Week of November 14, 2016
Investors were in a risk-on mood following the election results with our domestic markets up more than 3.5% for the week. The NASDAQ Composite and S&P 500 indices were both up 3.8% while the Dow Jones Industrial Average was the clear outperformer, posting a 5.36% return for the week. International equities, however, trended down for the week with the broad MSCI All Country World Index, excluding the U.S., ending off 0.75%.
As expected, this week's commentary is focused on the market's reaction to the election results as we take a look at both the equity and fixed income markets. For a global perspective, our last story revolves around China's recent economic data releases. We conclude with an interesting article on a mysterious piece of property up for sale by the U.S. government.
The Market and The Election
This election cycle can best be described as extremely uncertain and the results stunning. The uncertainty also explains the dramatic moves in the S&P 500 Index over the last two weeks. In a run up to the election, the index declined for nine consecutive days through November 4, its longest losing streak since December 1980. As of the end of last week, the index has recovered and exceeded those losses while the Dow Jones Industrial Average is hitting all-time highs. For historical perspective, the S&P 500 rose 20 of the last 22 times before a presidential election. What's more, according to Bloomberg data from 1928, the S&P 500 Index has increased an average 7.5% in non-election years compared to 7% in election years. Year-to-date return for the index stands at 5.9% as of the end of last week with each month bucking the historical election year trend. We would be remiss not to note that volatility will likely increase over the short-term as the equity market continues to digest the prospects of a Trump presidency but we continue to stress that investors should remain focused on the long-term.
Source: data from yahoo finance, modified by Cresco
Bond Markets Rattled
Yields on U.S. Treasury Bonds rose sharply in a post-election selloff, with the 10-year Treasury hitting an eight-month high at 2.12% and the 30-year bond surging to 2.80%. Yields rise when bond prices fall. As we mentioned above, the impact of a Trump presidency has yet to be fully deciphered but the President-Elect's plans to expand fiscal policy, cut taxes and introduce higher infrastructure spending could result in higher inflation. These higher inflation expectations could potentially reduce the value of future interest and principal payments to bond holders which is likely one of the reasons why investors are cycling out of bonds. We would note that no policy changes have been enacted at this point, rather, the market is reacting based on Trump's statements immediately following his victory speech.
China Mixed Signals?
While most of the world was focused on the U.S. presidential election, China released some very important economic data, including October's inflation and trade balance figures. Inflation came in at its highest level since April and was in line with expectations at 2.1%, largely due to an increase in food prices. More importantly, producer prices increased 1.2% over year-over-year, exceeding market expectations of 0.9%. Both indexes are signaling stronger demand and provide some relief to concerns about Chinese deflation. New car sales increased 20% in October compared to a year ago which, while encouraging, could be completely attributed to the tax break introduced last year where the government halved the 10% purchase tax on small vehicles. The growth is slower than the past three months and the tax push seems to be levelling off. China also reported its trade balance and surplus which increased from $42 billion to $49.1 billion. We would note, however, both import and export growth remained in the red with imports declining 1.4% year-over year. The more worrisome data point was the decline of 7.3% in exports which was larger than expected but less than the 10% drop in September. Generally, the weaker Yuan supports exports but last month's decline points to slowing global growth and demand.
Fun Story of the Week
Looking to relocate to a secluded mountain retreat, complete with 80 homes, its own fire station, baseball fields and government snooping equipment? Well, Sugar Grove, code name "Timberline", may be the piece of property for you. Currently on sale by the U.S. Navy, the facility's original purpose was to "perform communications research and development for the U.S. Navy Department of Defense" and other nameless, shadowy divisions of the government. While the seclusion and mystique may be attractive, downloading the latest version of Candy Crush to your iPhone may be impossible. The facility sits within a 13,000 square mile National Radio Quiet Zone which means interference from radio cell phone towers is low or blocked entirely. Dating back to the Cold War, "Timberline" was occupied by the government until last year when they decided not to repurpose the facility and put it up for auction. The initial online auction went for $11 million which is a steal for a fully functional community but the initial buyer defaulted, putting the property back on the market.
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 developed 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.
MSCI ALL COUNTRY WORLD INDEX EX USA
The MSCI All Country World Index ex USA captures the performance of securities within the MSCI All Country World Index except for equities within the USA. It is market cap-weighted and covers both developed and emerging markets.
Market Watch, November 2016. http://www.marketwatch.com/story/how-the-stock-market-tends-to-perform-on-and-after-election-day-2016-11-07
Forbes, March 2016. http://www.marketwatch.com/story/2016-predictions-what-presidential-election-years-mean-for-stocks-2015-12-29
Fortune, November 2016. https://fortune.com/2016/11/09/donald-trump-win-market-reaction-bond/
Financial Times, November 2016. http://www.investing.com/analysis/china:-age-limits,-trade-and-a-possible-currency-war-200163740
Wall Street Journal, November 2016. http://www.wsj.com/articles/china-car-sales-take-foot-off-the-gas-1478765078
Wall Street Journal, October 2016. http://www.wsj.com/articles/for-sale-123-acre-mountain-retreat-with-a-secret-code-name-1477938169