The H Group Blog

Investment and Financial Planning news from some of the best in the business.

Weekly Review - January 3, 2017

Weekly Review - January 3, 2017

Guest Post - Tuesday, January 03, 2017

Summary

The last week of the year was another slow one for economic releases, with a key industrial index and pending home sales down a bit, while consumer confidence improved.

Equity markets in the U.S. took a breather for the week following a post-election streak of positive weeks, while foreign markets gained ground—especially in emerging markets. Bond markets gained as interest rates retreated from highs achieved over the past several weeks. Commodity indexes rose a bit with a weaker dollar and higher oil prices.

Economic Notes

(0) The Chicago PMI survey for December ticked down -3 points to 54.6, but remained solidly in expansionary territory. New orders, production and order backlogs declined during the month, the latter of which moved down into contractionary territory, as did inventories. Anecdotally, questions about the new administration resulted in about half of respondents expecting business prospects to improve in coming years (notably due to tax reforms and a lessened regulatory burden) while most of the other half expected no change. Overall, over the course of 2016, this measure shows positive economic momentum.

(+) The S&P/Case Shiller home price index for October rose +0.6%, which surpassed expectations by a tenth of a percent. Prices rose in all twenty cities in the index, although seasonal adjustments could be a factor in the shorter-term results. Year-over-year, home prices gained +5.1%, which remains in strong territory.

(-) Pending home sales for November declined by -2.5%, which fell below expectations for a +0.5% increase. The West suffered the worst declines, down -7%, while declines in the Midwest and South ended up a bit more tempered, and rose in the Northeast. This looks like a negative for existing home sales for the next few months.

(+) The Conference Board consumer confidence survey for December rose by +4.3 points to 113.7, rather than a slight decline to 109 as expected. Readings of present conditions declined by -6 points while future expectations rose by +11 points. The labor differential, which measures the plentifulness of jobs, also declined by a few points. Anecdotally, post-election optimism for jobs and the economy was noted as a factor in the confidence increase.

(0) Initial jobless claims for the Dec. 24 ending week fell to 265k, down -10k from the prior week and right on target with forecast. Continuing claims for the Dec. 17 week rose by +63k to 2,102k, which was a bit higher than the decline to 2,027k expected. Then again, the Holidays can prove to be a difficult time for seasonal adjustments, and this may have played a role in the result, which may begin to normalize again in January.

Market Notes

Period ending 12/30/2016

1 Week (%)

YTD (%)

DJIA

-0.86

16.50

 

S&P 500

-1.08

11.96

Russell 2000

-0.97

21.31

MSCI-EAFE

0.61

1.00

MSCI-EM

2.46

8.58

BarCap U.S. Aggregate

0.66

2.65

U.S. Treasury Yields

3 Mo.

2 Yr.

5 Yr.

10 Yr.

30 Yr.

12/31/2015

0.16

1.06

1.76

2.27

3.01

12/31/2016

0.52

1.22

2.04

2.55

3.12

12/30/2016

0.51

1.20

1.93

2.45

3.06

In a slow Holiday trading week, U.S. stocks ended the week lower, for the first time since early November. The last week or two of the year tends to be a little unusual, with a variety of calendar year factors at play, including tax loss harvesting sales, portfolio re-balancing as well as "window dressing," which is a well-discussed phenomenon of investment managers padding their portfolios with ‘winners’ from the year in order to please readers of year-end reports. From a sector perspective, defensive healthcare, telecom and utilities experienced minimal losses, while technology and financials pulled back the most.

Overseas, Europe and the U.K. gained ground, while Japan experienced negative returns for the week. Despite the slow week, the key news has been from Italy, where the troubled bank Monte dei Paschi di Siena is requiring billions in bailout capital (and more than initially expected). The concern is that there are more banks to come, requiring taxpayer support from a nation already in a difficult financial pinch. In Japan, deflationary results continued, as did poor results from consumer spending, which sourced sentiment. Expectations there continue to be quite low, with hopes now hinging on some improvement in quarters ahead for signs of life.

U.S. bond prices saw a boost as interest rates fell back from their recent highs, as the bellwether 10-year treasury fell back below the key 2.5% level. As expected, longer duration treasuries and investment-grade credit benefited the most, some near or over +1%, while intermediate-debt, munis and high yield gains were more tempered. Foreign bonds in developed and emerging markets were flattish in local terms, but a weaker dollar helped boost these results.

Real estate bucked the trend of other equities by gaining significant ground for the week, and likely helped by a drop in interest rates. All regions performed positively, with developed Asia, and U.S. healthcare and industrials. For the full year, real estate was one of the more divergent asset classes with +20% gains in more cyclical segments, while other areas, such as the U.K. and retail/malls suffered with severe declines.

Commodities rose a bit for the week, with positive returns in the energy, agriculture and precious metals groups, while the industrial metals segment declined. In a welcome turn compared to results from the past several years, the commodities asset class earned double-digit returns in 2016.

Sources: FocusPoint Solutions, American Association for Individual Investors (AAII), Associated Press, Barclays Capital, Bloomberg, Deutsche Bank, FactSet, Financial Times, Goldman Sachs, JPMorgan Asset Management, Kiplinger's, Marketfield Asset Management, Minyanville, Morgan Stanley, MSCI, Morningstar, Northern Trust, Oppenheimer Funds, Payden & Rygel, PIMCO, Rafferty Capital Markets, LLC, Schroder's, Standard & Poor's, The Conference Board, Thomson Reuters, U.S. Bureau of Economic Analysis, U.S. Federal Reserve, Wells Capital Management, Yahoo!, Zacks Investment Research. Index performance is shown as total return, which includes dividends, with the exception of MSCI-EM, which is quoted as price return/excluding dividends. Performance for the MSCI-EAFE and MSCI-EM indexes is quoted in U.S. Dollar investor terms.

The information above has been obtained from sources considered reliable, but no representation is made as to its completeness, accuracy or timeliness. All information and opinions expressed are subject to change without notice. Information provided in this report is not intended to be, and should not be construed as, investment, legal or tax advice; and does not constitute an offer, or a solicitation of any offer, to buy or sell any security, investment or other product. FocusPoint Solutions, Inc. is a registered investment advisor.

Notes key: (+) positive/encouraging development, (0) neutral/inconclusive/no net effect, (-) negative/discouraging development.

Additional Reading

Read the previous Weekly Review for December 27, 2016.

Trackback Link
http://www.thehgroup.com/BlogRetrieve.aspx?BlogID=17607&PostID=1487696&A=Trackback
Trackbacks
Post has no trackbacks.

* Required





Subscribe to: The H Group SALEM Mailing List

Archive


Recent Posts