Markets, Economy

Weekly Kickstart (05/08/2017-05/12/2017)

5/8/17 8:00 AM

/iStock-462756183.jpgStocks continued higher last week, with the S&P 500 rising by 0.63 percent to 2,399.29. That was a new all-time closing high which left the benchmark index up a healthy 7.17 percent year-to-date. There were lots of headlines for traders to react to last week but the key issue that investors were focusing on was the latest decision on monetary policy from the Federal Open Market Committee (FOMC). Indeed, officials on Wednesday announced that the target range for the federal funds rate would be left unchanged at 0.75-1.00 percent. It was widely expected that officials would hold steady with rates this month but the statement released by the committee was a bit more hawkish than anticipated. For example, even though U.S. economic activity has moderated recently, officials appeared to go to great lengths to downplay the first quarter’s shortfall in growth. This could be clearly seen in the FOMC statement’s second paragraph, where officials flat-out stated that they view “the slowing in growth during the first quarter as likely to be transitory.”

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Such optimism is not too surprising since the Federal Reserve Bank of Atlanta projects U.S. gross domestic product (GDP) growth to rebound from 0.7 percent in Q1 to 4.2 percent in the second quarter. Further, the committee strategically used very specific wording in the FOMC statement that kept the focus on the growth rate of activity rather than economic activity itself. This is important because if officials simply said “economic activity slowed” then it could be hard for them to justify another quarter-point interest rate increase until economic activity picked up again. As a result, the market-implied odds of a rate hike occurring at the June FOMC meeting have jumped to nearly 80 percent since last week’s policy announcement, and the odds of another move later this year have risen to around 40 percent. As important as such issues are, retirement investors should focus less on the near-term path of monetary policy and more on the long-term goal of building wealth through consistent participation in the highly resilient stock market. Such efforts can be enhanced with the use of tax-advantaged savings vehicles, dollar-cost averaging, and regularly consulting with a professional financial advisor. As always, we are here to help with any questions you may have.

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To recap a few of the things we learned about the economy last week, the positives included that factory orders edged higher, services sector activity accelerated, consumer inflation pressures cooled, credit utilization rose, corporate layoff announcements decreased, initial jobless claims fell sharply, nonfarm payrolls growth rebounded, and the government’s official measures of both unemployment and underemployment slid to cycle lows. As for the negatives, mortgage and refinance applications declined, the nation’s trade gap widened slightly, gauges of U.S. manufacturing activity deteriorated, construction spending unexpectedly fell, Americans’ personal incomes rose by less than forecast, consumer spending growth stalled, private-sector hiring moderated, labor force participation ticked lower, and nonfarm productivity growth declined by the most in a year. This week the pace of economic data slows down but there are still several important reports on retail sales, inflation, and employment scheduled to be released, along with the latest update on small business owner optimism from the National Federation of Independent Business (NFIB) tomorrow morning.

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**A more detailed snapshot of the U.S. economy can be found here.**

What To Watch:

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Sources: Econoday, Bloomberg, Twitter, Wells Fargo, CME Group, FRBSL

Post author: Charles Couch

Disclosures