Week of January 9, 2017
Global markets were up last week, extending the rally even further and providing a stark difference between the first trading weeks of 2016 and 2017. The Dow Jones Industrial Average, gaining just over 1% last week, inched towards the psychologically significant 20,000 mark, ultimately coming within a fraction of a point and hitting new all-time highs before retreating.
What's more, the S&P 500 and NASDAQ Composite also hit fresh highs last Friday. Both indices were up on the week with the former notching a 1.7% gain and the former up 2.56%. Of the catalysts pushing equities higher, the non-farm payroll report released the end of the week provided some upward pressure. The report was mixed as the number of new jobs missed expectations but there was a sharp increase in wages. Some analysts point to this figure as the final straw, concluding that the labor market has finally recovered from the Great Recession.
We pointed out last week that China's central bank was taking steps to avoid further devaluations of the yuan by increasing the number of currencies used to price its own. As it turns out, the People's Bank of China took even further steps this week by ordering state lenders to withhold yuan from other banks, causing it to rally nearly 1% against the U.S. dollar. We would note that this behavior is likely to continue well into 2017 as China struggles to prevent its own currency from falling too far too fast over economic growth concerns. On the commodity front, gold prices have been in steady decline since the U.S. Presidential Election, falling nearly 9% through the end of last week as investors have favored riskier investments. Indeed, the expectation of higher interest rates tends to weigh on gold as the non-yielding asset has trouble competing with fixed income securities.
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:
Beware the Foreign Exodus from Treasuries
Major foreign buyers of U.S. Treasuries have been reducing their holdings at an accelerating rate in order to defend their own foreign exchange markets. This is an important dynamic because it makes it more difficult for these bonds to rally, even if investors flock to these securities in the wake of potentially negative news.
Oil Pares Gains on Bearish Inventory Report
Crude inventories declined the end of December, handily beating analysts' expectations. However, it was overshadowed by an unexpectedly large build in gasoline stockpiles, signaling weak demand for oil's byproducts. Such news could weigh on the price in spite of the recent OPEC production agreement.
Fed minutes: If economy heats up, rate hikes may accelerate
According to the minutes of the Fed's December meeting, officials expect Trump’s policies to result in somewhat faster economic growth over the next several years and suggested the possibility of raising rates at a more frequent pace than the bank's earlier comments. However, the Fed plans on taking a wait-and-see approach to avoid raising rates too soon and stunting growth. We would note that the Fed originally projected four increases in 2016, only achieving one.
Fun Story of the Week
Robots; some people love them and others hate them. Whether your first experience was with the Terminator or Wall-e, there's one robot we can all get behind. It's called the Frobot. Able to run 21-hours straight and only needing three to restock, the Frobot is a leap forward for the frozen yogurt industry. The machine comes installed with a touch screen interface which makes choosing your favorite flavor and topping as easy as a couple selections and the swipe of a credit card. What's more, the Frobot, featured on the Washington Post, NPR and Business Insider, comes with everything a froyo fan needs to grab and go including cups, spoons and napkins. The D.C. based team behind this revolutionary vending machine is looking to capitalize on the explosive growth of frozen yogurt chains like Pinkberry and Yogurtland but has startup cost of just $30,000 and is not limited by brick and mortar locations.
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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.
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.
Investing, January 2017. https://www.investing.com/commodities/gold-historical-data
Wall Street Journal, January 2017. http://www.wsj.com/articles/offshore-yuan-borrowing-rate-jumps-to-second-highest-level-1483595388
Wall Street Journal, January 2017. http://www.wsj.com/articles/gold-prices-edge-lower-after-u-s-jobs-data-1483711608
CNBC, January 2017. https://www.cnbc.com/2017/01/06/nonfarm-payrolls-dec-2016.html
CNBC, January 2017. https://www.cnbc.com/2017/01/06/us-markets.html
Gizmodo, January 2017. https://gizmodo.com/we-need-to-be-inventing-more-robots-that-serve-humans-d-1790822294