Volatility Returns to Markets

Early last week, both the S&P and NASDAQ recorded all time highs before tumbling along with the Dow as political concerns rose.[1] By Friday, though, the markets had largely rebounded and steadied. The S&P 500 closed the week down 0.38%; the Dow saw a 0.44% loss; and the NASDAQ reported a 0.61% decline.[2] The MSCI EAFE reported up 0.79% for the week.[3]

The CBOE VIX is designed to measure market volatility by using S&P 500 put and call index option prices.[4] For most of the year, volatility in the markets has been low. However, the CBOE Volatility Index (VIX) spiked 40% midweek before falling back by week's end, indicating a possible increase in market volatility.[5]

Through the week's ups and downs, investors followed some other important economic developments.

LAST WEEK'S DEVELOPMENTS:

  • Solid Regional Business Index

The Philadelphia Fed Business Outlook Survey again pointed to progress in the factory sector. While the consensus range was 16.0 - 25.0, the General Business Conditions Index-Level reported 38.8.[6]

  • Strong Corporate Earnings

With 90% of S&P 500 company Q1 earnings reports in, the earnings growth rate for S&P 500 companies remains bright with an average increase of 13.6%.[7] The softening U.S. dollar -- down 5% so far in 2017 -- is helping companies that sell overseas. A weaker dollar will help companies with foreign earnings, as those earnings are more valuable when converted into U.S. dollars.[8]

  • Mixed Housing Reports

New home sales remained strong as the housing market index rose 2 points to 70. The data came out well ahead of the 65 - 69 consensus range.[9] However, April housing starts were lower than expected. Housing starts are now at a 1.172 million annualized rate, after falling 2.6%.[10]

  • Household Debt Rises

Total household debt rose to a new high, reporting a $149 billion increase to come in at $12.73 trillion.[11] Student loans and auto loans were major contributors to the rising debt:

  • Student loans now make up about 10.6% of all U.S. household debt, rising to $1.3 trillion. Comparatively, in 2003, student loans only accounted for 3.3% of total household debt.[12]
  • Auto loans tighten as balances rose by 0.9%.[13] Auto debt that is overdue by more than 90 days increased to 3.82% of total auto loans in Q1, the highest percentage in four years.[14]

WHAT'S AHEAD

Economy
Manufacturing output rose 1.0 percent in April, the strongest monthly result in over 3 years. As such, investors will track how the rest of the second quarter shakes out.[15] In addition, we will be interested in this week's housing reports, hoping for a better handle on where this up-and-down sector is heading.

Geopolitical
Financial markets could experience some headwinds as geopolitical situations fester. Concerns over North Korea and political opposition to globalization remain.[16] In addition, Brazil is facing political disruption and a deep recession that could mean problems for companies with business interests in that country.[17] Similarly, continuing political challenges for the current U.S. administration may adversely affect proposed tax reform, health-care legislation, and infrastructure initiatives.[18]

As always, we will continue keeping abreast of market and economic updates. We encourage you to focus on your long-term financial outlook. Should you have any questions, we are happy to help.

ECONOMIC CALENDAR

  • Tuesday:  New Home Sales
  • Wednesday:  Existing Home Sales
  • Friday: Durable Goods Orders, 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 S&P/Case-Shiller Home Price Indices are the leading measures of U.S. residential real estate prices, tracking changes in the value of residential real estate. The index is made up of measures of real estate prices in 20 cities and weighted to produce the index.

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://www.cnbc.com/2017/05/15/us-markets.html

http://www.cnbc.com/2017/05/17/us-markets.html?__source=newsletter%7Ceveningbrief

[2] 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

[3] https://www.msci.com/end-of-day-data-search

[4] http://www.cboe.com/products/vix-index-volatility/vix-options-and-futures/vix-index

[5] http://www.cnbc.com/2017/05/17/us-markets.html?__source=newsletter%7Ceveningbrief

[6] http://wsj-us.econoday.com/byshoweventfull.asp?fid=478000&cust=wsj-us&year=2017&lid=0&prev=/byweek.asp#top

[7] http://insight.factset.com/earningsinsight_05.15.17?utm_source=hs_email&utm_medium=email&utm_content=51941757&_hsenc=p2ANqtz-9eNv2A2JLLlIV82w08kDkTB-ZDscX04wcw6Yg-80KRQ484SHQThu4Df5QMprmvAAokV0jfebS1NMTKaDbrwrA18vqEYQ&_hsmi=51941757

[8] http://www.reuters.com/article/us-usa-stocks-weekahead-idUSKCN18F2FA

[9] http://wsj-us.econoday.com/byshoweventfull.asp?fid=477675&cust=wsj-us&year=2017&lid=0&prev=/byweek.asp#top

[10] http://wsj-us.econoday.com/byshoweventfull.asp?fid=477687&cust=wsj-us&year=2017&lid=0&prev=/byweek.asp#top

[11] https://www.newyorkfed.org/microeconomics/hhdc

[12] https://www.bloomberg.com/news/articles/2017-05-18/student-debt-is-eating-your-household-budget

[13] https://www.newyorkfed.org/microeconomics/hhdc

[14] https://www.bloomberg.com/news/articles/2017-05-17/banks-tighten-auto-lending-as-more-borrowers-fall-into-
default cmpid=BBD051717_BIZ&utm_medium=email&utm_source=newsletter&utm_term=170517&
utm_campaign=bloombergdaily

Markets Ignore the Politics

Markets tuned out noise from Washington last week and continued to focus on economic fundamentals. Mildly rebounding retail sales and strong consumer sentiment seem to point toward a modestly stronger second quarter.[1]

After a three-week winning streak, both the Dow and S&P 500 reported slight losses.[2] The Dow closed with a 0.53% loss, and the S&P 500 reported a 0.35% decline for the week.[3] The NASDAQ, however, rose 0.34% while the MSCI EAFE reported a modest 0.16% gain.[4]

MIXED SIGNALS CONTINUE

  • Soft retail earnings

Consumer retail purchases were up after a first-quarter decline. Sales rose by 0.4% (just shy of the 0.6% consensus), and 9 of the 13 retail categories posted gains.[5]  As expected, early second-quarter gains suggest the first-quarter decline was just a blip.[6]

  • Continuing concerns over store closings

A report last month concluded that in excess of 8,600 brick-and-mortar stores could close in 2017 due to poor sales. Last year, at least 2,000 stores shut their doors, while just over 5,000 closed in 2015. The record for store closings occurred in 2008 when over 6,000 stores closed.[7]

  • Strong consumer sentiment

Despite modest retail sales, consumer confidence reached a 4-month high.[8] Consumer expectations are positive regarding job growth, income, and low inflation.[9] Furthermore, 44% of surveyed consumers expressed optimism in their financial prospects, the highest percentage since 2004.[10]

  • U.S. consumer prices rise in line with expectations

The consumer price index rose 0.2% in April, in line with expectations for the month.[11] However, the medical care and communications sectors saw continuing price weakness.[12]

LOOKING AHEAD

This week, we will look forward to data regarding the strength of the housing market. Though the highest percent of consumers in over 10 years report positive opinions on selling homes, next week's numbers will give us a better idea of where the markets stand.[13] Finally, the market will continue to watch oil prices, which steadied this week after three weeks of decline.[14] 

In the weeks ahead, possible corporate tax rate reductions and potential trade policy changes will remain in focus for markets. In addition, markets will remain interested in the Fed's interest rate plans and its plan to reduce its $4.5 trillion balance sheet.[15]

As always, we will continue to track the impact of international and domestic political news on the markets and the economy.

ECONOMIC CALENDAR

  • Monday: Housing Market Index
  • Tuesday: Housing Starts, Industrial Production
  • Wednesday: EIA Petroleum Status Report
  • Friday: Philadelphia Fed Business Outlook Survey

 


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 S&P/Case-Shiller Home Price Indices are the leading measures of U.S. residential real estate prices, tracking changes in the value of residential real estate. The index is made up of measures of real estate prices in 20 cities and weighted to produce the index.

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 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://wsj-us.econoday.com/byshoweventfull.asp?fid=477711&cust=wsj-us&year=2017&lid=0&prev=/byweek.asp#top 

[2] http://www.cnbc.com/2017/05/12/us-markets.html

https://www.bloomberg.com/news/articles/2017-05-12/gain-in-u-s-retail-sales-suggests-slowdown-was-temporary 

[3] 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=SPX®ion=usa&culture=en-US 

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

https://www.msci.com/end-of-day-data-search 

[5] http://wsj-us.econoday.com/byshoweventfull.asp?fid=477711&cust=wsj-us&year=2017&lid=0&prev=/byweek.asp#top 

https://www.bloomberg.com/news/articles/2017-05-12/it-s-back-to-steady-for-u-s-economy-as-retail-sales-cpi-rise 

[6] https://www.bloomberg.com/news/articles/2017-05-12/gain-in-u-s-retail-sales-suggests-slowdown-was-temporary 

[7]  http://money.cnn.com/2017/04/22/news/credit-suisse-retail/ 

[8] https://www.bloomberg.com/news/articles/2017-05-12/four-month-high-in-u-s-consumer-sentiment-to-sustain-spending

[9] http://wsj-us.econoday.com/byshoweventfull.asp?fid=477843&cust=wsj-us&year=2017&lid=0&prev=/byweek.asp#top 

[10] https://www.bloomberg.com/news/articles/2017-05-12/four-month-high-in-u-s-consumer-sentiment-to-sustain-spending 

[11] http://wsj-us.econoday.com/byshoweventfull.asp?fid=477394&cust=wsj-us&year=2017&lid=0&prev=/byweek.asp#top 

[12] https://www.bloomberg.com/news/articles/2017-05-12/rebound-in-u-s-consumer-prices-shows-inflation-stabilizing 

[13] https://www.bloomberg.com/news/articles/2017-05-12/four-month-high-in-u-s-consumer-sentiment-to-sustain-spending 

http://wsj-us.econoday.com/byshoweventfull.asp?fid=477675&cust=wsj-us&year=2017&lid=0&prev=/byweek.asp#top 

[14] http://www.cnbc.com/2017/05/11/oil-stable-on-expectations-of-extended-opec-led-production-cut.html 

[15] http://www.cnbc.com/2017/03/15/fed-raises-rates-at-march-meeting.html
http://www.reuters.com/article/usa-fed-evans-idUSS8N1F901E