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In the Markets – Week-Ending January 27th

by Peter J. Creedon

Newsletter: In the Markets – Week-Ending January 27th 
Crystal Brook Advisors
We Make Financial Planning Crystal Clear

United States:  The LEI surged 0.5 percent in December, in line with the consensus forecast. This month’s release incorporates annual benchmark revisions to the composite economic indexes, which brings them up-to-date with revisions in source data. (1)  The topline number was buoyed by six of the ten underlying components, while only two categories exerted negative contributions; two other components saw no change. (1)  Leading the gains were the interest rate spread and stock prices, which boosted the index by 0.22 percentage points (its largest impact since Nov. 2015) and 0.15 percentage points respectively. (1)  Better prospects for growth also came from improving sentiment. Consumer expectations and ISM new orders also made major positive contributions, suggesting that improving economic sentiment gained momentum to close out 2016. (1)

Europe: Investors are gaining faith that the long-sluggish European economy is finally on an upswing. (2)  Yields on German 10-year government bonds rose to 0.49%, according to Tradeweb, closing at their highest level in a year, and French and Italian bond yields are at their highest since September and July 2015, respectively. By one measure, European stocks broadly are hovering at levels last seen in December 2015. (2)  Investors for months have been reacting to expectations for higher U.S. growth and inflation, and potentially higher U.S. interest rates. Now, they have set their focus on Europe, where economic data suggest the region will finally take part in a global economic recovery. (2)

Asia: Real GDP in China grew 6.8 percent on a year-ago basis in Q4-2016, the sixth consecutive quarter in which growth has been between 6.6 and 7.0 percent. Despite generally stable GDP growth over this period, money is clearly flowing out of China, as demonstrated by the $1 trillion decline in the government’s FX reserves since mid-2014. Not only have capital inflows softened, but Chinese companies and individuals are taking an increasing amount of money out of the country. In our view, the Chinese government will keep the depreciation of its currency “orderly”, at least for the foreseeable future, by a mixture of sales of its FX reserves and more stringent enforcement of capital controls. (1)

Latin America: On Thursday, Mexico President Enrique Peña Nieto canceled his meeting with Trump after the US President announced sweeping measures to begin construction on a border wall that Mexico has repeatedly expressed no interest in having or paying for. The White House later announced Trump wants to impose a 20% import tax on goods from Mexico to pay for the wall, effectively ending the North American Free Trade Agreement. (3)  On top of plans to build a wall and deport undocumented immigrants, President Trump is also threatening companies in Mexico with a 35% “border tax.” (3)

Monday 1/23
  • The Dow Jones Industrial Average DJIA, +0.16%  closed down 27.40 points, or 0.1%, at 19,799.85, with General Electric Co. GE, -0.16% shares leading losses with a 2.6% decline. Earlier, the blue-chip average had been off by as many as 95 points. Another Dow component McDonald’s Corp. MCD, +0.07%  also weighed even after the fast-food giant reported earnings that beat expectations. (4)
Tuesday 1/24
  • The stock market pushed to all-time highs at the close Tuesday in a broad-based rally capped off with a leading 1.7% rise in the Russell 2000. (5) The Nasdaq rallied 0.9%, reaching a new all-time high, while the S&P 500 and Dow Jones industrial average both followed up with 0.6% gains, moving the blue-chip index within striking distance of 20,000. (5)
Wednesday 1/25
  • The Dow Jones industrial average cruised past another milestone Wednesday — the 20,000 level, further evidence of the long bull market that has lifted share prices since the depths of the financial crisis. (6) The index closed at a record 20,068. Since the November elections, the Dow and the broader S&P 500 are up 9.5 percent and 7.4 percent, respectively. (6)
Thursday 1/26
  • The Dow eked out a tiny gain a day after closing above 20,000 for the first time. The broader U.S. stock indexes posted slight losses. More stocks fell than rose on the New York Stock Exchange. Financial stocks led the gainers, while health care companies lagged the most. (7)
Friday 1/27
  • The Dow Jones industrial average slipped 10 points but held above 20,000, with Chevron and Goldman Sachs (GS) contributing the most losses. Chevron shares declined after the firm reported disappointing quarterly results. (8)

Market Close

  • U.S. equities closed mixed on Friday after the initial fourth-quarter GDP read fell short of estimates, but managed to record weekly gains of around 1 percent. (8)

 

Contributor: Thomas Padula

Sources:  (1),Wells Fargo Economics Group (2),Wall Street Journal  (3),CNN (4),Market Watch (5),Investor’s Business Daily (6), NPR (7) ABC news ,(8), Yahoo Finance