Markets, Economy

Weekly Kickstart (11/12/2018-11/16/2018)

11/12/18 8:00 AM

iStock-626627280.jpgStocks continued higher last week, as the S&P 500 rose by 2.13 percent to 2,781.01. That left the benchmark index up 4.02 percent year-to-date, and just 5.11 percent below the record close. The results of the midterm elections were a big factor behind last week’s rally, as evidenced by the S&P 500, NASDAQ, and Dow Jones Industrial Average all surging on Wednesday, even more so than they did the day after the 2016 Presidential election. One reason for the knee-jerk optimism is that investors historically have viewed Congressional gridlock favorably because it usually implies few legislative surprises on the horizon. Indeed, Democrats won control of the House of Representatives and Republicans retained the majority in the Senate, therefore making major changes to the 2017 tax reform bill, or any other sweeping legislative actions, highly unlikely for the next few years. This relative certainty could make it easier for business leaders to plan for the future, e.g. make hiring and capital spending decisions.

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However, other unknowns remain, such as the potential for a prolonged budget standoff next year that results in another debt ceiling debacle. Further, any companies that engage in foreign trade will likely be interested in whether the divided Congress takes steps to rein in the White House’s tariff-levying authority. Outside of Washington, there is also a lot of uncertainty surrounding the strength of the overall economy, particularly Americans’ finances and the sustainability of consumer spending. Making matters worse, some analysts fear that the Federal Reserve is raising interest rates too fast and already crimping a few segments of the economy. Any hopes that officials will slow the pace of hiking were dampened by last week’s FOMC statement that expressed a lot of confidence in the economy and gave no mention to the recent selloff in the market. Altogether, the consensus election outcome may serve as a near-term positive for equities, but other issues have yet to be resolved that could act as volatility catalysts in the future. Any investors worried about navigating this environment should consider consulting with a professional financial advisor and 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 consumer sentiment remained elevated, the quits rate rose, initial jobless claims slid, and the ratio of job openings to unemployed Americans fell to a record low. As for the negatives, mortgage applications plunged, mortgage rates lifted to a 7-year high, small business borrowing fell (and delinquencies rose), consumer credit growth continued to weaken, measures of U.S. services sector activity sent mixed signals, wholesale inflation pressures increased, and the total number of job vacancies in America declined, albeit from a record high. This week the pace of economic data remains slow but there are still a few important reports on manufacturing, consumers, inflation, and small business scheduled to be released, along with a handful of speeches from 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, Wells Fargo, Bloomberg, FRBSL

Post author: Charles Couch

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