Week of February 20, 2017
According to the economic data, it appears that overall activity in the U.S. has indeed increased, signaling that the Trump-driven optimism may be reaching the real economy. U.S. consumers are continuing to spend at a robust pace with both inflation and retail sales data coming in better-than-expected for January.
In addition, increasing factory production, historically low jobless claims and rising prices supports the notion of a near-term Federal Reserve rate hike. Indeed, Janet Yellen stated last Tuesday that it was unwise to wait too long for a rate hike. However, we note that the uncertainty around the direction of fiscal policy could push the hike to June rather than March. The markets cheered on the news with the Dow Jones Industrial Average closing out the week up 1.75%. The S&P 500 notched a 1.51% return but the clear outperformer was the NASDAQ Composite with 1.82% Internationally, inflation data came in stronger for China, Britain and Germany as well, but the bump was primarily due to rising oil prices rather than consumer activity. Brent crude continued to edge up despite record U.S. crude and gasoline inventories as the Organization of the Petroleum Exporting Countries (OPEC) hinted at extending the production cut. The higher oil price also led to the downward revision in Eurozone's Q4 GDP from 0.5% to 0.4%. Per the data, the region grew by 1.7% in 2016, slightly missing expectations of 1.8%. However, the data is signaling that the recovery appears on track but political risk continues to cloud forecasts. The European Central Bank forecasts the region to grow 1.6% in 2017 and 1.8% in 2018 while three key economies of Germany, France and the Netherlands have major elections in 2017 which could determine the fate of the European Union.
What are we reading?
Below are some areas of the market we paid particularly close attention to this week. For further information, we encourage our readers to follow the links:
The U.S. economy may be catching up to America's Trump-inspired enthusiasm
The United States economy appears to be gaining momentum. Broad-based growth from the start of the year in consumer spending, job markets and manufacturing are bolstering expectations. Retail sales and inflation numbers are beating expectations and seasonally adjusted housing stats are coming in strong, reaffirming that our domestic economy is picking up speed.
Oil firms as OPEC floats extended output cut; markets still bloated
Crude oil prices fluctuated last week with opposing forces of a weak U.S. Dollar and massive supply builds. U.S. crude inventories and exports soared to record highs with total inventory standing at 518 million barrels, the highest ever. Exports, too, increased to their highest level in almost three years. On the OPEC front, Reuters reports that the organization is preparing to extend the production cut deal beyond the June expiration date if global inventories don't fall sufficiently.
European Commission Raises Eurozone Growth Forecasts Despite Severe Risks
The European Commission raised its growth forecasts for the region as a whole, citing better than expected performance in the second half of 2016 and a quality start to 2017. While the region's recovery appears on track, there are some risks to the region, including a number of elections in key European Union states that could trigger additional Brexit-like conditions and the more protectionist policies of the Trump administration.
Fun Story of the Week
In the world of web forums, electronic applications and online booking, trying to complete menial tasks on the internet can be extremely frustrating. However, there is good news. There are people who have it worse than you. A recent WSJ article cited a small demographic of people whose surnames cause web-based software to have a meltdown. Referencing people with the surnames Test, Null, Sample and Blank, the article scripted the trials and tribulations of these unimaginably enduring humans. From being denied plane reservations to receiving unwarranted dating website emails, these men and women truly exemplify what it means to have patience. Despite the nightmares that have haunted a man named Tom Test, he states “There’s an upside in that my name is unusual and therefore memorable. It might be worth a few hassles if people remember me.”
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GENERAL DISCLOSURE
This newsletter was written and produced 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 views stated in this letter are not necessarily the opinion of Cetera Advisor Networks LLC and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change with notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results.
DJIA
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.
NASDAQ COMPOSITE
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.
Wall Street Journal, February 2017. https://www.wsj.com/articles/why-messrs-test-null-and-sample-say-the-internet-bugs-them-1487088824