Archive for ND&S Updates
Trending Higher…again
December 18, 2017
December 18, 2017
Markets trended higher last week as the Fed raised rates, as expected, for the third time this year. Markets were bolstered by the apparent willingness of Congress to move forward on tax reform … a vote is expected this week.
For the week, the DJIA gained 1.3% while the S&P 500 finished ahead by 0.92% . Developed international markets also moved higher as the MSCI EAFE index closed up 0.14% for the week. Emerging markets also gained as the MSCI EM index finished higher by 0.71%. Fixed income, represented by the Bloomberg/Barclays Aggregate, finished the week up 0.29%. As a result, the 10 YR US Treasury closed at a yield of 2.35% (down 3 bp from the previous week’s closing yield of 2.38%). Gold advanced $9.10 to close at $1,254.30/oz. Oil prices were essentially flat (down 6 cents) as they closed the week at $57.30/bbl.
Economic news released last week reinforced investors’ beliefs that the economy remains solid. The Bureau of Labor Statistics (BLS) reported that the November Producer Price Index rose 0.4%, exceeding expectations of 0.3%. Core PPI advanced 0.4%, twice the expected increase of 0.2%. The BLS also reported that the November Consumer Price Index rose 0.4%, in-line with expectations. Food service sales jumped 0.8% in November, far exceeding expectations of a 0.3% advance. The Department of Labor reported initial jobless claims for the week ending December 9 of 225,000, below expectations of 239,000 … yet another sign of a healthy job market. Industrial production numbers released on Friday pointed to a gain of 0.2% in November … just short of expectations of a monthly increase of 0.3%. Offsetting November’s slight miss was an upward revision to October’s increase from 0.9% to 1.2%. Lastly, capacity utilization moved slightly higher by 0.1% to 77.1% – the highest reading since April 2015.
The week ahead will see more economic releases – housing starts, current account balance, existing home sales, final GDP, new home sales, durable goods orders and PCE. We expect more good news from economic releases as the current synchronized global recovery marches on.
As always, we plan to look through the day-to-day news and focus on longer-term objectives. Investors should stay the course and stick close to their long-term asset allocation targets. But most importantly, please enjoy the holiday season and reflect on the many blessings in our lives.
Best wishes for a Happy Holiday season!
Good Jobs Numbers
December 11, 2017
Last week the monthly jobs report helped lift large cap stocks to weekly gains. Both the S&P 500 and the DJIA rose after the November jobs report confirmed that economic growth remains strong. Nonfarm payrolls rose 228,000 and the unemployment rate remained at 4.1% a 17 year low, putting GDP growth on track for a 3rd straight quarter of 3% growth. Small cap and emerging market equities fell for the week while developed international equities were flat. Bonds were essentially flat last week as the yield on the 10 year U.S. Treasury went from a 2.37% to 2.38%. One of the largest decliners last week was gold which fell 2.64%. Higher interest rates and a stronger dollar are not good for the precious metal as it increases the opportunity cost of holding gold.
This week the FOMC meets and is widely expected to raise short term rates another .25% especially after last week’s strong jobs report. Observers will closely watch the Fed’s “dot plot” to gauge the number of rate hikes next year. Additionally, look for reports on CPI, retail sales and industrial production.
The annual Army-Navy football game is a celebration well beyond the playing of the game. The annual Army-Navy game held this weekend did not disappoint. Army beat Navy for the second year in a row, and, for the first time in 21years, was able to capture the Commander-in-Chief’s Trophy.
“There is nothing new in the world except the history you do not know.” – Harry S. Truman
Tax Plan Pushing Through
December 4, 2017
Equities pushed higher last week amid optimism that a US tax reform bill will make its way through Congress. Last week was certainly not without fireworks both literally and figuratively; “Rocket Man” fired off his most powerful missile yet, while former national security advisor Michael Flynn pleaded guilty for lying to the FBI. Flynn’s willingness to provide testimony sent markets into a tailspin early in trading on Friday but mostly recovered by market close.
For the week, the DJIA finished higher by 3.00%, while the broader-based S&P 500 closed up 1.60%. Smaller US companies representing the Russell 2000 also closed the week in the green up 1.22%. International equities were disappointing last week with the MSCI EAFE finishing down 0.94% and MSCI EM off 3.30%. Yields closed slightly higher last week with the 10 Treasury closing at 2.37%. Oil prices were little changed last week as OPEC extended production caps through 2018.
Equity investors are certainly cheering the prospects of tax reform … as they should. At this point, tax reform is just a bill and will still have to work its way through the reconciliation process in Congress. It’s estimated that cutting the corporate tax rate to 20% would likely bump earnings for S&P 500 companies close to $10 per share. Earnings per share (EPS) estimates for 2018 earnings on the S&P 500 are $140 without tax reform.
“Thinking is one thing no one has ever been able to tax.” – Charles Kettering
2017 – A Year to Cheer
December 26, 2017
Last week, equity markets finished in the green as the S&P 500 was up 0.3% and the DJIA increased 0.42% largely driven by a 4.5% increase in energy stocks. For the week, value stocks outperformed growth stocks on the strength of the energy and material sectors. International markets were also positive with the MSCI EAFE and MSCI EM up 1.25% and 2.08% respectively. Bonds prices were under pressure closing last week in the red as interest rates rose across the board. The 10yr US Treasury closed at a yield of 2.48% which is up from 2.35% the week prior.
The GOP-sponsored tax bill officially crossed the finish-line as it was passed by both houses of Congress and was signed into law by the President. The key provisions being touted by its supporters include a lower corporate tax rate, lower rates on individuals, and a doubling of the standard deduction. Its passage set off a wave of corporate announcements touting wage hikes, investments, and employee bonuses.
For equity investors, the holiday season came early and often as there was plenty to cheer and be merry about in 2017. This year was one for the record books as major indexes continuously notched record closes throughout the year(DJIA – 70 record closes; Nasdaq – 72; S&P 500 – 62). Barring a disastrous close to the year, 2017 will be the first on record that the S&P 500 finished the year without a negative month. We can only hope that 2018 will be as prosperous for equities as 2017.
Our team at Newman Dignan & Sheerar would like to wish to everyone a happy and healthy New Year!
“No act of kindness, no matter how small, is ever wasted.” – Aesop