Markets, Economy

Weekly Kickstart (02/06/2017-02/10/2017)

2/6/17 8:00 AM

/iStock-167454627.jpgStocks edged higher last week, with the S&P 500 rising by 0.12 percent to 2,297.42. This small gain was enough to leave the benchmark index up 2.62 percent year-to-date, and just 0.04 percent below the all-time closing high. As for performance during the month of January, the S&P 500 climbed by 1.79 percent, and other major indices started the new year off with similar gains. Americans’ retirement assets also fared well last month, according to new data from the Employee Benefit Research Institute (EBRI). Specifically, the mean 401(k) account balance for younger (25-34), less-tenured (1-4 years) workers rose by 3.2 percent in January, nearly matching the 3.3 percent gain seen in December. Older (55-64) employees with longer-tenures (20-29 years) experienced a 1.6 percent increase on average in January, a tick above the prior month’s 1.5 percent gain.


Stocks started off last week under pressure as institutional traders reduced risk ahead of the latest decision on monetary policy from the Federal Open Market Committee (FOMC). Indeed, officials on Wednesday announced that the target range for the federal funds rate would be left unchanged at 0.50-0.75 percent. It was widely anticipated that the Federal Reserve (Fed) would hold steady on rates this month, and the statement from the committee was little-changed from the December FOMC meeting. Officials again acknowledged the improving sentiment among consumers and businesses following President Donald Trump’s election victory but stressed that much uncertainty remains about how proposed tax cuts, government spending, and regulatory rollbacks will ultimately affect economic growth and inflation. Projections released during the December FOMC meeting implied that there will be three interest rate hikes in 2017, and the February statement did little to suggest otherwise.


As for when the next rate increase could occur, the market earlier last week priced in a 38 percent chance of a hike occurring at the March FOMC meeting but expectations for a delay until May or June rose after Wednesday's statement from the committee. Mixed signals from the latest job report lowered the odds of a March hike even further to just 19 percent but this was largely reversed following Friday afternoon’s hawkish comments from Federal Reserve Bank of San Francisco president John Williams. Going forward, incoming economic data and developments in Washington will likely have the greatest influence on the Fed’s time table for interest rate normalization. However, retirement investors with relatively long time horizons should focus less on the near-term trajectory 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.


To recap a few of the things we learned about the U.S. economy last week, the positives included that pending home sales increased, factory orders rebounded, gauges of national manufacturing activity firmed, business conditions in the larger services sector strengthened, consumers’ opinions of the job market improved, labor force participation rose, initial jobless claims fell, small business hiring jumped, and nonfarm payrolls growth exceeded forecasts. As for the negatives, mortgage and refinance applications slid, construction spending fell, consumer confidence moderated, outlays growth continued to outpace income gains, inflation pressures firmed, productivity growth slowed, unit labor costs increased, corporate layoff announcements lifted, annual wage growth declined, and the national unemployment rate ticked higher. This week the pace of economic data slows down considerably but there are still several important reports on consumers and employment scheduled to be released, along with the latest update on small business owner sentiment from the National Federation of Independent Business (NFIB) due out tomorrow morning


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

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

Post author: Charles Couch