Week of January 16, 2017
Amidst strong earnings reports from the banking sector and stocks like Bank of America and JPMorgan Chase, the NASDAQ Composite notched a new all-time high late last week. The index, heavy in financials, was up 1% the second week of January. In other news, retail sales in the U.S. were up 0.6% in December, led by car sales and gasoline but were roughly flat when excluding purchases at dealerships and the gas pump.
Turning to the economy overall, affordable gas prices, rising wages and improving sentiment have created fertile for consumer spending which accounts for nearly two- thirds of U.S. gross domestic product. Overseas, the markets were slightly higher. A recently released report indicates that Eurozone inflation rose at its fastest annualized rate in over three years as of the end of December. While this is promising for a region that has struggled to grow post-2008 financial crisis, it does mean that some significant changes could be coming. Markets have long been influenced by central banking stimulus and stronger economic numbers could force the European Central Bank's hand and begin the unwinding of their stimulus programs. We would note that the 1.1% rise in consumer prices is a far cry from the bank's 2% target but even small increases in inflation can have the big impacts on the markets. Indeed, the U.S. Federal Reserve halted its own bond buying program and raised interest rates while domestic inflation was below its stated target.
What Are We Reading?
Below are some areas of the market we paid particularly close attention to this week:
Main Takeaways from Donald Trump’s Press Conference
President-Elect Donald Trump’s first press conference spurred volatility in the markets. Stocks, the U.S. dollar and treasuries initially reacted negatively but drifted back toward pre-event levels. We would note that the market appears to be on hold, waiting for more information on his policies as the inauguration approaches.
Oil Higher After Saudi Arabia Cuts Output, China Imports Rise
Saudi Arabia showed its commitment to the production cut by reducing production lower than the targeted level. The country is currently producing at a 22-month low at less than 10 million barrels a day and will also consider cutting more if required. This is important because it indicates that major producers appear committed to bringing supply and demand back into balance.
China Exports Slump More Than Expected in December, Imports Growth Cools
The U.S. and China saw slipping demand across all major regions as exports fell sharply last month. Sales were also down as labor and raw material costs were up a total of 30% in recent months, forcing an increase in prices. Trade tensions, protectionist attitude of the Trump Administration and in general anemic growth across the developed economies cloud the outlook for a return to more robust trade.
U.S. Dollar Climbs as Fed Presidents Offer Hawkish View
While the U.S. dollar lost some steam after Trump's news conference (which lacked details on the fiscal policy specifics), a more hawkish tone from the Fed speakers lent some support. Investors' attitudes are shifting from 'hope' to 'concern' that the proposed tax reform and infrastructure spending may not actually come to fruition.
Fun Story of the Week
Do you stay up to watch meteor showers or hunch over a telescope to catch a peek of Saturn's rings or Jupiter's monster storm? Are you willing to wait five years for a once-in-a-lifetime celestial spectacle? Per astronomers, a red nova is expected to steal the show in 2022. A binary star system some 1,800 light years away is going to merge into a brilliant explosion that could create a nova bright enough for city dwellers to witness. Astronomers from the American Astronomical Society have been watching the system since 2013 after they noticed the stars getting closer and mentioned that the resulting explosion produces a reddish light. While the visual display will fade relatively quickly, the infrared discharge from the event will last for years. For those interested in witnessing the display, we only have to wait five years, plus or minus seven months, so get ready!
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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.
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.
Wall Street Journal, January 2017. http://www.wsj.com/articles/eurozone-inflation-highest-in-over-three-years-1483525481
CNBC, January 2017. http://www.cnbc.com/2017/01/13/us-markets.html
Wall Street Journal, January 2017. http://www.wsj.com/articles/cars-gasoline-lifted-u-s-retail-sales-0-6-in-december-1484314510
ARS Technica, January 2017. http://arstechnica.com/science/2017/01/astronomers-predict-a-red-nova-will-brighten-our-skies-in-2022/