Week of October 31, 2016
When looking into the US last week, domestic equities were flat to slightly down; the S&P 500 and NASDAQ Composite were down at 0.69% and 1.27%, respectively, and the Dow Jones Industrial Average was up just 0.09%. Internationally, most broad markets were down except for the one bright spot, China's Shanghai Composite, up 0.13%.
Our commentary this week focuses on the GDP data released last Friday (October 28), the US dollar's recent strength and a look at the current situation facing the world's oldest bank. Our fun story this week covers interesting changes to parking enforcement.
According to data, the US economy grew at an annual rate of 2.9%, beating economists' expectations of 2.5% and hitting a two-year high. The majority of the growth was attributed to expansion in inventory investments and exports which overshadowed the pullback in consumer spending. Focusing in on the exports, soybeans jumped 10%, contributing the most to the growth for the third quarter. Analysts have expressed concerns that the economy could see a pullback in the next quarter given the greater-than-usual soybean activity but shipments of capital and consumer goods have exhibited strong growth as well. We would be remiss not to note the impact of this quarter's strong GDP on a potential interest rate hike by the US Federal Reserve. The Fed is primarily focused on inflation and employment but the stronger economy is certainly supportive of a rate hike by year-end.
USD Back On Top
The US dollar reached a new peak against the euro last Tuesday (October 25) and also hit a three-month high against the yen on the strong GDP growth and speculation that the Federal Reserve would hike rates before year end. According to data, the Dollar Index (which measures the US dollar against a group of six primary currencies) hit 99.12 mid-week, which is near a nine-month high for the index. Adding fuel to the fire is the fact that investors are expecting the Bank of Japan, European Central Bank and the Bank of England to increase stimulus and keep rates low when the US Federal Reserve is likely to raise rates. Everything else being equal, investors tend to shift assets into the securities with the higher yield, sparking a race into the greenback as investors anticipate a hike before 2017.
World's Oldest Bank Seeks a Solution
The world's oldest bank, Italy's Monte dei Paschi, is planning to cut its workforce by 2,600 and shutter 500 branches in order to rectify its solvency issues. The goal of these swift changes is to entice investors to buy into a multi-billion euro capital infusion. According to recent stress tests performed by the European Banking Authority, Monte dei Paschi was recently found to be the worst capitalized institution. A quick and orderly solution is important because the Italian government is looking to a stronger Monte dei Paschi to bring confidence back to the beleaguered Italian banking sector. Like many European banks, Monte dei Paschi has been plagued by bad loans leftover from the 2008 financial crisis. Indeed, the firm is looking to sell roughly 28 billion euro in bad debt so as to reposition itself for the future.
Fun Story of the Week
The parking boot may soon be a thing of the past. It's replacement, however, may quite possibly be one of the most obnoxious things employed by parking enforcement. The Barnacle is a bright yellow device that latches on to the car's windshield, not unlike the clingy crustaceans plaguing the underside of boats. According to its creators, or mad scientists (take your pick), the Barnacle is easier to install and more effective. With 750 pounds of force, those unfortunate enough to encounter the device will be hard pressed to remove it on their own. It isn't all bad news, though. Motorists who used to have to wait for hours to have a boot removed can now call the toll-free number gracing the gaudy yellow Barnacle and pay fines over the phone. Once paid, they are given a code and 24 hours to drop the device off at a designated location. Fortunately, only those in Allentown, Pennsylvania and Fort Lauderdale, Florida have to worry about these at the moment as the cities test the effectiveness in different weather conditions. So far, the Barnacle is met with bewilderment by its unsuspecting violators.
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.
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.
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.
Investing, October 2016. http://www.investing.com/quotes/us-dollar-index
CNBC, October 2016. http://www.cnbc.com/2016/10/24/dollar-firm-near-9-month-high-on-fed-rate-outlook.html
Wall Street Journal, October 2016. http://www.wsj.com/articles/monte-dei-paschi-to-slash-jobs-sell-units-in-bid-to-win-support-for-rescue-plan-1477380155
CNBC, October 2016. http://www.cnbc.com/2016/10/28/us-advance-q3-gdp.html
Fox News, October 2016. https://www.foxnews.com/auto/2016/10/20/parking-boots-are-being-replaced-by-this-yellow-monstrosity.html