Week of February 6, 2017
It was a busy week with a mix of economic data releases and corporate earnings reports for the markets to digest. Contrary to public anticipation, the economic news was better than expected as pending home sales brought surprise on the upside, along with strong purchasing manager's index readings in the U.S. and Germany.
Higher numbers indicate that companies are gearing up for more consumer demand. Eurozone business started the year in stride as European factories registered the fastest activity rate in nearly six years. What's more, Chinese business activity continued to expand for its sixth consecutive month while Japanese manufacturing growth was the fastest in almost three years. The Bank of Japan, Bank of England and the Federal Reserve had their policy meetings and all three central banks kept rates static as they await more meaningful economic information in the coming months. Turning to the equity markets, investors did not react much to the news from the banks and it appears they were taking a more risk-averse approach. We would note that a significant portion of the market's risk-aversion is likely attributable to uncertainty surrounding the new president's protectionist trade policies and their impact on currencies and the global economy. For context, all three primary indices witnessed their biggest declines of this year as markets reacted to the administration’s immigration comments. Despite the selloff, the S&P 500 and the Dow Jones Industrial Average were flat for the week, up 0.12% and down -0.11%, respectively. The tech-heavy NASDAQ Composite closed out the week up 0.11%.
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:
In its first policy meeting of the year, the Federal Reserve held interest rates steady but painted a relatively upbeat picture of the domestic economy. Per the committee, job gains remain solid, inflation was increasing and economic confidence was rising. However, policymakers provided no firm signal on the timing of the central bank's next rate move and are waiting to see how the Trump Administration's new policies will impact the economy.
The latest data releases from the UK have been robust, showing that Britain's economy has continued to expand at a solid rate. However, rising input prices are expected to weigh on household spending, a key driver of the economy. Since the Brexit vote, the UK witnessed the sharpest rise in factory costs fueled by the pounds near 20% drop against the dollar along with higher steel and oil prices. These higher costs will dampen exports and eventually impact growth.
While the U.S. dollar has experienced a secular upward trend over the last few years, the volatility in the currency has returned. It's true that the dollar got a boost from bets that Trump’s policies would stoke inflation, but the administration's protectionist policies appear to be counteracting those expectations. We would note that the Federal Reserve's interest rate changes, Trump’s fiscal policies, and an improving U.S. economy, all provide positive support to the dollar.
Fun Story of the Week
Whether you felt good, bad or indifferent about Sunday's Super Bowl outcome, there were a number of records broken that evening, making it an exciting event for sports fans. It may be easy to forgive those that shut it off after the first half, thinking the Falcons had it all but won, however, those that did missed quite a game. This was the first Super Bowl to feature an overtime while simultaneously including the largest come-from-behind win with the Patriots rallying from a 25-point deficit. Tom Brady, winning his fourth Super Bowl "most valuable player" award (a record), threw for 466 yards (also a record) and finished 43 of his 62 pass attempts (another record). What's more, this win puts the Patriots' coach, Bill Belichick, in the history books as well. Belichick became the first coach to win five Super Bowls and Sunday's victory over the Falcons marks Brady's and Belichick's 25th postseason victory.
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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.
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.
ABC News, February 2017. http://abcnews.go.com/Business/wireStory/fed-leaves-key-interest-rate-unchanged-45198238