Markets, Economy

Weekly Kickstart (01/23/2017-01/27/2017)

1/23/17 8:00 AM

/iStock-481204360.jpgStocks edged lower last week, with the S&P 500 falling by 0.15 percent to 2,271.31. This small loss still left the benchmark index up 1.45 percent 2017-to-date, and just 0.25 percent below the all-time closing high. The CBOE’s VIX volatility index, often referred to as investors’ “fear gauge,” slid to a nearly 3-year low this month but major equity indices during the same period have held within a relatively narrow range. Such price action is in part due to the cautious optimism surrounding President Donald Trump’s “first 100 days” in office, which will be critical to gauging the new administration’s priorities and preferences on regulation, trade, and fiscal stimulus for the rest of 2017.

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Another potential headwind that might have moderated the overall level of bullishness in the market recently is the start of the corporate earnings season for the fourth quarter of 2016. Indeed, so far only 12 percent of the companies listed in the S&P 500 have reported their Q4 results but 61 percent of these firms have beat their average earnings per share (EPS) estimate, while less than half (47 percent) have beat their mean revenues estimate. Looking ahead, three S&P 500 companies have issued negative EPS guidance for Q1 2017, and six firms have issued positive EPS guidance. During the conference calls following recent earnings releases, many businesses have commented on the government policies that they are paying attention to that may change under the new administration. The most commonly cited policy topics have been taxes, regulation, foreign trade, stimulus, infrastructure, and healthcare, according to FactSet. Highlights from recent conference calls include:

  • “Tax policy can be a huge catalyst for how all of our clients think about deploying their capital, strategic decisions.” – Goldman Sachs (Jan. 18)
  • “We are starting to have conversations with clients that are indicating they are more optimistic business owners around possibilities of increased economic growth and maybe some tax relief or other things that might come with the new administration yet to be determined.” – Comerica (Jan. 17)
  • “We've seen a lot of positive sentiment. And at this point in time, it's just sentiment. And so we've got a ways to go before we see anything impactful. But having said that, look, if we see lower corporate income tax rates that will be certainly beneficial for us because we're mostly a U.S-based company.” – Cintas (Dec. 22)
  • “The bigger issue for all of you to look at longer term for us is the features that are in the GOP blueprint and President Trump's plans that we like a lot, and those include materially lowering the tax rate, the effective territorial treatment of foreign earnings, and current expensing of CapEx. We think that will positively impact our top line through stronger economic growth and, of course, the bottom line potentially in a very big way through the lower tax rate.” – FedEx (Dec. 20)


To recap a few of the things we learned about the economy last week, the positives included that mortgage and refinance applications lifted, single-family building permits rose to a recovery high, regional manufacturing activity accelerated, industrial production rebounded, capacity utilization increased, a measure of consumer “comfort” improved, and the number of Americans making first-time claims for unemployment benefits fell to a 44-year low. As for the negatives, single-family housing starts declined, homebuilder sentiment cooled, consumer inflation pressures continued to build, and continuing claims for unemployment benefits (longer than one week) remained elevated compared to pre-election levels. This week the pace of economic data picks up, with several important reports on manufacturing, housing, and employment scheduled to be released, along with the first official estimate of U.S. gross domestic product (GDP) growth in the fourth quarter of 2016 due out this Friday.


**A more detailed snapshot of the U.S. economy can be found here.**

What To Watch:


  • Nothing significant







Sources: Econoday, Twitter, Bloomberg, Advisor Perspectives, FactSet, FRBSL

Post author: Charles Couch