Week of January 23, 2017
Press conferences took center stage last week. The most interesting among them were President Trump’s inauguration speech, Fed Chair Janet Yellen’s speech at the Commonwealth Club and, of course, UK Prime Minister May’s Brexit speech. While the U.S. equity market remained muted for most of the shortened week, fluctuations in currencies, including the U.S. dollar and British pound, were noteworthy.
The U.S. dollar regained strength after reacting negatively to Yellen's hawkish overtones while the pound fell nearly 2% against the dollar, recovering slightly after May's speech. Britain is now expected to cut clean from the European Union and that could have significant ramifications for its currency and the global markets in the coming months. The MSCI Europe Index was down 0.43% last week while the Nikkei 225 Average was the clear underperformer, off 0.81%. China's Shanghai Composite, however, was one of the international bright spots after notching a 0.68% return. Turning to our domestic markets more specifically, investors patiently waited as another bout of firms reported their earnings for the fourth quarter of 2016. Procter and Gamble and American Express were two of the most notable misses last week, while J.P Morgan and Union Pacific were amongst the greatest earnings surprises. Despite these events, US markets signaled pessimism leading into Donald Trump's inaugural speech on Friday before rebounding slightly. The Dow Jones Industrial Average was off 0.29%. Interestingly, the Dow topping 20,000 looked to be all but assured two weeks back but the blue chip benchmark has fallen and is more than 300 points away from the key milestone. The broader S&P 500 and NASDAQ Composite were range-bound, closing out the third week of January down 0.15% bps, and 0.34%, respectively.
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:
Is the market in for a Fed surprise?
Fed Chair Janet Yellen spoke last Wednesday, saying the nation is approaching full employment and may not need additional stimulus from the central bank. Per their projections, the committee seems to be favoring three interest-rate increases this year. However, the Federal Reserve has yet to account for any upside surprises to U.S. economic growth or inflation from Trump’s fiscal stimulus plans.
In ‘Brexit’ Speech, Theresa May Outlines Clean Break for UK
UK Prime Minister Theresa May outlined a 12-point plan for leaving the European Union (EU) in a major speech at London's Lancaster House. She promised a clean break from the union and said Britain will leave the single market membership, also known as a "hard exit". This is important because Britain will be tasked with renegotiating all of its trade deals, including those with the EU and the United States.
ECB holds steady on rates amid inflation dilemma
The European Central Bank (ECB) held rates and the stimulus program unchanged in its latest meeting. ECB President Draghi said inflation pressures in the Eurozone "remain subdued" and reiterated that the bank stood ready to intervene further if conditions worsened. The dovish comments caused the euro to fall and the lack of any details as to when tapering would actually happen continues to add uncertainty into the European markets.
China’s Q4 GDP up 6.8% on-year, beating expectation for 6.7%
China's economy grew at a faster-than-expected rate in the fourth quarter, up 6.8%. According to the reports, the growth was a result of higher government spending and record bank lending but consumer spending also showed a measurable uptick. We note that debt risks still cast a shadow over the economy with an increasing share of new credit being used to pay debt servicing costs, essentially borrowing from one to pay another.
Fun Story of the Week
Over the past fifty years, the McDonald’s brand has been one of the most highly recognized American brands in the world. However, the 2000’s have not been kind to this fast food giant. With competition in this industry growing at an exponential rate, McDonald’s has recently made a move to be the “fast food chain of the future”. Starting in late 2015, McDonalds has been building new brick and mortar stores that aim to help you build “the burger of your dreams”. These new buildings possess an interface that allows customers to order their fully customizable burger using the “Create Your Taste” kiosk. Unlimited fries, coupled with the new McDonald’s burger just might be enough to bring you back to the golden arches when they come to your town.
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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.
Business Insider, August 2015. http://www.businessinsider.com/mcdonalds-new-restaurant-of-the-future-2015-8/#uponopening-the-door-youre-immediatelyconfronted-by-mcdonalds-younger-hipper-approach-tothe-create-your-taste-experience-the-walls-are-covered-in-enthusiastically-trendy-and-bright-new-york-themed-illustrations-this-is-part-of-mcdonalds-broader-attempt-to-appeal-to-local-markets-1