Week of January 30, 2017
The Dow Jones Industrial Average dominated the market as better-than-expected earnings from its blue-chip stocks pushed the index above the historic 20,000 level, notching a 1.34% return last week. The benchmark held above that level going into the weekend, propelled by improved sentiment over Trump's pro-growth initiatives. In addition, a more optimistic outlook from companies suggested that the U.S. economy is potentially in better shape than previously estimated.
The S&P 500 and the NASDAQ Composite also hit record highs on the early part of last week and remain in positive territory, up 1.03% and 1.9%, respectively. Of the 30% of companies in the S&P 500 that have reported earnings, roughly 75% of them have beaten earnings estimates while 52% have beaten their sales estimates. On the other side of Atlantic, European shares also closed the week higher. U.K. companies reported solid earnings without any signs of Brexit woes and economic growth continues to surprise, remaining on the upside for the country. The initial estimate for fourth quarter GDP provided by the Office for National Statistics came in at a better-than-expected 0.6%. Domestically, the U.S. dollar resurfaced after hitting a seven-week low. While it edged up on Friday, there continues to be uncertainty of Trump’s protectionist trade policies and the border tax on Mexico. Despite these uncertainties, the relative strength of the dollar and Trump’s growth plans have led to higher inflation expectations.
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:
UK economy grows by 0.6% in fourth quarter
Initial estimates suggest that U.K. GDP increased 0.6% in Q4 2016, in line with the pre-Brexit pace. Britain's optimistic consumer spending supported expansion in important, dominant sectors. The resilience could symbolize the citizens’ faith in the U.K. with Brexit talks in the near future.
Oil up two percent on stock market, but U.S. supply caps gains
Oil prices stayed well above the $50 level despite a significant increase in U.S. supply. U.S. crude inventory increased by 2.8 million barrels the last week. However, there remains concerns that rising U.S. inventories could derail OPEC’s efforts to reduce the supply glut and bring balance to the market.
U.S. new home sales fall; weekly jobless claims rise
New single-family home sales declined 10.4% in December from November, though this segment only accounts for 8.9% of overall home sales. For context, the fixed 30-year mortgage stood at 4.2% in December, up 0.43% from November. While future rate hikes by Fed will increase the cost of home buying, a tightening labor market could boost wage growth, allowing consumers to weather the increase.
Dollar climbs more after Trump's Mexico comments
U.S.-Mexico relations were tested further as President Trump proposed to pay for the southern border wall by imposing a 20% tax on goods from Mexico, possibly igniting a trade war and sending the currencies on a rollercoaster ride.
Fun Story of the Week
Have your ever wondered what it would be like to be a delivery driver? Constantly driving while delivering items between multiple points in a variety of different locations, you might find that your occupation isn’t quite as laidback as you thought. However, if you were a driver for UPS, these stresses are far behind in your rearview mirror. Utilizing UPS’s new vehicle routing system optimizes driving patterns, rather than trying to find the fastest route between the destinations. As a result of this change, UPS expects to use 10m gallons less fuel, 20,000 tons less carbon dioxide and deliver 350,000 more packages each year. In addition, UPS will also be allowed to cut their fleet by 1100 trucks, reducing total mileage for the year by 28.5 million miles. These changes in environmental impact all come from one rule of thumb that is surprising to many. By focusing on not turning left at any point, UPS drivers have shown the world that companies with large carbon footprints can make small changes to make a big impact.
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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.
Real Clear Science, January 2017. http://www.realclearscience.com/articles/2017/01/23/why_ups_drivers_dont_turn_left_and_you_probably_shouldnt_either_110164.html