Weekly Market Commentary, January 30, 2017

January 31, 2017  | By Robare & Jones

The Markets

An historic moment for U.S. stock markets…

The Dow Jones Industrial Average surpassed 20,000 last week. Barron’s cautioned investors not to make too much of the milestone since, “There are only 30 stocks in the index so each one carries a lot of weight.”

Regardless of the significance of the Dow’s move, U.S. stock markets generally were upbeat about President Trump’s first week in office. Financial Times reported ‘animal spirits’ – a term British economist John Maynard Keynes used to describe the emotions that drive consumer and investor confidence – returned as rapid executive action indicated the new President would follow through on campaign promises, including infrastructure spending.

“However, the Trump trade – reflecting hopes of tax cuts, higher infrastructure spending, and an easing in business regulation – that had dominated financial markets since November also underwent a subtle shift this week. While financial shares still shone, it was sectors that will benefit from infrastructure spending and cope with higher inflation that led the way. Up 3.4 percent, the materials sector was the best performer on the S&P 500 with miners also seeing gains.”

Concerns about trade protectionism and rising inflation lingered.

U.S. stocks upward move was also supported by earnings growth. At the end of each quarter, companies report their earnings (which indicate how much profit they made during the period). FactSet reported 34 percent of companies in the Standard & Poor’s 500 Index have reported fourth quarter earnings, so far. Altogether, earnings are 2.7 percent above the estimates, although they remain below the five-year average.

Markets could be in for a bumpy ride next week as investors weigh in on President Trump’s immigration ban. Bloomberg reported one large technology company, “…inserted language in a securities filing on Thursday on the issue, cautioning investors that immigration restrictions ‘may inhibit our ability to adequately staff our research and development efforts.’”

 

Data as of 01/27/2017 1-week YTD 1-Year 3-Year 5-Year 10-Year
Standard & Poor's 500 (Domestic Stocks) 1.0% 2.5% 21.9% 8.8% 11.8% 4.9%
Dow Jones Global ex-U.S. 1.6 4.1 15.3 -1.0 2.3 -0.9
10-year Treasury Note (Yield Only) 2.5 NA 2.0 2.8 1.9 4.9
Gold (per ounce) -1.3 2.2 6.2 -2.0 -7.3 6.3
Bloomberg Commodity Index -0.5 0.5 15.6 -11.2 -9.7 -5.8
DJ Equity All REIT Total Return Index -0.8 0.0 14.4 12.3 10.5 4.3

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

 

Other news this week

Below are some areas of the market we paid particularly close attention to this week. For further information, see the follow the links:
UK economy grows by 0.6% in fourth quarter

Initial estimates suggest that U.K. GDP increased 0.6 percent in Q4 2016, in line with the pre-Brexit pace. Britain’s optimistic consumer spending supported expansion in important, dominant sectors. The resilience could symbolize the citizens’ faith in the U.K. with Brexit talks in the near future.
Oil up two percent on stock market, but U.S. supply caps gains

Oil prices stayed well above the $50 level despite a significant increase in U.S. supply. U.S. crude inventory increased by 2.8 million barrels last week. However, there remains concerns that rising U.S. inventories could derail OPEC’s efforts to reduce the supply glut and bring balance to the market.
U.S. new home sales fall; weekly jobless claims rise

New single-family home sales declined 10.4 percent in December from November, though this segment only accounts for 8.9 percent of overall home sales. For context, the fixed 30-year mortgage stood at 4.2 percent in December, up 0.43 percent from November. While future rate hikes by the Fed will increase the cost of home buying, a tightening labor market could boost wage growth, allowing consumers to weather the increase.
Dollar climbs more after Trump’s Mexico comments

U.S.-Mexico relations were tested further as President Trump proposed to pay for the southern border wall by imposing a 20 percent tax on goods from Mexico, possibly igniting a trade war and sending the currencies on a rollercoaster ride.

 

Astrodome gets Texas landmark status

The Texas Historical Commission voted Jan. 27 to make the Astrodome a State Antiquities Landmark. The designation request had been pending since April 2014.

Houston’s Astrodome joins other designated sites such as the Alamo in San Antonio, the State Capitol in Austin and the Cotton Bowl in Dallas.

The new designation means that the Astrodome cannot be removed, altered, damaged, salvaged or excavated without a permit from the Texas Historical Commission. The news comes just as the design phase starts for a multimillion-dollar redevelopment plan for the Astrodome. (Houston Business Journal)