Markets, Economy

Weekly Kickstart (12/12/2016-12/16/2016)

12/12/16 8:00 AM

iStock_000000499785_Small-1The market melt-up resumed last week, with the S&P 500 surging by 3.08 percent to 2,259.53. That is a new all-time closing high for the benchmark index, and leaves the S&P 500 with a healthy year-to-date gain of 10.55 percent. The multi-week rally in equities has been driven largely by the positive spillover effects expected to result from the various pro-growth policies President-elect Donald Trump will likely pursue over the next few years. However, “fear of missing out” (FOMO) has also helped push stocks to record levels in recent weeks as every new leg higher in the market has forced reluctant participants who have stayed on the sidelines (cash) to finally buy stocks. Improving economic data have also supported equities over the past month, and a new OECD analysis even projects that global growth will accelerate in 2017. Moreover, economists surveyed this month by the Wall Street Journal now estimate that the probability of a recession occurring within the next year is just 17 percent, the lowest reading since December 2015. That still implies roughly one-in-six odds of an economic downturn over the next twelve months but experts’ concerns about growth in the medium-term have clearly subsided.

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As for the immediate future, the market’s attention will likely shift to monetary policy this week since the latest announcement from the Federal Open Market Committee (FOMC) is scheduled for this Wednesday. It is widely expected that officials will raise the federal funds rate by 25 basis points this month but what investors will really be paying attention to is the guidance from the Fed on the pace of subsequent hikes. Indeed, bond yields have spiked over the past month in anticipation that the policies of the incoming administration are likely to raise inflation pressures in the U.S., and in turn force the Fed to move more quickly with interest rate normalization. In fact, economists surveyed by the Wall Street Journal currently estimate that there will be four quarter-point rate increases between now and the end of next year, up from three hikes in the September survey. However, retirement investors with relatively long time horizons should focus less on the near-term path of monetary policy and more on 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 rose, services sector activity accelerated, nonfarm productivity growth in the third quarter rebounded, U.S. wholesalers’ average inventories-to-sales ratio improved, the number of Americans making first-time claims for unemployment benefits contracted, and consumer sentiment surged. As for the negatives, mortgage and refinance applications declined, the nation’s trade deficit widened considerably, demand for credit moderated, unit labor costs increased, and the number of job openings in America fell slightly. This week the pace of economic data picks up with several important reports on foreign trade, retail sales, manufacturing, housing, employment, and inflation scheduled to be released, along with the latest update on small business owner optimism from the National Federation of Independent Business (NFIB) due out tomorrow morning.

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What To Watch:

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Sources: Econoday, Twitter, Bloomberg, Advisor Perspectives, WSJ, Goldman Sachs, J.P. Morgan, BofAML, FRBSL

Post author: Charles Couch

Disclosures