Stocks Up as Shutdown Looms

We're only a few weeks into 2018, and stocks are showing quite a strong performance so far. Last week, major domestic indexes posted gains yet again, with all three up at least 5% this year. By Friday, the S&P 500 had added another 0.86%, and both the Dow and NASDAQ were up 1.04%.[1] All three indexes hit new record highs at least once during the week.[2]   

In addition to the solid performance for U.S. equities, we're also experiencing synchronized global growth. European and Asian stocks grew last week, and China's growth data was more positive than expected.[3] Overall, international stocks in the MSCI EAFE added a healthy 1.24% last week. Year to date, the MSCI is up 4.95%.[4]

What happened last week?

Two key topics drove conversations: corporate earnings and a government shutdown.

1. Corporate Earnings

In the U.S., corporate earnings season dominated much of the economic news as reports continue to show companies doing well. For organizations that released their 4th-quarter results, 79% beat earnings projections and 89% exceeded sales estimates.[5]

2. Government Shutdown 

The Federal government shut down on Saturday morning, January 20th, after the House and Senate failed to pass a bill to extend funding. This shutdown is the first since 2013.[6]

How did these occurrences affect the markets?

While a potential shutdown loomed last week, overall, investors had little reaction to its possibility.[7] Volatility did increase last week as investors waited to see whether or not the House and Senate would reach a compromise on government funding.[8] However, the solid news from corporate earnings seemed to outweigh concerns about the Federal government.[9] Rather than focusing on drama in Washington, many traders are paying attention to the strength in U.S. corporations' fundamentals.[10]

As more data unfolds, we will continue to monitor the relationship between government policy and economic performance. As always, if you have any questions about how current events and market developments may be affecting you, contact us any time. 

ECONOMIC CALENDAR

  • Wednesday: Existing Home Sales
  • Thursday: New Home Sales, Jobless Claims
  • Friday: Durable Goods Orders, GDP

Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.

Diversification does not guarantee profit nor is it guaranteed to protect assets.

International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors.

The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.

The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ. The DJIA was invented by Charles Dow back in 1896.

The Nasdaq Composite is an index of the common stocks and similar securities listed on the NASDAQ stock market and is considered a broad indicator of the performance of stocks of technology companies and growth companies.

The MSCI EAFE Index was created by Morgan Stanley Capital International (MSCI) that serves as a benchmark of the performance in major international equity markets as represented by 21 major MSCI indices from Europe, Australia, and Southeast Asia.

The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.

Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

Past performance does not guarantee future results.

You cannot invest directly in an index.

Consult your financial professional before making any investment decision.

Fixed income investments are subject to various risks including changes in interest rates, credit quality, inflation risk, market valuations, prepayments, corporate events, tax ramifications and other factors.

These are the views of Platinum Advisor Marketing Strategies, LLC, and not necessarily those of the named Broker dealer or Investment Advisor, and should not be construed as investment advice. Neither the named Broker dealer or Investment Advisor gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your financial advisor for further information.

[1] http://performance.morningstar.com/Performance/index-c/performance-return.action?t=SPX®ion=usa&culture=en-US

http://performance.morningstar.com/Performance/index-c/performance-return.action?t=%21DJI®ion=usa&culture=en-US

http://performance.morningstar.com/Performance/index-c/performance-return.action?t=@CCO

[2] www.cnbc.com/2018/01/19/us-stocks-government-shutdown-earnings.html

[3] www.bloomberg.com/news/articles/2018-01-18/asian-stocks-face-mixed-start-treasuries-drop-markets-wrap

[4] www.msci.com/end-of-day-data-search

[5] www.cnbc.com/2018/01/19/us-stocks-government-shutdown-earnings.html

[6] www.marketwatch.com/story/shutdown-all-but-certain-at-midnight-as-spending-bill-lacks-votes-2018-01-19
[7] www.marketwatch.com/story/shutdown-all-but-certain-at-midnight-as-spending-bill-lacks-votes-2018-01-19

[8] www.cnbc.com/2018/01/19/us-stocks-government-shutdown-earnings.html

[9] www.marketwatch.com/story/shutdown-all-but-certain-at-midnight-as-spending-bill-lacks-votes-2018-01-19

[10] www.cnbc.com/2018/01/19/us-stocks-government-shutdown-earnings.html

Equities And Inflation Climb

Domestic markets continued their strong start to 2018, posting gains across the board for their 2nd week. The S&P 500 added 1.57% and closed at a new record high on Friday. The index just posted its best 10-day beginning to a year since 2003, with a 4.2% gain so far this year.[1] The Dow also hit a new record on Friday and gained 2.01% for the week.[2]The NASDAQ increased by 1.74%,[3] while international stocks in the MSCI EAFE joined last week's gains, adding 1.20%.[4]  

By week's end, we didn't receive a tremendous amount of economic data. However, the economy did provide details that reveal it continues to pick up speed. In particular, both corporate earnings and inflation appear to be on the rise.[5]  

What We Learned Last Week

1. Corporate Earnings Continue to Increase

Earnings season is upon us, and analysts expect the data will indicate strong corporate performance in the 4th quarter of 2017. Some projections show corporate earnings may have risen 11.2% between October and December last year. According to FactSet, each of the S&P 500's 11 sectors will likely record growth in both revenue and earnings. We haven't seen these kind of broad increases since 2011. 

In addition to gaining insight on last quarter's performance, this earnings season will provide perspectives on how large corporations expect tax reform to affect them.[6] As we make plans for 2018, this information will help inform our strategies. 

2. Inflation Is Accelerating

On Friday, the latest Consumer Price Index (CPI) data came out, showing an unanticipated uptick in core inflation.[7] At first glance, the inflation numbers don't seem particularly noteworthy. The CPI's December growth was 0.1%, and its annual rate was 2.1%, which met expectations. 

When digging a bit deeper, however, you'll see that the CPI rose at a 2.6% annual rate during the 4th quarter, significantly faster than the Fed's 2% inflation target. Even the "core" CPI numbers, which don't include the more volatile food and energy industries, have 2.5% annual growth over the past 3 months.[8] 

What This Information Means For You

Faster inflation, combined with our currently strong labor market and low unemployment, may mean interest rates will also pick up this year. With this latest CPI data, the Fed will likely increase rates at least three times in 2018.[9] 

Higher inflation may also impact stock performance. When Friday's CPI numbers first came out, stocks stumbled as some investors worried that economic growth could slow if the Fed raises rates too much. However, the strong corporate earnings data helped demonstrate our economy's vigor and reassure investors.[10] 

In short, we haven't experienced such strong inflation increases in quite some time. As more details around inflation and economic growth come out, we will continue to monitor how they may affect your financial life. If you have any questions about your specific strategies and needs, we are here to talk.  

ECONOMIC CALENDAR

  • Monday: Markets Closed for Martin Luther King Jr. Day
  • Wednesday: Industrial Production, Housing Market Index
  • Thursday: Housing Starts, Jobless Claims
  • Friday: Consumer Sentiment

Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.

Diversification does not guarantee profit nor is it guaranteed to protect assets.

International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors.

The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.

The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ. The DJIA was invented by Charles Dow back in 1896.

The Nasdaq Composite is an index of the common stocks and similar securities listed on the NASDAQ stock market and is considered a broad indicator of the performance of stocks of technology companies and growth companies. 

The MSCI EAFE Index was created by Morgan Stanley Capital International (MSCI) that serves as a benchmark of the performance in major international equity markets as represented by 21 major MSCI indices from Europe, Australia, and Southeast Asia. 

The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.

The Federal Reserve System (also known as the Federal Reserve and, informally, as the Fed) is the central banking system of the United States. The Federal Reserve System is composed of 12 regional Reserve banks which supervise state member banks. The Federal Reserve System controls the Federal Funds Rate (aka Fed Funds Rate), an important benchmark in financial markets used to influence the supply of money in the U.S. economy.

Inflation is the rise in the prices of goods and services, as happens when spending increases relative to the supply of goods on the market. 

Consumer Price Index (CPI) measures prices of a fixed basket of goods bought by a typical consumer, widely used as a cost-of-living benchmark, and uses January 1982 as the base year.

Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

Past performance does not guarantee future results.

You cannot invest directly in an index.

Consult your financial professional before making any investment decision.

Fixed income investments are subject to various risks including changes in interest rates, credit quality, inflation risk, market valuations, prepayments, corporate events, tax ramifications and other factors.

These are the views of Platinum Advisor Marketing Strategies, LLC, and not necessarily those of the named representative, Broker dealer or Investment Advisor, and should not be construed as investment advice. Neither the named representative nor the named Broker dealer or Investment Advisor gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your financial advisor for further information.

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[1] http://performance.morningstar.com/Performance/index-c/performance-return.action?t=SPX®ion=usa&culture=en-US

www.cnbc.com/2018/01/12/us-stocks-earnings-season-dow-jp-morgan.html

[2] http://performance.morningstar.com/Performance/index-c/performance-return.action?t=%21DJI®ion=usa&culture=en-US 

www.cnbc.com/2018/01/12/us-stocks-earnings-season-dow-jp-morgan.html

[3] http://performance.morningstar.com/Performance/index-c/performance-return.action?t=@CCO

[4] www.msci.com/end-of-day-data-search

[5] www.cnbc.com/2018/01/12/us-stocks-earnings-season-dow-jp-morgan.html

[6] www.cnbc.com/2018/01/12/us-stocks-earnings-season-dow-jp-morgan.html

www.cnbc.com/2018/01/11/earnings-season-is-underway-and-its-going-to-be-a-really-good-one.html
[7] www.bloomberg.com/news/articles/2018-01-11/asia-stocks-tipped-to-end-week-on-a-strong-note-markets-wrap

www.ftportfolios.com/Commentary/EconomicResearch/2018/1/12/the-consumer-price-index-rose-0.1percent-in-december

[8] www.ftportfolios.com/Commentary/EconomicResearch/2018/1/12/the-consumer-price-index-rose-0.1percent-in-december

[9] www.ftportfolios.com/Commentary/EconomicResearch/2018/1/12/the-consumer-price-index-rose-0.1percent-in-december

[10] www.bloomberg.com/news/articles/2018-01-11/asia-stocks-tipped-to-end-week-on-a-strong-note-markets-wrap