August 1, 2016

Stocks Close Mixed on GDP Disappointment

Stocks Close Mixed on GDP Disappointment WEEKLY UPDATE – August 1, 2016 Stocks broke their four-week winning streak, closing mixed after the release of a surprisingly low estimate of second-quarter economic growth. For the week, the S&P 500 lost 0.07%, the Dow fell 0.75%, the NASDAQ grew 1.22%, and the MSCI EAFE added 2.36%.[1] The preliminary estimate of Q2 Gross Domestic Product (GDP) growth showed that the economy grew a paltry 1.2% last quarter versus the 2.6% growth expected.[2] Investors were understandably disappointed as they had hoped for a resurgence after a slow first quarter. Professional economists were also surprised. The New York Fed had forecasted GDP growth of 2.1% and the Atlanta Fed had predicted 2.3% growth.[3] Why the surprise? Digging deeper into the data, we find that the disappointment came from an unexpected fall in business inventories. On the positive side, the drop may boost future economic growth as businesses rebuild their stockpiles. Consumer spending was strong, growing 4.2% over the previous 12 months, and accounting for nearly all the GDP growth we saw.[4] So, though the headline number was a letdown, the underlying trends in consumer spending, labor market growth, and higher savings rates could set up a banner […]
July 25, 2016

S&P 500 Closes at Another New Record

S&P 500 Closes at Another New Record WEEKLY UPDATE – JULY 25, 2016 Stocks ended a fourth straight week of gains, sending the S&P 500 index to another record high.[1] For the week, the S&P 500 gained 0.61%, the Dow grew 0.29%, the NASDAQ added 1.40%, and the MSCI EAFE closed flat.[2] Second-quarter earnings season is in full swing, and the picture thus far is much like that of the last four quarters: uninspiring performance eked out on very little revenue growth. However, there are some encouraging signs that could presage better performance in the months to come. As of July 22nd, we have data from 126 S&P 500 companies, accounting for almost one-third of the index’s total capitalization. Overall Q2 earnings for these companies are down 1.1% from the second quarter of last year on 2.6% lower revenues. However, over 70% have managed to beat earnings estimates, indicating that managers did a good job of setting the bar low.[3] There are also plenty of revenue surprises from firms that saw more demand than expected. Though it’s disappointing to see another quarter of negative growth, the picture for U.S. firms appears to be improving. Revenue growth is tracking above what we […]
July 12, 2016

S&P Tests New High on Jobs Surge

S&P Tests New High on Jobs Surge WEEKLY UPDATE – JULY 11, 2016 Markets surged last week after a surprising June jobs report buoyed investor sentiment. The S&P 500 came within a hair of a new record close on the news. For the week, the S&P 500 grew 1.28%, the Dow gained 1.10%, the NASDAQ added 1.94%, and the MSCI EAFE fell 1.76%.[1] Stocks surged after Friday’s better-than-expected June jobs report. The S&P 500 closed Friday at 2,129.90, less than a point from its record closing high of 2,130.82 reached in May 2015.[2]  The rally was broad-based, and we’re happy to see that investors are shaking off global worries by responding to success stories at home. After disappointing April and May jobs reports introduced worries of a labor market slowdown, the June report showed that the economy added 287,000 new jobs last month. Since expectations called for around 165,000 jobs, investors counted the report as a solid win for the economy.[3] How many jobs does the economy need to support sustainable growth?According to a survey of Wall Street Journal economists, the break-even number for sustainable labor growth could be an average of 145,000 new jobs per month. Fewer new jobs, […]
June 20, 2016

Fed Blinks on Brexit Fears – Financially Simple

Fed Blinks on Brexit Fears WEEKLY UPDATE – JUNE 20, 2016 Markets fell on Brexit fears and concerns about the Fed’s dovish statements, giving the Dow its worst week in a month.[1] For the week, the S&P 500 slipped 1.19%, the Dow fell 1.06%, the NASDAQ dropped 1.92%, and the MSCI EAFE lost 2.78%.[2] The big news last week was the Federal Reserve’s decision not to raise interest rates. The decision wasn’t a surprise; just before the announcement, traders had assigned just a 1.9% chance of a June rate increase.[3] Looking at the official statement, we can see that the Fed is concerned enough about a slowdown in the labor market and persistently low economic growth to hold off on raising rates.[4] However, the Fed largely hasn’t changed its forecasts for economic growth or unemployment, indicating that its concerns may be short-term.[5] Is that decision a reflection of the data or a political move designed to support its vision of a healthy economy? It’s hard to say. A July rate increase is still possible though traders don’t seem to buy it. Current probabilities of a July rate hike sit at just 7.0%.[6] What would need to happen for the Fed to move in […]