Monthly Market Report. March US Markets

Transcription

1 Monthly Market Report March 2017 US Markets Thanks to positive economic reports and strong company earnings, the markets established new record highs in February, with the Dow Jones Industrial Average picking up 4.8 percent, the Standard & Poor s 500 Index advancing 3.7 percent, and the NASDAQ Composite gaining 3.8 percent.1 Stock prices experienced a sustained, almost uninterrupted climb, spurred on by an employment report that saw a small jump in the jobless rate and very little wage growth. The report was interpreted by investors as an indication that job growth could continue without igniting higher wages, leaving the Fed unpressured to raise rates.

2 New earnings announcements that exceeded market expectations, coupled with a commitment by the White House to propose tax reform and work with Congress to manage entitlement spending, provided fresh impetus to stock prices as the month wore on. Fed Testimony Perhaps reflecting how predisposed markets may have been toward the upside in February, even Fed Chair Janet Yellen s hawkish comments during her Congressional testimony regarding an imminent Fed funds rate hike was received positively. Rather than being a damper on stock market prospects, Yellen s comments were viewed as confirmation of a strengthening economy. Economic Landscape In a departure from last year, when bonds were sold in anticipation of fiscal stimulus and stocks rose on expectations of an accelerating economy, February witnessed stock and bond prices moving in tandem. The precise meaning of this change in pattern is open to debate. It could signify that the bond market is interpreting the economic landscape quite differently than stock investors. Or, it could simply reflect that investors search for yield has driven bond prices higher. The markets may find an answer in the months ahead. Stock prices slid lower to close out the month, as investors awaited President Trump s address to Congress outlining his policy priorities. Sector Performance The best performing sectors were Healthcare and Utilities, with gains of 7.73 percent and 6.01 percent, respectively. Other sectors enjoying monthly gains included Consumer Discretionary (+2.30 percent) Consumer Staples (+5.06 percent), Financials (+3.81 percent), Industrials (+2.54 percent), Real Estate (+5.28 percent), and Technology (+3.67 percent). The only sectors that ended lower were Materials (-0.97 percent) and Energy (-3.54 percent).2

3 World Markets Overseas, markets turned in a positive performance for the month, with the MSCI-EAFE Index rising 1 percent.3 Healthy corporate earnings and growing economic optimism fueled early gains in European markets, though prices retreated on election concerns in France, and a failure to reach an agreement on Greek debt and banking troubles.4 Markets in the Pacific Rim also had a solid month, with gains in Australia, Hong Kong and Japan.5

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5 Indicators Gross Domestic Product: Fourth-quarter GDP rose 1.9 percent, unchanged from initial reports. This marked a sharp slowdown from the 3.9 percent growth spurt in the third quarter, but was in line with the 2 percent growth range seen since the recession ended.6 Employment: The jobless rate moved higher in January, from 4.7 percent to 4.8 percent, even as employers added 227,000 workers. This apparent contradiction may be a result of Americans re-entering the job market, as evidenced by a jump in the labor participation rate from 62.7 percent to 62.9 percent. Wage growth was below economists expectations, despite minimum wage increases in 19 states this year.7 Retail Sales: Retail sales rose 0.4 percent over the prior month, and were higher by 5.6 percent compared to January Industrial Production: Unseasonably warm weather lowered demand for utilities and led to a 0.3 percent decline in industrial production. Manufacturing output rose 0.2 percent, building on a recovery that seems to have emerged in recent months.9 Housing: Housing starts fell 2.6 percent, as new apartment construction declined 10.2 percent amid concerns of a developing glut of supply. Starts on single-family homes rose 1.9 percent.10 Sales of existing homes jumped to their highest level since February 2007, increasing 3.3 percent in January. Low inventories have led to higher home prices, as the median sales price jumped 7.1 percent to $228,900 from a year earlier.11 New home sales increased 3.7 percent, rebounding from its sharp decline a month earlier.12 CPI: Consumer prices posted their biggest monthly jump in almost four years, rising 0.6 percent in January. A 7.8 percent increase in gasoline prices was the primary contributor, but even when excluding the more volatile food and energy components, core inflation still rose a strong 0.3 percent.13 Durable Goods Orders: Durable goods orders turned positive, rising 1.8 percent after two successive months of declines. The increase was largely attributable to a 69.9 percent jump in civilian aircraft and parts, and a 59.9 percent spike in defense aircraft two normally volatile categories. Orders for

6 nondefense capital goods, excluding aircraft, suffered its biggest drop since September, declining 0.4 percent.14 The Fed Minutes released from the latest FOMC meeting suggested that a hike in the federal funds rate may happen fairly soon. The Fed also attempted to dispel any idea held by the markets that its public communications can be seen as a commitment to raise rates only once or twice this year.15 What Investors May Be Talking About China reported that its foreign currency reserves fell below $3 trillion at the end of January, despite heightened efforts to stem capital outflows. China s reserves are being watched closely by investors because China has used them to stabilize the value of its currency, the yuan. Though $3 trillion may be a substantial amount, investors are concerned since China s reserves fell $320 billion in 2016 and a record $513 billion in Further erosion of its reserves, however, may handcuff China s policymakers in their ability to defend the yuan against other major currencies. If Beijing were to opt to devalue the yuan rather than continue to support its current rate of exchange, it could have a ripple effect on global markets. There are a number of potential consequences of a depreciating yuan, including: An increase in the cost of servicing U.S. dollar-denominated debt owed by Chinese companies, which may hurt China s economic growth A decline in commodity prices, arising from a fall in consumer purchasing power The risk of starting a currency war among exporting nations

7 The implementation of trade actions against Chinese imports by the Trump administration, which holds the view that China manipulates its currency to gain an unfair trade advantage that harms U.S. workers Despite volatility, currency strategists polled by Reuters expect that the yuan will resume its descent.17 One catalyst for a resumption of downward pressure on the yuan may be a Fed rate hike in the U.S. While there is no clear definition of what represents a satisfactory reserve level to defend the yuan, it may not be possible to indefinitely support the currency s value by drawing down on reserves. Consequently, Chinese policymakers may have to look to different strategies to maintain its currency s relative value, or allow it to slide lower. The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite, LLC, is not affiliated with the named representative, broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security. Investing involves risks, and investment decisions should be based on your own goals, time horizon and tolerance for risk. The return and principal value of investments will fluctuate as market conditions change. When sold, investments may be worth more or less than their original cost. Any companies mentioned are for illustrative purposes only. It should not be considered a solicitation for the purchase or sale of the securities. Any investment should be consistent with your objectives, time frame and risk tolerance. The forecasts or forward-looking statements are based on assumptions, may not materialize and are subject to revision without notice. The market indexes discussed are unmanaged and generally considered representative of their respective markets. Individuals cannot directly invest in unmanaged indexes. Past performance does not guarantee future results. International investments carry additional risks, which include differences in financial reporting standards, currency exchange rates, political risks unique to a specific country, foreign taxes and regulations, and the potential for illiquid markets. These factors may result in greater share price volatility.

8 Please consult your financial advisor for additional information. Copyright 2017 FMG Suite. 1. The Wall Street Journal, February 28, Interactive Data Managed Solutions, February 28, MSCI.com, February 28, MSCI.com, February 28, MSCI.com, February 28, The Wall Street Journal, February 28, The Wall Street Journal, February 3, The Wall Street Journal, February 15, The Wall Street Journal, February 15, The Wall Street Journal, February 16, The Wall Street Journal, February 22, The Wall Street Journal, February 24, The Wall Street Journal, February 15, The Wall Street Journal, February 27, The Wall Street Journal, February 27, CNBC.com, February 7, Reuters, February 7, U.S. Travel Association, January 30, 2017 (2015 is the latest year for which data is available.) 19. WorldAtlas.com, November 14, Worldometers.com, CNN.com, January 19, Travel Channel, 2017 (2015 is the latest year for which data is available.)

9 23. Statista.com, Royal Caribbean, NewsMax.com, April 29, 2016