Mixed Markets Continue – Weekly Update for June 19, 2017

Markets remained mixed last week as the Dow closed at another record high, while the NASDAQ fell and the S&P 500 held steady. By Friday, the Dow gained 0.52%, the NASDAQ fell -0.92%, and the S&P 500 gained a slight 0.05%. Meanwhile, the MSCI EAFE remained virtually unchanged from last week, down only -0.002%.

In other markets, oil closed at $44.74 a barrel, down 2.4% on the week—its fourth week of declines. Overall, European equity markets remained steady while most Asian markets recorded modest gains at week’s end.

The Fed Increases Interest Rates

As expected, the Fed announced last week that it raised the short-term interest rate target by 25 basis points to a range between 1.00 and 1.25%. This was the third interest rate hike by the Fed in the last six months. The Fed also announced its intention to reduce the $4.5 trillion balance sheet by selling off assets acquired in the wake of the 2008 financial crisis. The Fed currently plans to sell approximately $10 billion monthly starting later this year.

Further, last Wednesday, Federal Reserve Chair Janet Yellen reported on the Fed’s belief that the current weak inflation numbers are temporary. However, the Fed’s plan to continue raising interest rates going forward and sell off its assets may change if the economy does not gain momentum in Q3 and Q4. To date, the economic data continues to point to a Q2 Gross Domestic Product (GDP) that may be weaker than previously anticipated.

Soft Economic Data Continues

Consumer Sentiment Dampens: The preliminary consumer sentiment index for June dropped to 94.5, the lowest since last November. The index fell from May’s reported 97.1.

Retail Sales Soften: Retail sales had their largest monthly drop since January 2016.  Sales declined 0.3% in May against predictions of a 0.1% gain over April. The report includes a variety of disappointing numbers:

  • 1% decrease for restaurants
  • 2% dip for automotive vehicles
  • 0% fall for department stores

Business Inventories Drop: In April, business inventories dropped 0.2% from the prior month, which was 0.1% under the consensus. Further, retail inventories also dropped 0.2%, and wholesale inventories abruptly fell 0.5% for the month.

CPI Falls: The Consumer Price Index fell 0.13% in May. The disappointing numbers mark another decline—the 2nd in 3 months—as economists had expected a 0.2% increase from April’s number.

Housing Weakens: In May, housing starts dropped 5.5% from April and permits fell 4.9%. The trend continues the decline from Q1 and could signal another negative quarter.

Market Details on the Horizon

More housing news will influence the week ahead as the existing home sales report comes out on Wednesday and the new home sales report comes out on Friday. Markets will continue to watch the fundamentals, including consumer spending, which makes up 69% of GDP. So far this year, consumer spending has been soft with vehicle sales and restaurant sales sliding downward most months.

As always, we are here to talk should you have any questions about the markets or your own financial objectives. Our goal is to help you understand your financial life with clarity and confidence.

ECONOMIC CALENDAR

Wednesday: Existing Home Sales
Thursday: Jobless Claims
Friday: PMI Composite Flash, New Home Sales

Economic Volatility: Where Are The Markets In Response? – Weekly Update for June 5, 2017

Last week, the S&P 500, Dow, and NASDAQ closed at all-time record highs. The S&P 500 rose 0.96%, the Dow gained 0.6%, and the NASDAQ grew by 1.54%. Meanwhile, the MSCI EAFE gained 1.64% for the week.

Despite strong equity markets, bond yields dropped to their lowest point in the year. The drop in yield caused by rising bond prices, combined with soft employment numbers and low wage growth, could suggest a slowing economy or a tightening labor market.

While the U.S. equity markets advanced to new highs and bond prices rose, other markets were mixed for the week. Pending home sales dropped 1.3% in April, a second straight month of decline. Oil fell to $47.66 a barrel, the dollar dropped to a seven-month low against the euro, and gold gained 0.8% closing at $1,280.20.

Additionally, soft employment numbers and flat wages could lead to a disappointing Q2 Gross Domestic Product (GDP). With an eye on dropping inflation, the Fed will have to decide whether to still raise interest rates.

Mixed Job Numbers and Slow Wage Growth

May’s job growth reported an anemic 138,000, well below the expected 185,000. At the same time, average hourly wages increased on a year-over-year basis by only 2.5%. Moreover, the revisions to March and April’s payroll numbers fell by 66,000 jobs. The economy is currently averaging 162,000 new jobs per month for the year—again, well below 2016’s 187,000 average.

Despite the unemployment rate falling to 4.3%, the lowest it’s been in over 15 years, the employment-to-population ratio also fell. Still, the data confirms that demand for experienced and skilled workers exists, while the supply is falling.

Fed Will Discuss Raising Interest Rates

On June 14, the Fed FOMC will meet to determine if an interest rate increase is in order. Despite the soft employment numbers and an inflation rate below the Fed’s target of 2%, traders still believe there is a nearly 88% chance that the Fed will raise rates in June. However, the market consensus currently suggests only a roughly 50/50 chance for another rate increase before the end of the year.

International News and Looking Ahead

Manufacturing in China has posted strong returns. Both the manufacturing and non-manufacturing PMIs reported gains above 50. The numbers suggest that China is on track to reach its targeted 6.5% growth for the year. This matters because China is the world’s second largest economy at $11 trillion GDP for 2017.

Other developments in the international arena could influence markets going forward. Reaction to President Trump’s decision to leave the Paris Climate Accord could adversely affect American products in the international markets. The landmark decision also runs the risk of hurting U.S. tech and alternative energy companies.

We will continue to follow developing international and national news as they move the markets. As always, if you have questions about how these events may affect your finances, please contact us. We are here to help you remain informed and in control of your financial future.

Economic Calendar

Monday: Factory Orders, ISM Non-Manufacturing Index
Tuesday: JOLTS (Job Openings and Labor Turnover Survey)
Thursday: Jobless Claims

Strong Markets & A Positive Outlook – Weekly Update for May 30, 2017

The markets marched ahead last week with the S&P 500 and the NASDAQ reporting all-time records, albeit just slightly above previous highs. The S&P rose 1.43% over last week, while the NASDAQ was up 2.08%. The Dow gained 1.32% and the MSCI EAFE gained 0.14% for the week. Volatility subsided as the CBOE Volatility Index, which gauges fear in the market, fell to 9.8 at the end of the week.

A few important economic developments also caught our attention.

Market News for the Week

  • Strong Corporate Earnings  

Corporate earnings remain a bright spot as approximately 75% of S&P 500 companies beat their Q1 earnings estimates. S&P 500 corporate earnings are averaging a 13.9% increase—the best performance in over 5 years.

  • First Quarter GDP Revised Upward

The good news is that Q1 GDP revised upward from 0.7% to 1.2% growth. However, the economy continues to grow at a less-than-robust rate at approximately 2% on a year-over-year basis, as it has since 2011.

  • Oil Prices Fall  

U.S. crude ended the week at $49.80 after prices fell almost 5% on Thursday following OPEC’s announced 9-month extension to limit oil production. Investors remain cautious; U.S. oil production has spiked by over 10% in the last year, keeping oil prices down by offsetting reduced OPEC production.

  • Softening Housing Sales

New home sales fell 11.4% in April to an annualized rate of 569,000. Median new home prices dropped 3.0% to $309,200, as sales are tracking for only a modest 0.5% gain for the year. April’s existing home sales dropped 2.3% in another indication of softening home sales.

  • The Fed’s Plan to Tighten Its Balance Sheet  

As expected, the Federal Reserve FOMC unveiled a proposal to gradually unwind its $4.5 trillion balance sheet with monthly limits. The process is likely to begin later in the year, though the Fed has not announced a specific date.

Heading Into Summer

After Memorial Day, the shortened workweek brings more attention-worthy reports as investors will continue to evaluate the prospects for a stronger Q2 GDP performance. Tuesday’s April consumer spending reports and Friday’s trade data should give us a better picture of where Q2 GDP is heading.

Investors will continue to monitor the U.S. trade gap. April exports were down 0.9% while imports were up 0.7%, creating an unfavorable gap of $67.6 billion. Investment in new equipment will also provide investors with another important indicator of future economic growth. New equipment orders have so far remained flat for the year, though. Finally, the Fed’s plans for a possible interest rate hike in June will be on investors’ radar.

If you have questions about where you stand today or how to prepare for tomorrow, we are here to talk. Our goal is to give you the facts and insight you need to remain informed and in control of your financial future.

ECONOMIC CALENDAR

Monday: Closed
Tuesday: Consumer Confidence
Wednesday: Motor Vehicle Sales, Pending Home Sales
Thursday: ADP Employment Report, Construction Spending, PMI Manufacturing Index
Friday: Employment Situation

Volatility Returns: The Markets’ Response to Change – Weekly Update for May 22, 2017

Early last week, both the S&P and NASDAQ recorded all time highs before tumbling along with the Dow as political concerns rose. By Friday, though, the markets had largely rebounded and steadied. The S&P 500 closed the week down 0.38%, the Dow saw a 0.44% loss, and the NASDAQ reported a 0.61% decline. The MSCI EAFE reported up 0.79% for the week.

The CBOE VIX is designed to measure market volatility by using S&P 500 put and call index option prices. For most of the year, volatility in the markets has been low. However, the CBOE Volatility Index (VIX) spiked 40% midweek before falling back by week’s end, indicating a possible increase in market volatility.

Through the week’s ups and downs, investors followed some other important economic developments.

LAST WEEK’S DEVELOPMENTS:

  • Solid Regional Business Index
    The Philadelphia Fed Business Outlook Survey again pointed to progress in the factory sector. While the consensus range was 16.0 – 25.0, the General Business Conditions Index-Level reported 38.8.
  • Mixed Housing Reports
    New home sales remained strong as the housing market index rose 2 points to 70. The data came out well ahead of the 65 – 69 consensus range. However, April housing starts were lower than expected. Housing starts are now at a 1.172 million annualized rate, after falling 2.6%.
  • Household Debt Rises
    Total household debt rose to a new high, reporting a $149 billion increase to come in at $12.73 trillion. Student loans and auto loans were major contributors to the rising debt:

WHAT’S AHEAD

Economy
Manufacturing output rose 1.0 percent in April, the strongest monthly result in over 3 years. As such, investors will track how the rest of the second quarter shakes out. In addition, we will be interested in this week’s housing reports, hoping for a better handle on where this up-and-down sector is heading.

Geopolitical
Financial markets could experience some headwinds as geopolitical situations fester. Concerns over North Korea and political opposition to globalization remain. In addition, Brazil is facing political disruption and a deep recession that could mean problems for companies with business interests in that country. Similarly, continuing political challenges for the Trump administration may adversely affect proposed tax reform, health-care legislation, and infrastructure initiatives.

As always, we will continue keeping abreast of market and economic updates. We encourage you to focus on your long-term financial outlook. Should you have any questions, we are happy to help.

ECONOMIC CALENDAR

Tuesday:  New Home Sales
Wednesday:  Existing Home Sales
Friday: Durable Goods Orders, Consumer Sentiment

New Year Special Update: 2016 in Review – Weekly Update for January 3, 2017

2017-01-03-blog-imageFirst things first: Happy New Year! We’re thankful for all of you keeping up with us in 2016 and looking forward to what this next year holds. We appreciate your time and thoughts throughout the past year, and we are excited to work together to accomplish your financial goals in 2017.

Looking back on the final trading week of a very eventful year, we saw low volume and a break from the recent rallies for domestic indexes. While international stocks in the MSCI EAFE added 0.56%, all major U.S. indexes declined. The S&P 500 lost 1.10%, the Dow was down 0.86%, and the NASDAQ gave back 1.46%. For the first time since November 4, the indexes posted three straight days of losses. Despite these last-minute decreases, 2016 ended very differently than it began.

Last January, domestic indexes rang in the New Year with quite unpleasant performances. While the S&P 500 and NASDAQ dropped, the Dow experienced its worst-ever five-day start to a year, losing 1079 points on fears of an economic slowdown in China and plummeting oil prices.

By market close on December 30, 2016, all three indexes showed healthy growth for the year:

  • S&P 500: Up 9.5%
  • Dow: Up 13.4%
  • NASDAQ: Up 7.5%

In addition to this equity growth, last week showed us a number of encouraging economic indicators for 2016, including:

Consumer Confidence Surge: On December 27, Consumer Confidence beat expectations to reach 113.7 — a 13-year high. This metric indicates that consumers feel more positively about jobs, personal finances, business conditions, and more.

U.S. Dollar Increase: The dollar was up for the fourth straight year, showing a 3.7% increase for 2016 after hitting a 14-year high on December 20.

Crude Oil Recovery: After a rough start to the year, oil experienced its largest annual increase since 2009. In fact, three-dozen U.S. gas and oil producers in the S&P energy index gained more than 40% during 2016.

We all know that 2016 brought its fair share of surprises — from victories for Brexit and Donald Trump, to our recent stock market rally and beyond. However, the year ended with domestic indexes up and a number of positive economic indicators. As we look toward our future in 2017, we see opportunities for continued growth, as well as many questions that no one can yet answer.

  • Will President Trump reduce regulation and taxes?
  • Will OPEC keep its pledge to lower oil output?
  • How will China’s economy perform?
  • Could more “Brexits” be on the horizon?

The questions remain, but no matter the answers, we are here to help guide you through the year—and toward your goals—with proactive, strategic support. If you want to talk about what we experienced in 2016, or what we anticipate for the year ahead, we would love to get in touch with you. Please reach out to us at hello@hzcapital.com or give us a call at 419-425-2400.

ECONOMIC CALENDAR:

Monday: Markets Closed in Observance of New Year’s Day
Tuesday: PMI Manufacturing Index, ISM Manufacturing Index, Construction Spending
Wednesday: ADP Employment Report
Thursday: PMI Services Index, ISM Non-Manufacturing Index
Friday: Employment Situation, International Trade, Factory Orders

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Steady Holiday for the Market – Weekly Update for December 27, 2016

2016-11-28-blog-image-1In the last full trading week of 2016, domestic markets were relatively quiet, with many people out of the office for the holidays. Nonetheless, all three major domestic indexes ended the week in positive territory. The S&P 500 was up 0.25%, the Dow gained 0.46%, and the NASDAQ added 0.47%. International equities in the MSCI EAFE were also up, increasing by 0.36%. The Dow continued to flirt with surpassing the 20,000 mark for the first time—reaching within fewer than 13 points at its highest trading point on Wednesday, December 21—before closing at 19,933.81 for the week.

Outside of the markets, we received a number of reports that painted a mostly positive view of the U.S. economy.

Good News

  • GDP revised up again: For its final report on economic growth in the third quarter, the Commerce Department adjusted the GDP up for the second time—to a 3.5% annual rate. This analysis shows the fastest economic growth in two years.
  • Consumer sentiment hits nearly 13-year high: The monthly index measuring consumers’ views on the current and future state of the economy increased by 4.7 points to reach 98.2 for December. This reading is the highest since January 2004.
  • New home sales beat expectations: Economists predicted that new home sales for November would increase by 2.1%, but last week’s data showed the increase was in fact 5.2%. Consumers anticipating higher interest rates in the future could be contributing to the expectation-beating results.

Mixed News

  • Personal incomes stayed flat: Despite economists’ predictions that personal incomes would increase by 0.3% in November, the Bureau of Economic Analysis’ data showed them flatten. Even with last month’s stagnation, personal incomes are up 3.5% for the year.
  • Durable goods orders declined: After increasing by 4.8% in October, durable goods orders dropped by 4.6% in November—due largely to a 73.5% decrease in civilian aircraft orders. While no one likes to see a decrease, the report had several positive highlights, including an unexpectedly large increase in orders for U.S.-made capital goods.

Overall, even though last week was fairly slow for trading, we continue to see signs that the economy is improving—even if it is still far from perfect. We look forward to discovering what 2017 holds for investors and hope for more record highs and an economy that picks up speed as time goes on.

ECONOMIC CALENDAR:

Monday: Markets Closed in Observance of Christmas Holiday
Tuesday: Consumer Confidence
Wednesday: Pending Home Sales Index
Friday: Bond Market Closes at 2 p.m. ET

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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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What Do The Rising Markets Mean For The Future? – Weekly Update for December 12, 2016

2016-11-28-blog-image-1On Friday, December 9, all three major U.S. stock indexes ended at record high. For the first time in five years, they each posted gains every day of the trading week. The S&P 500 was up 3.08%, the Dow added 3.06%, and NASDAQ increased 3.59%. International stocks in the MSCI EAFE even gained 2.9%, despite potential risks from the Italian referendum and impending end of the European Central Bank’s quantitative easing.

From our vantage point, we see a rally that appears to be picking up steam. Looking at this impressive growth, however, it’s easy to wonder whether the markets are becoming overvalued and a correction is in order.

In keeping with this concern, last Monday, December 5, marked the 20th anniversary of Former Federal Reserve Chief Alan Greenspan’s famous warning about “irrational exuberance.” Back in 1996, Greenspan worried that overvalued stocks and extreme investor enthusiasm could drive stocks to reach unsustainable levels. His warning didn’t slow the markets’ growth at the time, and several more years passed before the eventual dot-com crash.

So, are we facing the same irrational exuberance as in 1996?

Hardly. We’d argue that rather than being overvalued, the markets have yet to reach their fair price. Domestic fundamentals continue to provide positive data on the economy.  With a new presidential administration coming in 2017, we may see regulations lift and banks push more money into the economy, causing growth to accelerate.

In fact, economist Brian Wesbury posted a video last week predicting the Dow would reach 36,000 in the next four to five years—an increase of more than 84%. He also asserts that the S&P 500 is undervalued by 30% and may gain 14% over the next four quarters.

Now, we aren’t comfortable making specific predictions like this—because no one can predict the future. But, we do agree with Wesbury’s calculations showing that the market is undervalued.

In other words, the markets’ recent growth seems to be based on rational exuberance. Investors see opportunities on the horizon, and they’re ready to grab them.

What’s ahead in this exuberant moment?

We’re happy to see new potential for growth, but we will continue to make choices based on detailed analysis rather than emotional reactions. This week, we’ll be paying close attention to the Federal Reserve’s December meeting, where the markets currently give a 95% chance that interest rates will increase.

Remember that we are here to help you capture momentum that will support your long-term goals. We won’t take more risk than is appropriate for your needs and comfort. If you have questions about your priorities, portfolio, or plan, let’s talk. We are always available at hello@hzcapital.com or 419-425-2400. Thanks for reading!

ECONOMIC CALENDAR:

Tuesday: FOMC Meeting Begins, Import and Export Prices

Wednesday: FOMC Meeting Announcement, Fed Chair Press Conference at 2:30 p.m., Retail Sales

Friday: Housing Starts

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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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