The Markets (as of market close January 27, 2017)
The Dow reached 20000 for the first time ever as favorable earnings reports coupled with anticipated pro-business policies apparently spurred trading, although a relatively weak GDP report at week’s end may have led to some pullback. Long-term bond prices remained stable as the yield on 10-year Treasuries climbed 2 basis points to 2.48%.
The price of crude oil (WTI) increased last week, closing at $53.12 per barrel, up from the prior week’s closing price of $52.33 per barrel. The price of gold (COMEX) fell, closing at $1,193.50 by late Friday afternoon, down from the prior week’s price of $1,207.40. The national average retail regular gasoline price decreased to $2.326 per gallon on January 23, 2017, $0.032 less than the prior week’s price but $0.470 more than a year ago.
Last Week’s Headlines
- The economy, as measured by the gross domestic product, slowed in the fourth quarter. A positive is the growth in personal consumption expenditures and private inventory investment. However, they were offset by a downturn in exports and acceleration in imports, leading to a widening trade deficit. Overall, while economic growth has been consistent since the recession of 2008, the average rate of expansion is the weakest since 1949.
- Orders for manufactured durable goods fell during the latter part of 2016.
- Lack of inventory and rising mortgage interest rates cooled existing home sales in December. Nevertheless, existing home sales finished 2016 at 5.45 million sales – the highest total since 2006. Last month’s median price for existing homes sold is a 4.0% increase over December 2015, marking the 58th consecutive month of year-over-year gains.
- Not only did existing home sales fall in December, but sales of new single-family homes also slid last month. The seasonally adjusted estimate of new houses for sale at the end of December was 259,000. This represents a supply of 5.8 months at the current sales rate.
- The trade deficit for goods (not including services) narrowed slightly in December, according to the Census Bureau’s advance report.
- Consumers are more confident in the economic future, according to the University of Michigan’s Surveys of Consumers. The only negative is in Current Economic Conditions, which fell slightly.
- In the week ended January 21, the advance figure for seasonally adjusted initial unemployment insurance claims was 259,000, an increase of 22,000 from the previous week’s revised level. This is the lowest level for this average since November 3, 1973, when it was 244,000.
Eye on the Week Ahead
This week is highlighted by the latest report on the employment situation for January. While the unemployment rate has remained low, wage and salary increases have moved at a slow rate. The move of the market we believe might be overdone for the moment as we look to see tangible effects of, and enactment into law, the proposed tax relief for individuals and corporations, along with ongoing fiscal stimulus. We remain cautiously optimistic about the future but have to be realistic about how much can be accomplished in the first half of the year. We do anticipate corporate earnings will improve versus last year but GDP only grew at 1.8% the last quarter of last year. Please join us in refraining from being overly optimistic as we assess how corporate and federal government sectors continue to pursue efficiency and growth. As always we are closely monitoring the Fed, corporate earnings and political outcomes in relationship to long-term term trends.