Week of April 25, 2016
Global markets were mixed last week. Our domestic markets bounced off 2016 highs and the Dow Jones Industrial Average ended the week up 0.6% while the S&P 500 and the NASDAQ Composite were up 0.5% and down 0.6%, respectively.
European equities were generally up with the STOXX Europe 600 Index posting nearly a 3% return. Asian markets saw the Chinese Shanghai Composite down 3.8% and the Japanese investors up 4.3% as measured by the Nikkei 225 Average. Below are some areas that we believe were top of mind for investors last week.
The US dollar has been weakening year-to-date and one of the more recent catalysts was disappointing data released by the US government that showed new home-building starts slowing for March. This is leading investors to believe that domestic and global conditions haven't improved to the point where the Federal Reserve will consider rate increases in the coming months. Indeed, with the calendar of events on the horizon, it seems unlikely that the Fed will meet even its revised target rate by the end of the year. A possible UK exit from the European Union, the US presidential elections and, not to mention, murky global growth prospects cast a shadow over the Fed. If the Fed does not raise rates throughout the year, all else equal, we would expect the US dollar to continue to fall relative to other currencies as investors are no longer expecting greater rates on US Treasury bonds. The US Dollar Index, a benchmark that measures the relative value of the US dollar as it compares to a basket of international securities, is nearly 6% off its 12-month high last November and down 4.8% year-to-date.
Source: Wall Street Journal
Another Week, Another High
US equities hit another high last week before retreating as investor sentiment improved on better-than-expected corporate earnings and a more favorable environment for stocks. Interestingly, while it may not feel this way to investors, the Dow Jones Industrial Average is roughly 2% off its record high from last May. Analysts point to a positive feedback loop driving the bullish attitude where a lower US dollar and improving oil prices have helped push the S&P 500 and Dow Jones Industrial Average to fresh 2016 highs. The Federal Reserve's hesitation to raise rates has helped drive the US dollar down, bolstering oil which is bought and sold in greenbacks. This, in turn, helps alleviate investors' deflationary fears and brings on the appetite for equities we have been witnessing. More specifically, the increasing price of oil and lower dollar have eased some of the headwinds multinational companies have been facing while also positively impacting the energy and financials sectors more directly.
Oil, once again, grabbed headlines last week as a number of factors pushed and pulled the commodity. The Organization of Petroleum Exporting Countries (OPEC) and Russia failed to reach an agreement on production freezes last week and Brent crude, the international benchmark for oil, fell as much as 7% last Monday on the news. However, thousands of Kuwaiti oil workers went on strike earlier in the week, cutting daily production for the country in half and providing positive price pressure. Kuwait produces roughly 2.8 million barrels per day but the slowing production brings that down to 1.5 million barrels per day at its lowest. We would note that the strike was a short-term boon to oil prices but longer-term positive pressures on the commodity will come from improving global fundamentals and demand. Indeed, the US Energy Information Association doesn't forecast supply and demand matching until early 2017. Brent Crude was up more than 10% last week after the dust settled, notching three straight weeks of positive gains.
Source: Wall Street Journal
Fun Story of the Week
For those that like a little kick in their food, chili peppers can be a great addition to any dish. However, chili peppers can range from sweet and benign to painfully, hospital-trip inducing hot. To quantify the heat that peppers bring to the table, the Scoville heat unit scale, created by Wilbur Scoville in 1912, measures the capsaicin in each type pepper. Capsaicin, essentially an irritant, is what makes your mouth feel like it's on fire without the flames. There are three peppers in particular that pack quite a wallop, but before going over those, a benchmark must be set. Jalapenos, for example, range from 3,500-10,000 Scoville units. The bhut jolokia, or ghost pepper, hails from India and comes in at number three on the Scoville scale with roughly 855,000 units. Interestingly, farmers use these peppers to protect their rice fields from elephants trampling their crops. Apparently, the elephants can't handle the heat. Scorpion peppers from Trinidad and Tobago come in at number two with 1,200,000 Scoville units on average. If you can get through the burning, Scorpion peppers are said to have a fruity, sweet flavor. Coming in at number one: the Carolina Reaper measures up to a staggering 2,200,000 Scoville units. The Carolina Reaper was created by cross-breeding a bhut jolokia and a red habanero, ending up with a bright red "franken-pepper" that has an oily texture and spiky bumps all over.
Securities offered through Jacques Financial, LLC (JFLLC) a Broker-Dealer, Member FINRA and SIPC.Certain associates of Joseph W. Jacques, CPA, CFPTM are registered representatives of JFLLC. Joseph W. Jacques, CPA, CFPTM and JFLLC are affiliated. Investment advisory services are offered through Jacques Advisors, LLC an affiliate of JFLLC. Tax services are offered through Jacques & Associates Certified Public Accountants, LLC an affiliate of JFLLC.
This newsletter was written and prepared by CWM, LLC. Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
The Dow Jones Industrial Average is comprised of 30 stocks that are major factors in their industries and widely held by individuals and institutional investors.
The NASDAQ Composite Index measures all NASDAQ domestic and non-U.S. based common stocks listed on The NASDAQ Stock Market. The market value, the last sale price multiplied by total shares outstanding, is calculated throughout the trading day, and is related to the total value of the Index.
S&P 500 INDEX
The Standard & Poor’s 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
US DOLLAR INDEX
The US Dollar Index is an index of value of the US Dollar relative to a basket of foreign currencies that include the Euro, the Japanese yen, the Pound Sterling, the Canadian dollar, the Swedish krona and the Swiss franc.
NIKKEI 225 AVERAGE INDEX
The Nikkei 225 Average Index is a Japanese index that tracks the top 225 companies listed on the Tokyo Stock Exchange. It includes the most liquid Japanese stocks listed in the first section of the Tokyo Stock Exchange. It is price-weighted and yen-denominated.
SHANGHAI COMPOSITE INDEX
The Shanghai Composite Index is a market index of all stocks (A shares and B shares) that are traded on the Shanghai Stock Exchange. It tracks the largest publicly traded companies in China.
STOXX EUROPE 600 INDEX
The Stoxx Europe 600 Index is derived from the Stoxx Europe total Market Index and is a subset of the Stoxx Global 1800 Index. With a fixed number of 600 components, the Stoxx Europe 600 Index represents large, mid and small capitalization companies across 18 countries of the European region.
Financial Times, April 2016, http://www.ft.com/intl/cms/s/2/239c27ec-06e8-11e6-a70d-4e39ac32c284.html#axzz46YrGGIHw
Financial Times, April 2016, http://www.ft.com/intl/cms/s/0/b95860f2-05d5-11e6-a70d-4e39ac32c284.html#axzz46JAwLCaE
Wall Street Journal, April 2016, http://www.wsj.com/articles/dollar-drilled-by-tepid-housing-data-1461076845
Wall Street Journal, April 2016, http://www.wsj.com/articles/japanese-yen-flirts-with-18-month-high-1460960937
US Energy Information Agency, April 2016, https://www.eia.gov/forecasts/steo/report/global_oil.cfm
Investing.com, April 2016, http://www.investing.com/quotes/us-dollar-index-historical-data
CNBC, April 2016, http://www.cnbc.com/2016/04/17/oil-price-falls-after-doha-summit-of-opec-other-producers-ends-without-output-freeze-deal.html
CNBC, April 2016, http://www.cnbc.com/2016/04/18/low-oil-prices-dont-cut-into-us-production-by-much.html
CNBC, April 2016, http://www.cnbc.com/2016/04/18/us-markets.html