Markets, Economy

Weekly Kickstart (03/20/2017-03/24/2017)

3/20/17 8:00 AM

/iStock-532854850.jpgThe market melt-up resumed last week, with the S&P 500 rising by 0.24 percent to 2,378.25. That left the benchmark index up 6.23 percent year-to-date, and just 0.74 percent below the all-time closing high. Despite a deluge of economic data, the key issue that investors were focusing on last week was 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 raised by 25 basis points to 0.75-1.00 percent. That was the third hike since the “Great Recession,” and widely expected after a lot of jawboning from officials at the Federal Reserve (Fed) earlier this month. Despite the recent uptick in hawkish rhetoric, the statement from the committee was somewhat more dovish than anticipated because the Fed’s updated projections of where committee members see interest rates heading still imply around three quarter point rate increases in 2017. As a result, both stocks and bonds traded sharply higher in a kneejerk reaction to the policy announcement, and the market-implied odds of a hike within next three meetings slid to the lowest level since December.

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Moreover, the timing of the next rate increase is now more uncertain than ever, especially given the handful of looming political risks, both domestic and foreign, e.g. raising the U.S. debt ceiling, reignited Brexit talks, and the French presidential election. Looking even further ahead, the Fed projections imply three additional quarter point moves in 2018, and suggest that officials expect interest rates will settle at their long-run average of 3 percent by the end of 2019. The committee also stressed that it will continue to monitor incoming economic data, along with developments related to the stimulus that the White House is trying to implement. Altogether that means the Fed will likely keep raising rates until it is provided with an excuse not to. Eventually that will be good news for savers but so far five-year certificate of deposit (CD) rates have barely budged in response to the recent uptick in 5-year Treasury yields. Retirement investors with relatively long time horizons should therefore 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.


To recap a few of the things we learned about the economy last week, the positives included that mortgage and refinance applications rose, homebuilder confidence jumped, housing starts increased, single-family building permits hit a recovery high, retail sales growth firmed, first-time claims for unemployment benefits declined, the number of job openings in America expanded, the quits rate climbed, and consumer sentiment improved. As for the negatives, household and wholesale inflation pressures continued to build, regional manufacturing activity moderated, industrial production slowed due to the weather, capacity utilization slid, and small business owner optimism cooled, albeit slightly. This week the pace of economic data slows down considerably but there are still a few important reports on housing and manufacturing scheduled to be released, along with a handful of speeches by officials at the Federal Reserve.


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

What To Watch:








Sources: Econoday, Twitter, Bloomberg, WSJ, ZH, Wells Fargo, FRBG

Post author: Charles Couch