Markets, Economy

Weekly Kickstart (11/28/2016-12/02/2016)

11/28/16 8:00 AM

iStock_000000499785_Small-1The market melt-up continued last week, with the S&P 500 rising by another 1.44 percent to 2,213.35. That was a new all-time closing high for the benchmark index (1.06 percent above the previous record), and left the S&P 500 with a healthy year-to-date gain of 8.29 percent. In fact, all four major stock indices hit new all-time highs last week, the first time this has occurred since the dot-com bubble. The multi-week surge in equities has resulted from the anticipation that Donald Trump’s election victory will bring about tax cuts and fiscal spending that could not only boost U.S. economic growth but also accelerate the rebound in corporate profits. The positive effects of such stimulus initiatives, though, are likely to not be felt for quite a while, which is why some investors are growing concerned that stocks might have rallied too high too quickly.


Further, the CBOE’s VIX volatility index, often referred to as “investors’ fear gauge,” has been almost cut in half since the election and ended last week roughly a third below its historic average. Some traders believe that a low VIX signals investor complacency, a contrarian indicator, but a simple backtest suggests that it is not always a good idea to “short a dull market.” However, stocks could indeed pull back from these lofty levels in the near-term as investors look for excuses to take profits. On the other hand, equities could continue to rally to even greater heights as reluctant participants who have stayed on the sidelines (cash) are forced to finally buy stocks due to fear of missing out (FOMO) on another leg higher. Regardless of where the markets head between now and the end of the year, retirement investors with relatively long time horizons should remain focused on wealth accumulation and stay on the lookout for potential buying opportunities. 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.


To recap a few of the things we learned about the economy last (holiday-shortened) week, the positives included that mortgage applications rose, home price inflation moderated, existing home sales increased, measures of both regional and national manufacturing activity rebounded, headline durable goods orders surged, and consumer sentiment improved. As for the negatives, the nation’s trade deficit widened, refinance applications fell, new home sales growth slowed, services sector activity cooled, and the number of Americans making first-time claims for unemployment benefits jumped. This week the pace of economic data picks up with several important reports on housing, manufacturing, employment, and U.S. gross domestic product (GDP) scheduled to be released, along with the potentially market-moving November job report from the Bureau of Labor Statistics (BLS) due out this Friday.


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Sources: Econoday, Twitter, Bloomberg, Advisor Perspectives, Pension Partners, FRBSL

Post author: Charles Couch