Monthly Archives: January 2017

Market Insights 1/31/2017

Stocks Battle Back from Lows

Able to move well off solid lows on the day, U.S. equities finished mixed amid a super-fecta of persistent U.S. political uncertainty, a slew of disappointing earnings reports, a sub-par domestic economic calendar, and caution ahead of tomorrow’s Fed monetary policy decision.

Treasury yields and the U.S. dollar were lower, while gold jumped and crude oil prices inched higher.

The Markets…

The Dow Jones Industrial Average declined 107 points (0.5%) to 19,864

The S&P 500 Index fell 2 points (0.1%) to 2,281

The Nasdaq Composite inched 1 point higher to 5,615

In heavy volume, 1.1 billion shares were traded on the NYSE and 2.0 billion shares changed hands on the Nasdaq

WTI crude oil ticked $0.18 higher to $52.81 per barrel and wholesale gasoline added $0.02 to $1.55 per gallon

The Bloomberg gold spot price rallied $16.47 to $1,212.17 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—fell 0.8% to 99.60

Consumer Confidence dips from multi-year high, Chicago manufacturing output falls

The Consumer Confidence Index dipped from the highest level since 2001 to 111.8 in January from the downwardly revised 113.3 level in December, and compared to the Bloomberg estimate of 112.8. Sentiment toward the present situation improved solidly but expectations of business conditions for the next six months fell. On employment, the labor differential—consumers’ appraisal of jobs being “plentiful” minus being “hard to get”—rose to 5.9 from the 3.3 posted in December.

The Chicago Purchasing Managers Index held onto a level slightly depicting expansion (above 50), after surprisingly falling to 50.3 in January from 54.6 in December, and versus expectations of a gain to 55.0. Growth in new orders fell to contraction territory and growth in production slowed, while contractions in inventories and employment both accelerated.

The 20-city composite S&P CoreLogic Case-Shiller Home Price Index showed a 5.3% gain in home prices y/y in November, versus expectations of a 5.0% increase. Month/month (m/m), home prices were up 0.9% on a seasonally adjusted basis for November, topping forecasts calling for a 0.7% gain.

The 4Q Employment Cost Index increased by 0.5% quarter-over-quarter, below forecasts of a 0.6% rise, which was the gain seen in Q3.

Treasuries were higher, as the yield on the 2-year note ticked 1 basis point lower to 1.21%, the yield on the 10-year note fell 4 bps to 2.45%, and the 30-year bond rate declined 3 bps to 3.05%. Treasury yields and the U.S. dollar continue to be choppy as of late, with the global markets grappling with the economic data ahead of tomorrow’s Fed monetary policy decision and the latest policy moves from President Donald Trump, notably on trade and immigration. The Federal Open Market Committee (FOMC) is expected to keep its policy stance unchanged after December’s rate increase, and will not deliver updated economic projections and a press conference from Fed Chairwoman Janet Yellen. However, the accompanying statement is likely to garner scrutiny for insight to the timing of future rate hikes this year and if President Donald Trump’s actions are having an impact on their economic outlook and forecasts for future policy moves.

Ahead of the FOMC’s decision, we will get national reads on manufacturing activity for January from ISM and Markit, with the former’s report projected to show expansion for the fifth-straight month. Other reports due out tomorrow include: ADP’s employment change report, MBA mortgage applications, construction spending and monthly auto sales.

Europe adds to yesterday’s drop, Asia falls as U.S. political fallout persists

European equities gave up modest early gains and extended yesterday’s drop that came courtesy of global market uneasiness stemming from U.S. President Donald Trump’s actions to temporarily ban entry into the U.S. for refugees from seven predominantly Muslim countries. However, earnings reports in the region were mostly positive, but oil & gas and basic materials issues saw some pressure despite higher crude oil prices and an economic front that was relatively favorable.

Preliminary Eurozone Q4 GDP accelerating to a 0.5% q/q pace of growth, from the 0.4% expansion in Q3, while output rose 1.8% y/y, topping forecasts of a 1.7% gain. The Eurozone consumer price inflation estimate for January came in well above forecasts and the unemployment rate declined to a level below expectations for December. However, German retail sales unexpectedly fell last month. The euro and British pound rose versus the U.S. dollar. Financials moved lower amid festering banking sector concerns and pressure on global bond yields.

Stocks in Asia finished lower as the global markets remain jittery in the wake of U.S. President Donald Trump’s recent moves to crackdown on immigration. The yen extended gains to weigh on Japanese equities, while the Bank of Japan kept its monetary policy stance unchanged and a separate report showed the nation’s household spending declined by a smaller amount than expected in December. Stocks in Australia and India decreased, while those traded in South Korea also traded lower in its return to action following yesterday’s holiday. Markets in China and Hong Kong remained closed for the Lunar New Year holiday.

Why We Love ETFs in One Picture

Buying an index mitigates the security risk of “cherry picking” securities. Instead, at WT Wealth Management we buy themes, sectors and industries with ETFs (exchange traded funds).

This chart highlights the drag of Apple on the technology Index, return ex-Apple along with the contribution of FaceBook, return ex-FaceBook

**click to enlarge**

Factset

Market Insights 1/30/2017

Politics in Focus in Today’s Session

U.S. equities finished solidly lower in the midst of ramped-up political uncertainty after President Donald Trump issued an order over the weekend to temporarily ban refugees from seven Muslim-majority countries.

Treasuries were mixed amid economic reports showing that personal income and spending rose mostly in line with forecasts, pending home sales topped forecasts and regional manufacturing activity jumped.

Meanwhile, crude oil and the U.S. dollar were lower, while gold finished higher.

The Markets…

The Dow Jones Industrial Average declined 123 points (0.6%) to 19,971

The S&P 500 Index fell 14 points (0.6%) to 2,281

The Nasdaq Composite tumbled 47 points (0.8%) to 5,614

In moderate volume, 873 million shares were traded on the NYSE and 2.0 billion shares changed hands on the Nasdaq

WTI crude oil decreased $0.54 to $52.63 per barrel and wholesale gasoline lost $0.02 to $1.53 per gallon

The Bloomberg gold spot price rose $5.17 to $1,196.37 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.1% lower at 100.40

Personal income and spending rise

Personal income was up 0.3% month-over-month in December, versus the Bloomberg forecast of a 0.4% rise, and compared to November’s upwardly revised 0.1% gain. Personal spending increased 0.5% last month, matching expectations and versus November’s unrevised 0.2% rise. The December savings rate as a percentage of disposable income was 5.4%. The PCE Deflator was up 0.2%, in line with expectations. Compared to last year, the deflator was 1.6% higher, versus of estimates of a 1.7% gain. Excluding food and energy, the PCE Core Index was up 0.1% m/m, matching expectations, and the index was 1.7% higher y/y, in line with estimates. November’s y/y figure was upwardly revised to a 1.7% increase.

Pending home sales increased 1.6% m/m in December, versus projections of a 1.0% gain, and following the unrevised 2.5% drop registered in November. Compared to last year, sales were 2.0% lower. Pending home sales reflect contract signings and are used as a gauge of the pipeline of existing home sales, which slipped in December but posted the highest annual gain since 2006.

The Dallas Fed Manufacturing Activity Index jumped further into a level depicting expansion (a reading above zero), rising to 22.1 in January—the highest since April 2010—from 15.5 in December and compared to the expected dip to 15.0.

Treasuries finished mixed, with the yield on the 2-year note 1 basis point (bp) lower at 1.21%, the yield on the 10-year note unchanged at 2.49%, while the 30-year bond rate rose 2 bps to 3.08%.

Tomorrow, 4Q earnings season will remain robust, while the domestic economic calendar will also be busy, with reports slated for release to include the 4Q Employment Cost Index, forecasted to match the 3Q’s 0.6% quarter-over-quarter increase, and the Chicago Purchasing Managers’ Index, with economists expecting a slight uptick to 55.0 for January. Some housing data will also be in focus, with the S&P CoreLogic/Case-Shiller Home Price Index expected, anticipated to show prices in the 20-city composite increased 5.00% y/y in November, and 0.65% m/m on a seasonally-adjusted basis, while the calendar will round out with the release of Consumer Confidence, with forecasts calling for a slight decline to 112.8 for January.

Europe and Asia lower as U.S. political concerns remain

European equities finished lower, with the global markets grappling with U.S. President Donald Trump’s decision to temporarily ban entry into the U.S. for refugees from seven predominantly Muslim countries. Meanwhile, the markets awaited monetary policy decisions this week from the Fed, Bank of England and Bank of Japan. Financials came under pressure amid lingering banking sector concerns, while energy issues dropped, exacerbated by a downside move in crude oil prices.

In economic news, Spain’s Q4 GDP matched Q3′s 0.7% quarter-over-quarter growth, while German consumer price inflation came in just shy of estimates for January and Eurozone economic and consumer confidence improved for this month. The euro dipped and the British pound declined versus the U.S. dollar, while bond yields in the region finished mixed.

Stocks in Asia finished mostly lower on the heels of last week’s softer-than-expected Q4′s GDP report in the U.S., while the global markets grappled with heightened U.S. political uncertainty as President Trump announced a temporary ban on entry into the U.S. for refugees from seven predominantly Muslim countries.

Japanese equities declined, with the yen choppy ahead of tomorrow’s monetary policy decision from the Bank of Japan, while the nation’s retail sales rose by a smaller amount than had been expected for December. Australian listings fell, with technology issues dropping sharply, while stocks in India also dipped. Volume was lighter than usual, with markets in China, Hong Kong and South Korea closed for holidays.

Tomorrow’s international economic calendar will hold household spending, industrial production, and employment data from Japan, as well as the Bank of Japan’s monetary policy decision, confidence figures from Australia, GDP and CPI from France and the Eurozone, retail sales and labor statistics from Germany, as well as CPI from Spain and Italy.

Changing jobs? Don’t Forget 401(k) Accounts Along the Way

Millions of Americans switch jobs every year, and that can be a good thing for those who move up the ranks to positions of better pay and more responsibility. But there’s a potential downside to mobility: the forgotten 401(k).

The more frequently workers hop around, the greater the chance they will leave behind 401(k) accounts that might be neglected or even lost over time. From 2005 through 2014, more than 25 million employees have kept at least one retirement account with a previous employer, and millions of workers have left two or more, according to Social Security Administration.

It’s easy to lose track of 401(k) accounts if you don’t take them with you. As the years go by, companies might be restructured, sold, or go out of business. As a result, their 401(k) plans might get folded or merged. At the same time, employees might change their contact information and fail to update a past employer.

“I’ve seen it happen,” said Mike Piper, a CPA and the author of the blog Oblivious Investor. “People change jobs, they never rollover [their retirement accounts] and they don’t know where their money is.”

Leaving Money Behind Can Make Sense, But Out Of Sight Shouldn’t Be Out Of Mind

It might make sense for you to keep your 401(k) with a past employer if you’re happy with your investment options and are comfortable with the fees associated with your plan.

If you choose to leave your retirement account behind, it’s important to monitor your investments and be sure they match your goals and risk tolerance as these are considerations that might change over time.

Make sure your plan has your current contact information and that you stay on top of your past employer’s status, writes Jeanne Medeiros, director of the Pension Action Center at the University of Massachusetts Boston. You’ll want to know if they have merged with a new company, or are facing financial difficulties.

If you aren’t up to the task of keeping up with the former account, it’s important to note that you do have other options, including rolling over your 401(k) to your 401(k) account with your new employer or to an Individual Retirement Account (IRA).

Sometimes Employers Will Call The Shots For You

Keep in mind, if you don’t stay active in monitoring your retirement accounts, a past employer might make decisions on your behalf.

If you have less than $5,000 in a previous employer’s retirement savings plan, and you don’t indicate what you want done with the money, a plan can rollover your money into an IRA, a move that may or may not make sense for you. And if you have less than $1,000 in your account, a plan can simply write you a check. This could trigger taxes and penalties.

The bottom line: “It’s your money,” Piper said. “It’s up to you to make sure you know where it is and that it’s invested appropriately.”

Have You Lost Track Of A 401(K)? Here Are Some Tips For Tracking It Down:

If you lose track of your 401(k), you might need to do some hunting to find it.

A good place to start is with your former employer. Contact the human resources or accounting department and be ready to provide your Social Security number and your period of employment.

Most employers are required to file an annual report on their 401(k) plans—ERISA Form 5500—with the Department of Labor. Using the name of your past employer, you can do a free search for those filings on efsast.dol.gov, a search engine run by the Department of Labor.

A plan’s Form 5500 will provide the identity of the plan’s service providers, said Richard McHugh, vice president, Washington affairs for the Plan Sponsor Council of America, which represents employers who sponsor 401(k) plans.

In some cases a 401(k) plan might be abandoned or “orphaned.” This might happen because the plan sponsor has filed for bankruptcy, or a company’s owner has died or been jailed.

The Department of Labor runs an Abandoned Plan database. This site helps plan participants learn if a plan is in the process of being shuttered or has already been terminated. You can search the site for the name and contact information for a “Qualified Termination Administrator,” a custodian, such as a bank or insurance company, which might have been assigned to terminate the plan. You can then contact this party and seek help in finding your lost retirement account

Market Insights 1/27/2017

Record Runs Level Off

The bull runs into record territory for the U.S. equity markets of late cooled a bit in today’s action, with stocks closing mixed after being rangebound for most of the day, as declines in Treasury yields and crude oil prices pressured financials and energy stocks, respectively.

Domestic economic data did little to catalyze the markets, while a heavy dose of earnings reports hit the Street with mixed results. The U.S. dollar and gold rose.

The Markets…

The Dow Jones Industrial Average declined 7 points to 20,094

The S&P 500 Index ticked 2 points (0.1%) lower to 2,295

The Nasdaq Composite inched 6 points (0.1%) higher to 5,661

In moderate volume, 751 million shares were traded on the NYSE and 1.6 billion shares changed hands on the Nasdaq

WTI crude oil decreased $0.61 to $53.17 per barrel and wholesale gasoline lost $0.02 to $1.55 per gallon

The Bloomberg gold spot price rose $2.50 to $1,191.00 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.2% higher at 100.57

Markets were solidly higher for the week, as the DJIA increased 1.3%, the S&P 500 Index gained 1.0% and the Nasdaq Composite jumped 1.9%

Headline GDP and durable goods orders fall short of forecasts, consumer sentiment beats estimate

The first look (of three) at Q4 Gross Domestic Product, the broadest measure of economic output, showed a quarter-over-quarter annualized rate of expansion of 1.9%, from the unrevised 3.5% expansion in Q3, and below the 2.2% growth forecasted by Bloomberg. Personal consumption matched forecasts, rising 2.5%, following the unadjusted 3.0% increase recorded in Q3.

On inflation, the GDP Price Index came in at a 2.1% rise, in line with expectations and above the unrevised 1.4% gain seen in Q3, while the core PCE Index, which excludes food and energy, increased 1.3%, as expected and following the unrevised 1.7% advance in 3Q.

December preliminary durable goods orders declined 0.4% month-over-month, compared to estimates of a 2.5% rise and November’s downwardly revised 4.8% drop. Ex-transportation, orders grew 0.5% m/m, matching forecasts and versus November’s favorably revised 1.0% increase. Orders for non-defense capital goods excluding aircraft, considered a proxy for business spending, rose 0.8%, versus projections of a 0.2% increase, and following the upwardly revised 1.5% increase in the month prior.

The final January University of Michigan Consumer Sentiment Index was revised to 98.5—the highest since January 2004—from the preliminary level of 98.1, where the Bloomberg estimate called for it to remain. The index was up compared to December’s level of 98.2. The expectations component improved m/m, rising to a two-year high, while the current conditions component eased slightly. The 1-year inflation outlook increased to 2.6% from December’s 2.2% rate, and the 5-10 year inflation projection rose to 2.6% from 2.3%.

Treasuries finished higher, as the yield on the 2-year note was 1 basis point (bp) lower at 1.22%, the yield on the 10-year note lost 2 bps to 2.48%, and the 30-year bond rate decreased 3 bps to 3.06%.

Europe lower as PM May meets President Trump, Asia mostly higher in subdued action

European equities finished mostly lower with banking stocks among the worst performers of the day. Investors may have lent some of their focus to Washington where U.K. Prime Minister Theresa May will meet with U.S. President Donald Trump as the new U.S. leader commences the implementation of his vision of a more assertive style for trade relationships. Separately, some investors have taken note that the U.K. economy has recently been growing faster than expected with soaring levels of consumer borrowing, leaving some to believe that a possible interest-rate hike from the Bank of England could transpire by year-end.

In economic news in the region, Germany reported a larger-than-expected m/m and y/y increase in the price for imported goods and a consumer confidence read in France was in line with expectations, while Italian consumer confidence came in below forecasts and hourly wage data was flat. With the global markets entering 2017 in volatile fashion. The euro dipped versus the greenback and bond yields in the region were mixed.

Stocks in Asia finished mostly higher in lighter-than-usual volume as markets in mainland China and South Korea were closed for holidays with the former observing its week-long Lunar New Year which will keep markets shuttered next week through February 2. China did report that its industrial profits for December increased 2.3% y/y after rising 14.5% y/y in January. Stocks in Hong Kong were little changed in an abbreviated, half-day session, though the nation’s Hang Seng Index was able to register its biggest monthly gain in the past ten.

Japanese equities advanced, with energy issues leading gains as the price of crude oil, though lower for the day, is headed for a second weekly increase and as the evolving global economic landscape may be boosting investors’ willingness to take on risk. Meanwhile, the yen weakened versus the U.S. dollar as the Bank of Japan increased purchases of its bonds due in five-to-ten years after the benchmark yield approached 0.1% this week.

Stocks gain ground in first-week of new administration

With waves of corporate earnings reports flooding the Street, U.S. stocks managed to advance for the trading week despite some disappointing housing data in the form of new and existing home sales, which was joined by Friday’s cooler-than-expected read on Q4 GDP, while a solid consumer sentiment report along with upbeat reads on regional and national manufacturing activity were seemingly able to build some investor confidence. The advance for stocks transpired amid the backdrop of the first full-week in office for President Donald Trump. The new administration took the reins at the White House and wasted no time in turning out executive actions that could potentially change current dealings in trade agreements, energy issues and health care.

Heavy dose of data next week

Next week, investors will have slew of data to digest, with the Q4 earnings season robust, as well as a domestic economic calendar that is chock full of key reports, including employment data in the form of the Employment Cost Index, non-farm productivity and labor costs, weekly initial jobless claims, the ADP Employment Change Report and Friday’s highly anticipated labor report. As well, manufacturing data is on the docket, with items slated for release to comprise both services and manufacturing reports from the Institute for Supply Management (ISM) and Markit, the Chicago Purchasing Managers’ Index and the Dallas Fed Manufacturing Index. Housing data will also be in focus, with pending home sales gracing the calendar, as well as the S&P CoreLogic/Case-Shiller Home Price Index and weekly MBA Mortgage Applications, while rounding out the heavy docket will be personal income & spending, factory orders, and construction spending. Not to be outdone, and likely the headlining event of the week, will be Wednesday’s monetary policy decision from the Federal Open Market Committee (FOMC).

Now that it’s President Trump instead of candidate or President-elect Trump, we’ll see how quickly some of the much talked about plans come to fruition. Issuing executive orders to roll back previous executive orders is relatively easy in a lot of cases; but getting tax reform and new health care legislation written and passed will prove to be more difficult. Investor and corporate confidence may have gotten a bit ahead of the pace at which many of the administration’s policy priorities can get enacted, and the balance between those which are growth-friendly and those which could retard growth and confidence.

International reports due out next week that deserve a mention include: the Markit Manufacturing and Services PMIs from across the globe; as well as from Australia—business confidence and the Reserve Bank of Australia’s monetary policy meeting. Japan—retail sales and the Bank of Japan’s monetary policy meeting. Eurozone—CPI, and German unemployment and CPI. U.K.—construction spending and the Bank of England’s monetary policy meeting. Markets in China, South Korea and Hong Kong will be closed in observance of the Lunar New Year holidays.

U.S. GDP report

Economy’s growth rate slows to 1.9% in 4th quarter

The U.S. economy’s expansion slowed in the fourth quarter, and annual growth failed to reach 3% for an 11th straight year, reflecting the huge hurdles the Trump administration faces in trying to speed up a 7½-year-old expansion.

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gdp_large

Gross domestic product, the official score card for the economy, expanded at a 1.9% annual clip from October to December, the Commerce Department said. That’s a marked drop from a 3.5% growth rate in the third quarter and below the 2.2% consensus of polled economists.

In early trading, the Dow Jones Industrial Average was little changed. The Dow finished at a record high Thursday, however, and is now up 25% over the last 52 weeks.

For the full year, the U.S. grew just 1.6%, compared with its 2.6% clip in 2015. It was the weakest performance since 2011. The last time the U.S. topped 3% growth — the historical average is 3.3% — was in 2005.

President Donald Trump has vowed to push the economy into higher gear with an aggressive combination of tax cuts, reduced regulations and more government spending on public works. Yet economists say it will take time before the U.S. reaps any benefits.

Most predict the economy will grow around 2% or a bit faster in 2017. If Trump’s approach works, the payoff is unlikely to come until the end of the year or early 2018, they say. The U.S. economy was in decent, if unspectacular, shape at the end of 2016.

Inside the report

A wider trade deficit — a negative for GDP — was by far the biggest anchor in the fourth quarter. The economy would have topped 3% growth if the trade gap has basically been unchanged.

Other key bulwarks of the economy, such as consumer spending and business investment, showed an underlying resilience that kept growth on a steady path.

Consumers, the torchbearers for the U.S. economy, increased spending by a solid 2.5%. They were especially gung-ho on big-ticket items such as new cars and computers. Outlays on long-lasting or durable goods leaped almost 11%.

Businesses also ratcheted up overall spending, including the first increase in equipment purchases in five quarters. Similarly, builders boosted investment in new housing by just over 10%, marking the first advance in three quarters.

Companies also stocked up more. The value of inventories jumped by $48.7 billion after barely any change in the spring and fall.

Firms are replenishing warehouse shelves after drawing down inventories in the first half of 2016 to alleviate an excessive buildup. The cutback in production last year helped constrain the economy.

Trade has been another major drag on the U.S. owing to a soft global economy and a stronger dollar that made American exports more expensive. In the fourth quarter, exports sagged 4.3%.

Yet imports sizzled 8.3%, a reflection of a stronger U.S. economy as compared with the rest of the world. That’s the biggest gain in imports in two years and shows Americans are still willing spenders.

Part of the steeper trade deficit at the end of 2016, what’s more, reflected a big drop in soybean exports after a surge in the third quarter tied to a poor harvest in South America. The bonanza in soybean exports in the fall gave a boost to third-quarter GDP.

What remains to be seen is whether a tougher approach by a new administration hurts trade and offsets the benefits of pro-growth domestic policies. Trump has threatened a tax on Mexican imports if the country refuses to pay for the construction of a border wall along the U.S. border.

Inflation, meanwhile, rose at a 2.2% annual pace in the fourth quarter, according to the PCE price index, the preferred gauge of the Federal Reserve. That’s the highest level since 2012.

The PCE has been closer to 1% for much of the past two years. If inflation picks up any further, it could spur the Fed to raise interest rates more aggressively in 2017 than the bank has so far signaled.

Market Insights 1/26/2017

Stocks Finish Mixed, Dow Holds 20,000

U.S. stocks were able to hold most of their recently acquired gains, finishing the regular trading session mixed but near the flatline as the major domestic indexes are on track for their best week of the New Year.

The Street digested a flood of earnings and economic data, while investors seem to be optimistically cautious in regard to the new administration’s possible fiscal policy plans.

Treasuries, crude oil prices and the U.S. dollar were higher and gold declined.

The Markets…

The Dow Jones Industrial Average rose 32 points (0.2%) to 20,101

The S&P 500 Index was nearly 2 points (0.1%) lower at 2,297

The Nasdaq Composite shed 1 point to 5,655

In moderate volume, 829 million shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq

WTI crude oil increased $1.03 to $53.78 per barrel and wholesale gasoline gained $0.02 to $1.57 per gallon

The Bloomberg gold spot price fell $11.64 to $1,189.04 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—ticked 0.5% higher to 100.50

Services sector activity accelerates more than expected, new home sales fall

The preliminary Markit U.S. Services PMI Index for January rose to 55.1 from December’s reading of 53.9, versus the Bloomberg forecast of an improvement to 54.4, with a reading above 50 indicating expansion. Markit said business activity and new work accelerated and input cost inflation slowed, while the business outlook reported by services firms was the strongest in nearly two years. The release is independent and differs from the Institute for Supply Management’s (ISM) report, as it has less historic value and its index components are weighted differently.

New home sales fell 10.4% month-over-month in December to an annual rate of 536,000, well below forecasts of 588,000 units. The median home price rose 7.9% y/y to $322,500. The supply of new home inventory rose m/m to 5.8 months at the current sales pace. Sales jumped m/m in the Northeast, but fell in the Midwest, South and West. New home sales are based on contract signings instead of closings, so this is one of the first looks at housing activity since the recent rally in mortgage rates.

The Conference Board’s Index of Leading Economic Indicators (LEI) was up 0.5% m/m in December, matching projections, after November’s upwardly revised 0.1% gain. Support came from the components pertaining to the yield curve, stock prices, consumer expectations and ISM new orders, while the index was bogged down by jobless claims.

Weekly initial jobless claims rose 22,000 to 259,000 last week, above forecasts of 247,000, with the prior week’s figure revised to 237,000 from 234,000. The four-week moving average declined by 2,000 to 245,500, while continuing claims gained 41,000 to 2,100,000, north of estimates of 2,040,000.

The Kansas City Fed Manufacturing Activity Index for January remained at December’s downwardly revised 9 reading, versus forecasts of a dip to 8, though a level north of zero depicts expansion.

Tomorrow, the economic calendar will culminate with the releases of the first look (of three) at Q4 GDP, projected to show output slowed to a 2.2% quarter-over-over annualized pace of growth, from 3.5% in Q3, as well as preliminary December durable goods orders, with growth forecasted to rebound to 2.6% m/m from November’s 4.5% drop. Stripping out the more volatile components of transportation and defense, durable goods orders are projected to rise for the third-consecutive month to close out 4Q. Finally, we will get the final University of Michigan Consumer Sentiment Index, which is expected to be unrevised at 98.1, down slightly from December’s 98.2, which was the highest since January 2004.

Treasuries were mildly higher, with the yields on the 2-year and 10-year notes, as well as the 30-year bond ticking 1 basis point lower to 1.22%, 2.50%, and 3.08% respectively.

Europe mixed, Asia higher

European equities finished mixed, on the heels of the previous two sessions of gains, that have been fostered by the global markets appearing to grow more optimistic following the plethora of executive orders from U.S. President Donald Trump. Optimism seems to be centered on whether Trump’s campaign promises of boosted infrastructure spending and reduced taxes and regulations could come to fruition, though concerns remain about his actions to change global trade relations.

The euro and British pound lost ground on the U.S. dollar, while bond yields in the region were mostly higher. Healthcare issues got a boost from a rally in shares of Actelion Ltd. after Dow member Johnson & Johnson announced an agreement to acquire the Swiss biotech company for about $30.0 billion. Earnings in the region were mostly positive, while U.K. 4Q GDP growth came in stronger-than-expected.

Stocks in Asia finished higher on the heels of the continued rally in the U.S., with the Dow breaching the 20,000 mark. The global markets have been eyeing a plethora of executive orders from U.S. President Trump, appearing optimistic regarding his plans to boost infrastructure spending and reduce regulations and taxes, while shrugging off his actions to change global trade relations.

Japanese equities rallied, with the yen holding onto yesterday’s pullback from recent strength, while stocks trading in mainland China gained ground and those trading in Hong Kong jumped, though volume was subdued ahead of tomorrow’s beginning of the Lunar New Year. South Korean securities advanced and markets in India and Australia were closed for holidays.

Tomorrow, the international economic docket will yield CPI from Japan, the Import Price Index from Germany and consumer confidence reads from France and Italy.

Bank Earnings & the Trump Effect

Stocks have been in a wait-and-see mode lately, looking ahead to greater clarity on the incoming administration’s policy priorities. After all, the market’s post-election optimism reflected expectations of friendlier fiscal and regulatory policies that should start taking shape in the coming days.

The consensus view justifiably sees this emerging policy backdrop as favorable to earnings growth, though we haven’t seen any associated impact on earnings estimates at this stage. That said, a big part of the earnings out-performance from a number of the major banks in recent days can be chalked up to the post-election uptrend in interest rates and gains in risk appetites. Q4 earnings results from most of the major banks and brokers are largely in-line with expectations and consistent with the improving trend of the last few quarters. But they all show a notable improvement in their trading revenues, the credit for which has to go to the post-election macro backdrop.

This has been the recurring theme with all the major banks, except for Wells Fargo which doesn’t have a much of a trading business. Even Morgan Stanley, which has been deliberately lowering its exposure to fixed income trading over the last few years, reported strong momentum in its trading revenues.

The strong post-election performance of bank stocks wasn’t in anticipation of a surge in trading revenues, but rather a function reduced regulatory burden, tax law changes and an improved outlook for the domestic economy. All of those things are still to come, though higher interest rates should help net interest margins in the current period even if those policy changes take longer to materialize. Please note that we discuss the reported and still-to-come bank results in more detail in the body of the report.

Q4 Earnings Scorecard

As of last Friday, we now have Q4 results from 41 S&P 500 members that combined account for 12.5% of the index’s total market capitalization. Total earnings for these 41 index members are up +11.3% from the same period last year on +3.9% higher revenues, with 70.7% beating EPS estimates and 46.3% coming ahead of top-line expectations.

The side-by-side charts below compare the growth rates and beat ratios for the 41 index members with what we saw from the same companies in other recent periods.

**click to enlarge**

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Here are the key takeaways from the above comparison charts

First, the earnings growth for this group of 41 index members is notably above other recent periods. A big reason for that is the strong growth from the Finance sector, whose results dominate the picture at this stage. Excluding the Finance sector, the Q4 earnings growth pace drops to +5.8% from +11.3%.

Second, revenue growth is about in-line with historical periods.

Third, positive surprises for this group of 41 S&P 500 members are tracking below historical periods, both for earnings as well as revenues. It will be interesting if this trend persists through the rest of this earnings season, likely indicating that estimates didn’t fall enough in the run up to the start of this earnings season.

Q4 Expectations As a Whole

For Q4 as a whole, total earnings for the S&P 500 companies are expected to be up +4.7% from the same period last year on +3.7% higher revenues. The Q4 growth pace has been steadily improving in recent days as companies, particularly banks, have been coming out with better than expected year-over-year growth.

This would follow the +3.8% growth in Q3 earnings on +2.3% higher revenues, the first instance of positive earnings growth for the index after five quarters of back-to-back declines. Comparisons for the Energy sector, a big driver of the earnings recession, turn positive in Q4, with the sector’s earnings growth turning positive for the first time after 8 quarters of declines.

The chart below shows the Q3 earnings growth contrasted with declines in the preceding 5 quarters. As you can see in the chart below, the growth pace is expected to ramp up in 2017.

chart

As you can see, the +4.7% earnings growth in Q4 is followed by +9.5% in 2017 Q1 and +9.4% in the following quarter. It is reasonable to expect estimates for 2017 Q1 to come down as companies report Q4 results and share their business outlook with us. But given the relatively low magnitude of negative revisions that we experienced for Q4, coupled with the aforementioned positive expectations from the incoming administration, 2017 Q1 estimates may not fall by that much either.

Market Insights – Dow Breaks 20,000

Dow Tops 20,000

U.S. stocks closed nicely higher as the Dow was able to hold and close above the elusive 20,000 mark for the first time, while the Nasdaq and S&P 500 also notched new highs.

A renewed attention to possible fiscal spending increases, some upbeat earnings reports and a recent string of favorable economic data from abroad aided in buoying sentiment.

Treasury yields advanced, while gold, the U.S. dollar and crude oil prices were lower.

The Markets…

The Dow Jones Industrial Average rose 156 points (0.8%) to 20,069

The S&P 500 Index was 18 points (0.8%) higher at 2,298

The Nasdaq Composite jumped 55 points (1.0%) to 5,656

In moderate volume, 880 million shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq

WTI crude oil lost $0.43 to $52.75 per barrel and wholesale gasoline declined $0.05 to $1.55 per gallon

The Bloomberg gold spot price fell $9.06 to $1,199.88 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—ticked 0.4% lower to 99.95

Mortgage applications rise

The MBA Mortgage Application Index increased 4.0% last week, following the previous week’s 0.8% gain. The rise came as the Refinance Index ticked 0.2% higher, while the Purchase Index gained 6.0%. The average 30-year mortgage rate jumped 8 basis points to 4.35%.

Treasuries were lower, with the yield on the 2-year note rising 2 bps to 1.24%, while the yields on the 10-year note and the 30-year bond advanced 5 bps to 2.52% and 3.10%, respectively.

The U.S. dollar has slipped since the start of the year, though Treasury yields have regained some upward momentum in choppy action in the wake of the plethora of policy actions following Friday’s inauguration of President Donald Trump, which has been accompanied by continued relatively favorable economic data.

Amid the backdrop of the upbeat economic data and optimism of pro-business policies from the Trump Administration, measures of both consumer and business confidence have recently surged, with the former resting on fairly strong pillars, but the latter may be on weaker pillars and subject to post-inauguration volatility.

Tomorrow, a loaded U.S. economic calendar will bring additional housing data with the release of new home sales, expected to have declined 0.7% m/m, while additional releases are expected to include the advance goods trade deficit, wholesale inventories, weekly jobless claims, Markit’s preliminary Services PMI Index, the Leading Index and the Kansas City Fed Manufacturing Activity Index.

Europe and Asia higher

European equities moved higher, with financials leading the way, bolstered by upbeat earnings results from Spain’s Banco Santander SA. Global economic optimism and commodity-related issues got a lift from a much stronger-than-expected rise in Japanese exports, which were boosted by demand in China. Logitech International SA surged after the company posted stronger-than-expected results, while Novartis AG (NVS $72) gained ground despite its lackluster guidance, as it said it is assessing options for its Alcon unit. Stocks shrugged off a surprising decline in German business sentiment, as well as heightened political uncertainty in the U.S. as President Trump takes a host of actions to make good on his campaign promises. The euro ticked higher and the British pound rose versus the U.S. dollar, while bond yields in the region traded to the upside.

Stocks in Asia finished higher, with a plethora of relatively upbeat earnings and economic data helping offset global uncertainty regarding the flood of policy actions from U.S. President Donald Trump in the first week of office that has exacerbated trade concerns. Japan’s Nikkei 225 Index led the way, rallying 1.4%, with the yen giving back some of its recent strength, while a report showed the nation’s exports grew much more than expected in December, snapping a string of 14-straight monthly declines. The jump in Japanese exports was highlighted by shipments to China setting a record, per Bloomberg.

Australian securities advanced, with basic materials issues getting a boost from the Japanese data, while Indian equities were also higher, bolstered by some favorable earnings reports from the banking sector. South Korean stocks ticked higher in the wake of its stronger-than-expected 4Q GDP report, which showed growth slowed by a smaller amount than expected. Finally, stocks trading in mainland China and those in Hong Kong increased, with the markets continuing to coast into the long Lunar New Year holiday break beginning on Friday.

The international economic docket for tomorrow will include industrial profits from China, consumer confidence from Germany, retail sales from Italy and an advance read on 4Q GDP from the U.K.

Market Insights 1/24/2017

Dow Makes Another Run Toward 20,000

U.S. stocks finished solidly higher, with the Dow again nearing the elusive 20,000 mark, amid a plethora of mixed earnings and economic reports, as well as a number of actions by President Donald Trump, including reviving the Dakota Access and Keystone XL oil pipelines.

Treasuries were lower and crude oil prices recovered from yesterday’s decline, while the U.S. dollar was slightly higher and gold lost ground.

The Markets…

The Dow Jones Industrial Average rose 113 points (0.6%) to 19,913

The S&P 500 Index was 15 points (0.7%) higher at 2,280

The Nasdaq Composite jumped 48 points (0.9%) to 5,601

In moderate volume, 865 million shares were traded on the NYSE and 1.8 billion shares changed hands on the Nasdaq

WTI crude oil gained $0.43 to $53.18 per barrel and wholesale gasoline added a penny to $1.60 per gallon

The Bloomberg gold spot price fell $8.60 to $1,209.63 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—ticked 0.1% higher to 100.29

Housing sales slip, while manufacturing activity accelerates more than expected

Existing-home sales in December fell 2.8% month-over-month to a 5.49 million annual rate, compared to the Bloomberg forecast of a 5.52 million pace. November’s figure was upwardly revised to a 5.65 million annual rate. Compared to last year, sales were only 0.7% higher, but existing homes sold in 2016 (5.25 million) were the highest since 2006. The median existing-home price was up 4.0% y/y at $232,200. Housing supply came in at a 3.6-month pace at the current sales rate, versus 3.9 months in December 2015, and the inventory of homes for sale fell to the lowest since 1999. Sales in the Northeast, Midwest and West all declined m/m, but were higher y/y, while the South was flat m/m and down y/y.

National Association of Realtors (NAR) Chief Economist Lawrence Yun said solid job creation and exceptionally low mortgage rates translated into a good year for the housing market, but higher mortgage rates and home prices combined with record low inventory levels stunted sales in December.

The preliminary Markit U.S. Manufacturing PMI Index for January improved to the best level since March 2015 after rising to 55.1 from December’s 54.3 level, and versus forecasts of 54.5. A reading above 50 denotes expansion in activity and Markit said the solid improvement was led by a sharp increase in new work.

The Richmond Fed Manufacturing Activity Index unexpectedly jumped further into expansion territory (a reading above zero), rising to 12 for January from the 8 posted in December, and versus expectations of a 7 reading.

Treasuries finished lower, as the yield on the 2-year note rose 4 basis points to 1.19%, while the yields on the 10-year note and the 30-year bond advanced 6 bps to 2.46% and 3.05%, respectively.

Europe rebounds slightly, Asia mixed

European equities rebounded modestly, despite some mixed data in the region and as the global markets remained skittish after U.S. President Trump took actions yesterday to withdraw from the Trans-Pacific Partnership (TPP) and renegotiate the North American Free Trade Agreement (NAFTA). The British pound pared solid early losses and finished modestly lower versus the U.S. dollar amid festering “hard” Brexit uncertainty even as the U.K. Supreme Court ruled that the government will need parliamentary approval to start Brexit negotiations. The euro also dipped versus the greenback and bond yields in the region gained ground.

In economic news, Markit’s preliminary Eurozone Composite PMI Index—a gauge of business activity in both the manufacturing and services sectors—dipped to 54.3 in January, from 54.4 in December, and compared to the 54.5 reading that was expected. However, a reading above 50 denotes expansion.

Stocks in Asia finished mixed, with global sentiment remaining jittery amid U.S. President Donald Trump’s actions in the first few days following his inauguration that have caused protectionism concerns to flare up, notably yesterday’s executive order to withdraw from the Trans-Pacific Partnership (TPP). Japanese equities declined, with the U.S. trade concerns being met with the yen holding onto most of yesterday’s rally, overshadowing a report that showed growth in the nation’s manufacturing output accelerated slightly in January.

Mainland Chinese stocks and those traded in Hong Kong both rose, with the markets continuing to coast into the long Lunar New Year holiday break beginning at the end of the week. Markets in Australia advanced, buoyed by a rally in basic materials, while Indian securities gained solid ground following some upbeat earnings reports in the region and yesterday’s drop for the U.S. dollar. Finally, South Korean stocks finished flat.

Tomorrow’s international economic calendar will hold GDP from South Korea, trade data from Japan, CPI from Australia, confidence figures from France, PPI from Spain, the Ifo Business Climate Survey from Germany, and industrial orders and sales from Italy.