Week of December 19, 2016
Global markets ended last week's trading session on a mixed note. Our domestic markets were roughly flat with the Dow Jones Industrial Average notching a 0.43% return while the S&P 500 and the NASDAQ Composite were both down 0.08% and 0.15%, respectively. Internationally, Europe, as measured by the MSCI Europe Index, was the clear outperformer with a 0.14%. Asian markets, however, experienced a broad selloff with Japan's Nikkei 225 Average off 0.62% for the week while China's Shanghai Composite was down 4.15%.
This week we touch on the Federal Reserve's rate hike and provide updates on Britain's and China's economies. We conclude with a fun story on dollhouse remodeling trends.
Fed Rate Hike: ‘vote of confidence’
The Federal Open Market Committee unanimously voted to raise the Federal Funds rate by 25 basis points to a range of 0.50%-0.75%. Chair Janet Yellen mentioned that the hike should be understood as the committee’s ‘vote of confidence’ in the economy and that progress is expected to continue. Indeed, the economy grew at a rate of 2.9% in the third quarter, the strongest quarterly reading in two years after three consecutive periods of sub-2% growth. Steady job market improvement has pushed the unemployment rate to historic lows and signs of stronger wage growth are also becoming more evident. We would note that it's possible the Fed is factoring in the fiscal policy of the incoming president which could very well spur economic growth and inflation. Trump has promised to cut taxes and to invest as much as $1 trillion in infrastructure. The Fed also stated in the meeting that the central bank expects three rate increases next year with a projected 2.1% rate by 2018. Its long-run rate is expected to be 3%, up slightly from previous expectations of 2.9%.
UK Economic Data: Brexit Blues?
Last week was busy for British economists as the government released a slew of data. Per the reports, the pounds fall post-Brexit appears to be impacting the real economy. Inflation in November rose to 1.2%, its highest in two years and rising oil prices are exacerbating the situation. What's more, employment data points to a cooling labor market as job creation has slowed in concert with an inactive economy. Investors were expecting a 50,000 rise in employment from August to October, only to be greeted by a fall of 6,000 over the same period while annual pay growth rose slightly to 2.6%. The combination of weak employment, wage gains and growing inflation is likely to put additional pressure on businesses as Brexit uncertainty now becomes a drag on the economy. The Bank of England, noting the slower economic growth, held interest rates steady at a record low of 0.25% in its December meeting and will maintain its quantitative easing program, buying £435 billion in government bonds and £10 billion in corporate bonds.
Source: Data from ONS, Modified by Cresco Research. Price inflation (left). Employment rate (right).
China's Economic Update
China also released its production data last week, and unlike the UK, investors were pleasantly surprised. November retail sales jumped 10.8%, beating consensus expectations. Likewise, China’s industrial production accelerated to 6.2% against forecasts of 6.1%. While the year started on a slower note, a resilient manufacturing sector bounced back in the second half on government infrastructure spending and a robust property market. The world’s second largest economy is on track to end this year on a positive note as exports were cushioned by the weaker currency and factory prices finally broke out of their deflationary trend.
Fun Story of the Week
Remodeling a home can be an expensive, often messy affair whether you're knocking down walls in your 4,000-square foot ranch-style home or your 2-square foot dollhouse. Traditional dollhouses have hung on to the Victorian style for quite some time but hobbyists are started to favor more contemporary furnishings and open floorplans. Remodeling is done through a process known as "bashing" and can be quite the challenge given the small workspaces and level of detail these custom homes typically showcase. What's more, the decorations inside of these miniatures can cost almost as much as the real thing. Take the diminutive, 4-inch wide Wolf stove created by Michael Yurkovic for $650. The kitchen isn't the only place that gets remodeled; indeed, people are going so far as to install lighted fish tanks, rainfall showers, marble countertops, $250 Eames Eiffel chairs and LED lighting.
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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.
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.
MSCI EUROPE INDEX
The MSCI Europe Index captures large- and mid-cap companies across 15 developed markets countries in Europe.
SSE COMPOSITE INDEX
The SSE Composite Index is a stock market index of all stocks (A shares and B shares) that are traded at the Shanghai Stock Exchange.
Wall Street Journal, October 2016. http://www.wsj.com/articles/gut-reno-the-dollhouse-edition-1475506849
USA Toady, December 2016. https://www.usatoday.com/story/money/2016/12/14/finally-fed-hikes-rates-first-time-2016/95422818/
BBC News, December 2016. http://www.bbc.com/news/business-38313110
The Guardian, December 2016. https://www.theguardian.com/business/2016/dec/14/uk-unemployment-rate-pay-growth-jobless-ons
Financial Times, December 2016. https://www.ft.com/content/9c6b29be-c0f3-11e6-9bca-2b93a6856354
RTT News, December 2016. http://www.rttnews.com/2724706/china-industrial-production-retail-sales-rise-more-than-forecast.aspx
Financial Times, October 2016. https://www.ft.com/content/f0276918-cc7f-3bd1-8433-7d103aee957c