Markets, Economy

Weekly Kickstart (02/13/2017-02/17/2017)

2/13/17 8:00 AM

/iStock-488690713.jpgThe market melt-up continued last week, with the benchmark S&P 500 rising by 0.81 percent to 2,316.10, a new all-time closing high. In fact, every major equity index ended last week at a record level. While it is nice to celebrate new milestones in the market, some investors have grown concerned that complacency is too high right now. For example, the S&P 500 is currently up 3.45 percent year-to-date, and if ends 2017 with a gain (total return) it will tie the 1991-1999 record of nine straight up years. The S&P 500 has also gone 39 trading days without an intraday move of at least 1 percent, the longest such period of “market tranquility” ever. Further, the CBOE’s VIX volatility index, often referred to as “investors’ fear gauge,” has closed under 11.0 for three weeks in a row. That has only happened two other times, October and November 2006. While contrarians may view a very low VIX as a sell signal, a simple backtest reveals that it is not always a good idea to “short a dull market.”


Another potential headwind that could provide investors with an excuse to take profits is the corporate earnings season for the fourth quarter of 2016. Indeed, so far 71 percent of the companies listed in the S&P 500 have reported their Q4 results. Sixty-seven percent of these firms have beat their average earnings per share (EPS) estimate, and roughly half (52 percent) have beat their mean revenues estimate. Looking ahead, 57 S&P 500 companies have issued negative EPS guidance for Q1 2017, while only 25 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, and foreign trade but many firms have also mentioned healthcare reform, fiscal stimulus, and infrastructure investment.


The least cited policy topic during conference calls has been immigration, suggesting that corporate America currently has different priorities than the new administration. However, President Trump last Thursday said that he will announce a “phenomenal” tax plan in the coming weeks, which could be just what businesses and investors are looking for, and perhaps enough to fuel this current bull-run to even greater heights. For retirement savers, though, the focus should be less on near-term fluctuations in the market and more on the long-term goal of amassing wealth. Such efforts can be enhanced with the consistent 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 mortgage and refinance applications rose, the nation’s trade deficit narrowed, the average stock-to-sales ratio for U.S. wholesalers fell sharply, and initial claims for unemployment benefits slid to a 12-week low. As for the negatives, the total number of job openings in America declined, revolving credit growth moderated, trade-related inflation pressures firmed, and consumer sentiment deteriorated. This week the pace of economic data remains slow but there are still several important reports on housing, manufacturing, retail sales, small business, and inflation scheduled to be released, along with a handful of speeches by Federal Open Market Committee (FOMC) members.


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

What To Watch:


  • Nothing significant







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

Post author: Charles Couch