Markets, Economy

Weekly Kickstart (11/14/2016-11/18/2016)

11/14/16 8:00 AM

iStock_000000499785_Small-1Stocks rebounded last week, with the S&P 500 rising by 3.80 percent to 2,164.45. This was the largest weekly gain for the benchmark index since October 2014, and a welcome change of pace following a 9-day losing streak. In fact, the S&P 500 is now up 5.90 percent 2016-to-date, and just 1.17 percent below the all-time closing high hit in August. The main catalyst for last week’s surge higher was the election of Donald Trump as the 45th President of the United States. It was widely anticipated that the market would view a Trump victory as a negative but money instead rushed into (domestic) equities as traders started to consider the potential for infrastructure investment, tax reform, deregulation, and various other pro-growth policies that may come about over the next 4-8 years.

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Some of those initiatives, though, would likely boost fiscal spending, and any resulting economic growth could put more upward pressure on wages, all of which would stoke inflation. That in part explains why the bond market got absolutely obliterated last week, with 30-year bond yields at one point spiking by the most since the 1970s, and more than $1 trillion being wiped off the value of global fixed income assets. The inflationary impact of President-elect Trump’s potential policies likely also raised the odds of Federal Reserve (Fed) officials hiking interest rates at next month’s Federal Open Market Committee (FOMC) meeting. Further, the bond market carnage last week was exacerbated by the possibility that President-elect Trump may decide to go a different route in 2018 when current Fed chair Janet Yellen’s term is up. Should a more hawkish chair be appointed, that would only add to the likelihood of more aggressive rate hikes down the road.

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Shifting the focus back to equities, the rally last week started to lose a bit of steam on Friday as many investors became concerned that stocks had risen too high too quickly over the past five trading sessions, especially considering that there are still a lot of unknowns that remain regarding the incoming administration. For example, how will President-elect Trump go about building his cabinet and establishing relations with Congressional leadership (including the opposition party), and how will pro-growth tax initiatives and anti-growth trade policies coexist? Moreover, the potential for a wide range of significant legislative actions in the year ahead means that the only certainty may be uncertainty in the near-term. For retirement investors, though, the focus should remain on the long-term and accumulating wealth through 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 U.S. economy last week, the positives included that consumer spending rose, the number of job openings in America rebounded, first-time claims for unemployment benefits declined, labor market confidence jumped, and both consumer and small business owner sentiment improved. As for the negatives, mortgage and refinance applications fell, wholesale sales grew by less than expected, and Americans’ credit demand moderated. This week the pace of economic data remains slow but there are still several important reports on manufacturing, housing, inflation, and retail sales scheduled to be released, along with a lot of potentially market-moving speeches by Federal Reserve officials.

What To Watch:

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Sources: Econoday, Twitter, Bloomberg, J.P. Morgan, BofAML, Advisor Perspectives, Pension Partners, Morgan Stanley, Wells Fargo, FRBSL

Post author: Charles Couch

Disclosures