as minutes from the last Federal Reserve Open Market Committee meeting. While analysts aren’t expecting major revelations from the meeting notes, they’re hoping for more guidance on when to expect another interest rate increase. While an April survey of economists showed that 75.0% expected a June rate hike, the May survey shows that expectations have split, with 31.4% forecasting a June increase and 31.4% targeting a September increase.

ECONOMIC CALENDAR:

Monday: Empire State Mfg. Survey, Housing Market Index, Treasury International Capital

Tuesday: Consumer Price Index, Housing Starts, Industrial Production

Wednesday: EIA Petroleum Status Report, FOMC Minutes

Thursday: Jobless Claims, Philadelphia Fed Business Outlook Survey

Friday: Existing Home Sales

ID-100283702


HEADLINES:

Jobless claims jump to highest level since February 2015. The number of Americans filing new claims for unemployment surged unexpectedly, touching off concerns about a labor market slowdown. However, claims remained below the key 300,000 threshold, suggesting that the jump may be seasonal.

Job openings near record highs. There were over 5.5 million job openings in March, indicating that employers are keen to hire. The rate of people voluntarily quitting their jobs remained stable at 2.1%, showing workers are still confident of finding new jobs.

U.S. business inventories rise. U.S. businesses increased their stockpiles by the biggest amount since last June, indicating they expect a good summer.

Consumer sentiment rises more than expected. A measure of consumer optimism about the economy jumped far more than expected, indicating that Americans are feeling more upbeat about their prospects despite some uncertainty around the November elections.

Markets Fall on Ukraine Fears, Still End Positive Weekly Update – August 18, 2014

Image courtesy of FreeDigitalPhotos.net/Salvatore Vuono

Image courtesy of
FreeDigitalPhotos.net/Salvatore Vuono

Despite a late-week selloff due to renewed concerns about the situation in Ukraine, the major indices ended the week on a positive note. For the week, the S&P 500 gained 1.22%, the Dow grew 0.66%, and the Nasdaq added 2.15%.1

Geopolitical tensions in Europe ratcheted up when Ukrainian forces engaged an armored Russian column that crossed the border. Russia denies that any military vehicles entered Ukraine and that the mission was humanitarian. Although the full picture has yet to emerge, investors are worried that the engagement may cause further escalation of tensions.2

Retail sales slumped in July as consumers took a break from buying automobiles. However, with employment growth on a steady upward trend, economists think that sales will likely rebound later in the quarter.3 The weak retail data begs the question: How are U.S. retailers doing? Not so well, it turns out. Overall, many retailers are suffering from low consumer demand and low margins in an intensely competitive promotional environment. Online retailers like Amazon have forced competitors to lower prices and offer special discounts, eroding margins and hurting earnings.4

Low-cost retailers like Wal-Mart (WMT) and Family Dollar are also struggling, mirroring the economic struggles of their largely working-class customers. Many low-income consumers have yet to fully recover from the financial crisis and stagnant wage growth is limiting their buying power. Though its overall Q2 earnings were respectable, Wal-Mart slashed its forward guidance, indicating that the giant is mired in a nationwide slowdown.5

This week, investors will be focusing on the release of the Federal Reserve Open Market Committee meeting minutes on Wednesday, as well as a major gathering of central bank leaders in Jackson Hole, Wyoming. Fed chair Janet Yellen and embattled European Central Bank President Mario Draghi will both speak at the meeting.6 Given Europe’s weak Q2 economic results, investors will be waiting to see whether Draghi has the stomach to step in with stronger quantitative easing strategies.

ECONOMIC CALENDAR:

 

Monday: Housing Market Index

Tuesday: Consumer Price Index, Housing Starts

Wednesday: EIA Petroleum Status Report, FOMC Minutes

Thursday: Jobless Claims, PMI Manufacturing Index Flash, Philadelphia Fed Survey, Existing Home Sales

CaptureHEADLINES:

Jobless claims tick upward to six-week high. Applications for unemployment benefits climbed slightly last week, interrupting the positive trend we’ve seen the last few weeks, though most economists still think employment trends are moving in the right direction. Weekly data is often noisy, and economists prefer to look at longer-term trends.7

EU economic growth fades. Economic activity in the Eurozone slowed in the second quarter as Germany’s economy slid into reverse and France stagnated. Economists’ worry that sanctions against Russia will damage the fragile EU recovery, putting more pressure on Europe’s economic recovery.8

Low doc loans return. So-called “stated income” mortgages are returning as lenders chase applications that they can no longer afford to ignore. These mortgages, which allow applicants to show bank statements instead of pay stubs or tax returns may help expand the pool of mortgage applicants as lending volume falls.9

Consumer sentiment falls, but the news isn’t all bad. Sentiment among U.S. consumers fell to its lowest level since last November, but a gauge of current economic conditions remains positive. While lowered sentiment could threaten demand, economists believe consumer spending could still grow this year.10

Markets Fired Up Weekly Update – August 11, 2014

Image courtesy of FreeDigitalPhotos.net/jscreationzs

Image courtesy of FreeDigitalPhotos.net/jscreationzs

Markets regained steam and ended the first full week of August on a strong note. Solid jobs data and hopes that Russia may be de-escalating the Ukrainian conflict contributed to the gains. For the week, the S&P 500 gained 0.33%, the Dow grew 0.37%, and the Nasdaq added 0.42%.1

The labor market continues to gain ground and weekly unemployment claims tumbled. The four-week moving average, a less-volatile measure of unemployment, fell to the lowest level since 2006. Even better, measures of long-term unemployment are also improving as steady hiring improves conditions for jobseekers.2

Global security worries continued to dog investors when President Obama announced strikes in Iraq against Islamic State militants. While it’s too soon to know whether U.S. intervention will escalate or reduce tensions, markets reacted nervously to fears that the U.S. may be dragged back into Iraq. On the other hand, Russia announced an end to military operations on the Ukrainian border, giving us hope that Russia may be interested in turning down the heat on the conflict.3 Overall, the geopolitical situation hasn’t changed drastically, and we can expect continued volatility as markets weigh risks.

The bulk of earnings season is behind us, and we’re comfortable saying that Q2 was very positive for businesses. Growth rates are up, companies are beating their estimates, and demand is coming back. As of Friday morning, total earnings for the 453 S&P 500 companies that reported in are up 8.7% from second quarter 2013 on revenue growth of 4.6%.4

Forward guidance about the third quarter is also cautiously optimistic, with some firms talking up their business outlook. While low guidance is still the norm – firms prefer to set a low bar and then try to exceed it – the number of firms reducing their earnings guidance is down from last year. All told, it sounds like business leaders are feeling much better about their chances.5

Looking ahead at this week, investors will be looking carefully at retail sales and consumer sentiment data to gauge how strong economic activity is likely to be in the third quarter. The back-to-school season is upon us and will be a major test for retailers battling low store traffic and bargain-hunting shoppers. The back-to-school season is second only to the holiday shopping season in importance and is also a key indicator of consumer spending.6

ECONOMIC CALENDAR:

 

Tuesday: Treasury Budget

Wednesday: Retail Sales, Business Inventories, EIA Petroleum Status Report

Thursday: Jobless Claims, Import and Export Prices

Friday: PPI-FD, Empire State Mfg. Survey, Treasury International Capital, Industrial Production, Consumer Sentiment

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HEADLINES:

U.S. trade deficit narrows on oil production boom. The gap between imports and exports narrowed as increased domestic oil production has reduced America’s reliance on foreign oil imports. These better-than-expected numbers could lead to a higher estimate of Q2 Gross Domestic Product.7

U.S. services sector is booming. The pace of economic activity in the services sector – comprising businesses like restaurants, retailers, entertainment, and financial firms – grew at a rapid rate in July. Growth blew past economists’ expectations and reached its highest level in over eight years.8

Mortgage volume still low. Mortgage applications are still sliding, as fewer Americans refinance or buy new houses. Refinances are down 39% and purchase applications are down 14% from a year ago.9

ECB says EU economy threatened by Ukraine. The European Central Bank continued to keep interest rates artificially low, citing the economic threat from Ukrainian instability and economic sanctions against Russia. ECB leadership verbally committed to additional quantitative easing measures if the EU’s recovery weakens further.10

Special Quarterly Edition: Markets End Quarter on High Note Quarterly Update – July 7, 2014

Image courtesy of FreeDigitalPhotos.net/jscreationzs

Image courtesy of
FreeDigitalPhotos.net/jscreationzs

After a slow start to the year, the second quarter of 2014 may be a redemption story. Multiple indices reached new records and the S&P 500 logged its longest quarterly rally since 1998.1 For the quarter, the S&P 500 gained 4.66%, the Dow grew 2.56%, and the Nasdaq gained 4.46%.2

What are some of the factors that contributed to strong market performance in Q2?

Economic fundamentals were solid. Despite some gloomy first quarter Gross Domestic Product (GDP) results showing the economy contracted 2.9%, it appears that underlying fundamentals are returning to trend following the chilly winter. Retail and vehicle sales grew as consumers unlimbered their wallets.3 Manufacturing also picked up significantly after the winter slowdown, supporting the belief that the sector, which contributes 12.5% to GDP, is rebounding strongly.4

The employment picture is much brighter. The labor market hit an important psychological milestone by regaining all of the 8.7 million jobs lost in the recession.5 While demographic shifts and labor market growth mean that we haven’t yet hit full employment, job growth could be picking up speed. The June employment situation report showed the economy created 288,000 new jobs and the unemployment rate dropped to 6.1%.6 All told, roughly 800,000 new jobs were created last quarter, which is great news.7

The Federal Reserve has continued to express optimism about the economic recovery and is committed to wrapping up quantitative easing programs by this Fall.8 Much of the bull market we’ve seen for the last couple of years can be attributed to the Fed’s easy money policies and its commitment to supporting economic growth. Now that the country is finally on better footing, investors are taking comfort from the Fed’s readiness to take the training wheels off the economy and return to normal monetary policy.

What could act as headwinds in the weeks and months to come?

Geopolitical issues are on the radar as the security situation continues to deteriorate in Iraq and the crisis in Ukraine still simmers. Ukraine and Iraq play key roles in the natural gas and oil industries, respectively, and supply disruptions – or even just the threat of disruptions – could drive up prices and make investors skittish.

Rising food and energy prices may start to be felt in consumer spending.9 If Americans are taking hits to their pocketbooks, they may be less willing to spend, which could drag on the economy and financial markets.

Investor optimism is also very high, which can sometimes presage a market pullback as investors take profits and wait for better news. After flirting with the top for days, the Dow finally broke 17,000 last week for the first time in its 118-year history.10 Though we don’t put a lot of faith in technical indicators, 17,000 is a big psychological number and investors may become more cautious on the other side.

What does this mean for future market performance? Hard to say. Economic fundamentals going into the third quarter are strong, and if the earnings picture is bright, stocks could see some further upside. However, we can expect more volatility and possibly even a correction in the months to come. As always, it’s important to stay focused on long-term goals instead of short-term market performance.

ECONOMIC CALENDAR:

 

Wednesday: EIA Petroleum Status Report, FOMC Minutes

Thursday: Jobless Claims

Friday: Treasury Budget

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HEADLINES:

Vehicle sales accelerate in June. Sales of automobiles spiked unexpectedly last month, reaching an annualized rate of 16.98 million units. This is good news for the economy because it indicates that consumers are willing to purchase big-ticket items.11

June manufacturing jumps. June was a very strong month for manufacturing as domestic demand caused new orders to spike. Foreign demand for U.S. goods barely changed, indicating that global demand is still suffering.12

ECB unlikely to buy bonds. While the European Central Bank has committed to quantitative easing to boost stagnant growth in Europe, the organization will likely stop short of taking on the Federal Reserve-style bond purchases.13

IMF hints at global forecast cut. The International Monetary Fund may cut its global economic growth forecast, citing weak public and private sector demand. Weak global growth could spell trouble for U.S. firms who rely on exports for revenue.14