Week of January 2, 2017
Investors skated into the New Year with relatively calm markets last week, all things considered. Looking into 2017, investors will be faced with a new U.S. President and a healthier job market, but concerns over stalling growth in Europe and China continue to weigh on sentiment.
The S&P 500 posted a -1.1% last week, bringing its 2016 performance to 9.54% while the Dow Jones Industrial Average and the NASDAQ Composite followed suit, also notching negative returns the week prior. The Dow was the clear outperformer in 2016 with 13.42%, outpacing the S&P 500 and the NASDAQ Composite which was up 7.50% for the year. Internationally, markets were mixed. China's Shanghai Composite was off -0.21% last week, ending down a staggering 18.06% for 2016 and marking a tough year for Chinese equities. Beginning January 1, China will increase the number of currencies used to price the yuan from 13 to 24 as its central bank looks to lessen the impact the U.S. dollar has on their currency. And it's no wonder the Chinese are pursuing this action. Uncertainty surrounding China's economic growth, the likelihood of further Fed rate increases and the stronger U.S. dollar have put significant downward pressure on the yuan. One only needs to look at the beginning of 2016 and the latter half of 2015 to see how markets react to a yuan devaluation. Moving to Europe, the MSCI Europe Index was up 1.22% last week but down 3.39% for 2016. The region weathered the Brexit and continues to face a potential banking crisis going into the New Year. What's more, other countries in the European Union, including Germany, France, Italy and the Netherlands, have elections in 2017 which could determine the fate of the governmental bureaucracy as Britain appears to be paving the way for others to follow.
Source: Morningstar Direct
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: U.S. goods trade deficit widens; labor market near full strength According to the recent jobless claims report, the labor market appears to be at or very close to full strength. The Federal Reserve watches this figure closely, using it to influence the future path of interest rates and a strong labor market, all else being equal, is likely to keep the Fed on target to raise rates a forecasted three times in 2017. Biggest Fourth-Quarter Gas Rally in 16 Years May Spill Into 2017 Natural gas looks to lock in its biggest fourth-quarter price gain in 16 years as the commodity is likely to be the best performer in 2016. We would note that natural gas differs from oil in that it is priced by the market's supply and demand rather than a cartel artificially increasing or decreasing production to influence the price. Draghi Set for Inflation Boost That May Not Be All He Needs The European Central Bank (ECB) is expecting higher inflation figures going into 2017. The good news is that the bank may finally meet its inflation target. The bad news is that higher oil prices and the weaker euro are hiding underlying weakness in the region's economy, making future policy decisions especially tricky for the ECB.
Fun Story of the Week
Were you ready for 2016 to end as soon as possible, preferring to see what 2017 brings? Or was it a banner year and wished it would only last longer? No matter which side of the fence you sit, we all had to wait just a little bit longer to ring in 2017. But not too much longer. In fact, just one second to be precise. According to the U.S. Naval Observatory, a "leap second" was added to the world's clocks on December 31. The reason? Ocean waves. Tides have a braking effect on the Earth's rotation and atomic clocks move out of sync, creating the discrepancy. What's more, these leap seconds have been added to clocks dating back to 1972. "Why all the trouble for just one second?", you may say. That's a fair criticism but in today's world, a tiny second can have a huge impact. Digital systems and telecommunications all rely on synced clocks to function appropriately as do satellites for GPS. So, we hope all our readers had a healthy and prosperous 2016, extra second and all…
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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 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.
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.
Bloomberg, December 2016. https://www.bloomberg.com/news/articles/2016-12-30/draghi-set-to-get-inflation-boost-that-might-not-be-all-he-needs
Bloomberg, December 2016. https://www.bloomberg.com/news/articles/2016-12-29/biggest-fourth-quarter-gas-rally-in-16-years-may-spill-into-2017
CNBC, December 2016. https://www.cnbc.com/2016/12/29/jobless-claims.html
Tech Times, December 2016. https://www.techtimes.com/articles/190570/20161229/2016-extra-leap-second-longer-because-of-ocean-waves.htm
New York Times, December 2016. http://www.nytimes.com/2016/12/05/world/europe/europe-election-populism-germany-france-italy.html?_r=0
Wall Street Journal, December 2016. http://www.wsj.com/articles/china-hits-reset-on-yuan-fixing-1483007435