Markets, Economy

Weekly Kickstart (11/21/2016-11/25/2016)

11/21/16 8:00 AM

iStock_000000499785_Small-1Stocks continued higher last week, with the S&P 500 rising by another 0.81 percent to 2,181.90. That was enough to lift the benchmark index to a year-to-date gain of 6.75 percent, and just 0.38 percent below the all-time closing high hit in August. One reason for the continued uptrend in equities is the market's cautious optimism that Republicans’ proposals to reduce taxes and invest in infrastructure over the next few years will amount to a substantial fiscal stimulus. For example, economists recently surveyed by the Wall Street Journal said that they expect U.S. gross domestic product (GDP) to grow by 2.2 percent in 2017 and 2.3 percent in 2018, up markedly from the 1.5 percent pace of the past twelve months. There are of course still many unknowns that remain about what the spillover effects of potential policy changes will ultimately be both here in America and overseas. For the latter, a research note from Goldman Sachs summed up the situation by saying that although a “larger fiscal package could boost global growth moderately more in the near-term, a more adverse policy mix would likely act as a significant drag on world growth in subsequent years.” Regardless, equities have so far responded quite favorably to the results of the election and those positioned correctly have benefited greatly over the past two weeks.


Another recent development that has yet to have a negative effect on the stock market is the increased likelihood of a faster pace of interest rate normalization from the Federal Open Market Committee (FOMC). Indeed, U.S. Treasury yields and mortgage rates spiked following the election in anticipation of the greater inflation pressures that could result from the incoming administration’s expected pro-growth policies. Federal Reserve Bank of Richmond president Jeffrey Lacker acknowledged such possibilities in a speech last week, stressing that “if a more stimulative fiscal stance would materialize that would bolster the case for raising rates.” At the very least, traders now see a December hike as almost certain, with the market-implied probability of officials raising rates at next month’s FOMC meeting briefly touching 100 percent last week. Federal Reserve Bank of Boston president Eric Rosengren even said in a speech on Tuesday that only “significant negative economic news over the next month” could derail the committee from hiking in December. For retirement investors with relatively long time horizons, though, the focus should be 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 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 housing starts surged, building permits rose, homebuilder optimism remained elevated, retail sales grew by more than expected, the average inventory-to-sales ratio at U.S. businesses decreased for the second month in a row, core inflationary pressures in America moderated, and first-time claims for unemployment benefits fell to a multi-decade low. As for the negatives, mortgage and refinance applications declined, industrial production cooled, capacity utilization slid, and gauges of regional manufacturing activity continued to send mixed signals. This holiday-shortened week the pace of economic data remains slow but there are still several important reports on housing, manufacturing, employment, consumers, and inflation scheduled to be released, along with the potentially market-moving minutes from the last FOMC meeting due out on Wednesday.


What To Watch:





  • Thanksgiving - Markets Closed




Sources: Econoday, Twitter, Bloomberg, Goldman Sachs, BofAML, Advisor Perspectives, FRBSL

Post author: Charles Couch