The Markets (as of market close March 3, 2017)

Following President’s speech to Congress last Tuesday evening, stocks soared Wednesday before retreating Thursday and Friday while bond yields soared, possibly in response to Fed Chair Janet Yellen’s indication that interest rates are likely to be raised when the Committee next meets later this month.

The price of crude oil (WTI) dropped, closing at $53.20 per barrel, down from the prior week’s closing price of $54.03 per barrel. The price of gold (COMEX) also fell, closing at $1,235.00 by late Friday afternoon, down from the prior week’s price of $1,258.00. The national average retail regular gasoline price increased to $2.313 per gallon on February 27, 2017, $0.012 above the prior week’s price and $0.531 more than a year ago.

Last Week’s Headlines

  • The second estimate of the fourth-quarter GDP saw little change from the first estimate. The GDP expanded at an annual rate of 1.9% — the same rate as first estimate. The third-quarter GDP increased at an annual rate of 3.5%, which was the strongest reading in two years. Consumer spending continued to increase as the personal consumption expenditures (PCE) price index increased 1.9% in the fourth quarter, compared with an increase of 1.5% in the third quarter. From the fourth quarter 2015 to the fourth quarter 2016, the PCE price index has expanded at a rate of 3.0%.
  • Consumer income and spending continued to rise in January, according to the latest report from the Bureau of Economic Analysis. Personal income increased $63.0 billion, or 0.4%, in January over December. The increase was fueled by a rise in wages and salaries, which increased by $43.8 billion. After-tax income (disposable personal income) rose $40.1 billion, or 0.3%, and personal consumption expenditures, a measure of what consumers are spending, increased $22.2 billion, or 0.2%. Personal income increased 3.6% in 2016 (that is, from the 2015 annual level to the 2016 annual level). Disposable personal income climbed 3.9% over the same period, while personal consumption expenditures increased 3.8%. The personal consumption price index is up 1.9% in January 2017 compared to January 2016, as prices move closer to the Fed’s 2.0% inflation target.
  • New orders for manufactured durable goods in January increased $4.0 billion, or 1.8%, to $230.4 billion, the U.S. Census Bureau announced last week. This increase, up following two consecutive monthly decreases, followed an 0.8% December decrease. Transportation equipment, also up following two consecutive monthly decreases, drove the increase up $4.3 billion, or 6.0%. Orders for core capital goods (excluding defense and aircraft) declined 0.4% in January from December. Shipments of durable goods fell for the first time in three months, dropping 0.1% following a 1.6% increase in December. Unfilled orders, down seven of the last eight months, decreased again in January, falling $4.0 billion, or 0.4%.
  • Purchasing managers remained upbeat about the strength of the manufacturing sector. The Institute for Supply Management’s® Purchasing Managers Index registered 57.7% in February, 1.7 percentage points higher than January’s reading. Markit’s Manufacturing Purchasing Managers’ Index™ (PMI™) fell slightly in February from January’s 22-month high. February’s PMI of 54.2 was 0.8 percentage point below January, but still indicative of strength in the manufacturing sector.
  • The non-manufacturing, or service, index issued by the Institute for Supply Management® increased by 1.1 percentage points in February over January. This is the highest reading since October 2015 and represents continued growth in the non-manufacturing sector at a slightly faster rate.
  • The international trade deficit expanded in January from a month earlier, according to the advance report from the Census Bureau. The trade deficit increased $4.9 billion to $69.2 billion in January. Exports of goods fell $0.4 billion to $126.2 billion, while goods imports increased by $4.4 billion to $195.4 billion. The increase in imports was influenced by an increase in imports of vehicles and consumer goods.
  • The Conference Board Consumer Confidence Index® rose to 114.8 in February, up from January’s 111.6. According to Lynn Franco, Director of Economic Indicators at The Conference Board, “Consumers rated current business and labor market conditions more favorably this month than in January. Expectations improved regarding the short-term outlook for business, and to a lesser degree jobs and income prospects. Overall, consumers expect the economy to continue expanding in the months ahead.”
  • In the week ended February 25, the advance figure for seasonally adjusted initial unemployment insurance claims was 223,000, a decrease of 19,000 from the previous week’s revised level. This is the lowest level for initial claims since March 31, 1973, when it was 222,000. The advance seasonally adjusted insured unemployment rate remained at 1.5%. The advance number for seasonally adjusted insured unemployment during the week ended February 18 was 2,066,000, an increase of 3,000 from the previous week’s revised level.

Eye on the Week Ahead

The latest employment information will be available at the end of the week. Investors will pay close attention to this report, as the labor sector has been positive for quite some time and continued strength will surely influence the FOMC’s decision whether to increase interest rates when it meets later in the month.Economic data for February provided clear indications that the global economy is experiencing a broad recovery, with the major advanced economies growing close to or even above their estimated potential growth rates. This positive macroeconomic environment is providing a tailwind for equity markets despite the many political uncertainties adding risk that is reflected in investor attitudes. at BWFA believe that a pullback is possible as we have moved quickly with no retracement. We are long term investors and try not to be swayed by popular sentiment of the moment and feel that the economy is growing at 2.5% to 3.0% and interest rates will be raised two to three times in the course of this fiscal year. We continue to monitor our holdings closely and look to make modest changes in the first and second quarter where appropriate. We appreciate your support and enjoy the opportunity to work for you and your family.