Weekly Market Commentary, January 10, 2017

January 10, 2017  | By Robare & Jones

The Markets

Bullish sentiment helped world equity markets get off to a fast start last week. Just name a country or region – developed markets, emerging markets, the United States, Latin America, Asia, Europe, the United Kingdom – and it’s likely the area’s benchmark index may have been up for the week.

Not everyone was in the bullish camp, though. Barron’s reported:

“The market optimism is understandable. After a long spell of zero interest rates, a baton transfer from monetary manipulation to fiscal stimulus and pro-growth chutzpah can be an exciting regime change…But investors’ hopes could be misplaced. It would be one thing if there were shovel-ready infrastructure projects or proposed tax cuts on the table that could quickly boost spending. Instead, Republicans propose, for example, changing the basis for corporate tax from location of operations to location of sales. The aim is to encourage domestic production and exports, but the plan could hurt companies that import materials or goods. Will big importers like [big box stores] pass the tax hit onto consumers by raising prices?”

For contrarians, record highs for U.S. stock markets (both the Standard & Poor’s 500 Index and NASDAQ closed at new highs last week) and strong bullish sentiment (Barron’s reported, “The Investors Intelligence survey of newsletter writers showed the bullish herd swelling above 60 percent…”) are red flags, signaling an inflection point may be near.

No matter which camp you fall into, there is a lot of uncertainty. Which policies will the new administration pursue? Will China’s growth slow more quickly than expected? How quickly will the Federal Reserve raise rates? Will interest rates continue to move higher? Will a stronger dollar negatively affect emerging markets? In the face of so much uncertainty, it’s important to be diversified.

Data as of 01/06/2017 1-week YTD 1-Year 3-Year 5-Year 10-Year
Standard & Poor's 500 (Domestic Stocks) 1.7% 1.7% 14.4% 7.6% 12.3% 4.9%
Dow Jones Global ex-U.S. 2.0 2.0 8.3 -2.4 3.3 -0.9
10-year Treasury Note (Yield Only) 2.4 NA 2.2 3.0 2.0 4.7
Gold (per ounce) 1.5 1.5 7.7 -1.9 -6.2 6.8
Bloomberg Commodity Index -0.2 -0.2 14.0 -11.3 -9.3 -5.7
DJ Equity All REIT Total Return Index 2.0 2.0 10.6 13.2 12.4 5.4

S&P 500, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT Total Return Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.

Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association.

Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.

Download Market Data Table

What Are We Reading?

Below are some areas of the market we paid particularly close attention to this week. For further information, we encourage our readers to follow the links:

Beware the Foreign Exodus from Treasuries
Major foreign buyers of U.S. Treasuries have been reducing their holdings at an accelerating rate in order to defend their own foreign exchange markets. This is an important dynamic because it makes it more difficult for these bonds to rally, even if investors flock to these securities in the wake of potentially negative news.

Oil Pares Gains on Bearish Inventory Report
Crude inventories declined the end of December, handily beating analysts’ expectations. However, it was overshadowed by an unexpectedly large build in gasoline stockpiles, signaling weak demand for oil’s byproducts. Such news could weigh on the price in spite of the recent OPEC production agreement.

Fed minutes: If economy heats up, rate hikes may accelerate
According to the minutes of the Federal Reserve’s December meeting, officials expect Trump’s policies to result in somewhat faster economic growth over the next several years and suggested the possibility of raising rates at a more frequent pace than the bank’s earlier comments. However, the Fed plans on taking a wait-and-see approach to avoid raising rates too soon and stunting growth. We would note the Fed originally projected four increases in 2016, only achieving one.

 

Fun Story of the Week

Robots: some people love them and others hate them. Whether your first experience was with the Terminator or Wall-e, there’s one robot we can all get behind. It’s called the Frobot. Able to run 21-hours straight and only needing three to restock, the Frobot is a leap forward for the frozen yogurt industry. The machine comes installed with a touch screen interface which makes choosing your favorite flavor and topping as easy as a couple selections and the swipe of a credit card. What’s more, the Frobot, featured on The Washington Post, NPR, and Business Insider, comes with everything a froyo fan needs to grab and go including cups, spoons, and napkins. The D.C.-based team behind this revolutionary vending machine is looking to capitalize on the explosive growth of frozen yogurt chains like Pinkberry and Yogurtland and has startup cost of just $30,000 but is not limited by brick and mortar locations.

Sources

http://www.barrons.com/articles/cheering-and-fearing-the-post-trump-rally-1483767229?mod=BOL_hp_we_columns (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/01-09-17_Barrons-Cheering_and_Fearing_the_Post-Trump_Rally-Footnote_1.pdf)

http://www.barrons.com/mdc/public/page/9_3063-economicCalendar.html?mod=BOL_Nav_MAR_hps (Click on U.S. & Intl Recaps, then on “Equities rise to the occasion”) (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/01-09-17_Barrons-Global_Stock_Market_Recap-Footnote_2.pdf)

http://www.reuters.com/article/emerging-markets-latam-idUSL1N1EW1QN

http://www.barrons.com/articles/no-cigar-yet-dow-stops-short-of-20-000-1483767234 (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/01-09-17_Barrons-No_Cigar_Yet-Dow_Stops_Short_of_20000-Footnote_4.pdf)

https://www.sba.gov/sites/default/files/advocacy/all_profiles_10_18_16.pdf

http://www.aarp.org/money/taxes/info-2016/tax-issues-for-independent-workers.html?intcmp=AE-MON-MAIN-TAXS-SPOT2

http://cdn.modernfarmer.com/wp-content/uploads/2016/02/berry2.jpg

https://www.investing.com/commodities/gold-historical-data

http://www.wsj.com/articles/offshore-yuan-borrowing-rate-jumps-to-second-highest-level-1483595388

http://www.wsj.com/articles/gold-prices-edge-lower-after-u-s-jobs-data-1483711608

http://www.cnbc.com/2017/01/06/nonfarm-payrolls-dec-2016.html

http://www.cnbc.com/2017/01/06/us-markets.html

http://gizmodo.com/we-need-to-be-inventing-more-robots-that-serve-humans-d-1790822294