Markets, Economy

Weekly Kickstart (07/10/2017-07/14/2017)

7/10/17 8:00 AM

/iStock-532854850.jpgStocks edged higher last week, with the S&P 500 rising by 0.07 percent to 2,425.18. That small gain left the benchmark index up a solid 8.32 percent 2017-to-date, and just 1.15 percent below the all-time closing high. Despite it being a holiday-shortened week, market volatility picked up during the past few trading sessions as investors had a deluge of economic data and other headlines to react to. Of particular note was the release of the minutes from the latest Federal Open Market Committee (FOMC) meeting, which showed that even officials are uncertain about what will happen with monetary policy in the second half of 2017. Specifically, several committee members said that they preferred to announce a start to the process of shrinking the Fed’s massive balance sheet within a couple of months, while others emphasized that deferring the decision until later in the year would be better. Mixed signals on the economy are one reason for the lack of certainty among Fed officials.

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For example, the latest monthly payrolls report from the Bureau of Labor Statistics (BLS) revealed that job creation in America remains solid but steady hiring has still not been able to translate into a marked acceleration in wage growth. The latter has exacerbated the recent softening in various inflation gauges, including the Fed’s preferred measure, the PCE deflator, which has drifted lower every month in 2017 (on a year-over-year basis) and now reached its lowest level since December 2015. What does all of this mean for monetary policy? Fed officials have stated that the federal funds rate will remain their primary policy tool, while balance sheet adjustments will be a secondary tool designed to run in the background. As a result, many analysts now expect that the committee will initiate balance sheet reductions in September while holding off on another interest rate hike until the December FOMC meeting. This will give the committee more time to see how inflation and economic growth play out over the second half of the year. The Fed’s ultimate timetable, though, remains unknown, which could contribute to elevated stock market volatility in the coming months. However, retirement investors should focus less on near-term fluctuations in equities and more on the long-term goal of amassing significant wealth. Such efforts can be enhanced with the consistent 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 (holiday-shortened) week, the positives included that mortgage applications rose, the U.S. trade gap narrowed, services sector activity rebounded, labor market confidence firmed, corporate layoff announcements fell, and nonfarm payrolls growth accelerated. As for the negatives, refinance applications slid, gauges of national manufacturing activity continued to send mixed signals, factory orders decreased, construction spending cooled, small business hiring slowed, the number of Americans making first-time claims for unemployment benefits rose for the third week in a row, and average hourly wage growth continued to disappoint expectations. This week the pace of economic data slows down but there are still a few important reports on consumers, retail sales, inflation, small business, and employment scheduled to be released, along with a handful of potentially market-moving speeches by Federal Reserve officials.

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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, FRBG, Twitter, Advisor Perspectives, Wells Fargo, FRBSL

Post author: Charles Couch

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