Markets were closed on March 30 for Good Friday, but in the four days of trading, stocks recovered some of this year’s losses.[1] For the week, the S&P 500 added 2.09%, the Dow gained 2.67%, and the NASDAQ increased by 1.03%.[2] International stocks in the MSCI EAFE grew 0.81%.[3]
Last week also marked the end of the year’s 1^st quarter. Our next market update will share a recap of key performance details and events from January through March.
In this report, we will consider findings from last week and offer some perspective on the data.
What We Learned Last Week
The Economy Expanded More Than Thought
We received the final reading of 4^th quarter 2017 Gross Domestic Product (GDP), and the numbers were higher than expected. Between October and December last year, GDP grew at a 2.9% annualized rate. In particular, consumer spending contributed significantly to our economic growth.[4]
Consumers Remained Confident
Consumer Sentiment readings reached a 14-year high in March and may be a sign that spending was also on the rise last month.[5] Meanwhile, the Consumer Confidence report showed slightly lower readings than in February but continued to stay high. Though respondents’ confidence in the stock market wavered, their strong assessments of the labor market helped maintain solid numbers.[6]
Personal Incomes Rose
Personal income grew 0.4% in February and has increased 3.7% over the past 12 months. Consumers also spent more money, and data on personal debt and financial obligations indicates that they still have more room to spend.[7]
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Markets experienced significant declines last week. The S&P 500 lost 5.95%, the Dow dropped 5.66%, and the NASDAQ declined 6.54%.[1] With these losses, all 3 domestic indexes had their worst weekly performance in more than 2 years.[2] International stocks also declined, with the MSCI EAFE giving back 2.64%.[3]
What caused markets to stumble in this way? While various economic reports came out and the Federal Reserve raised rates again, another topic triggered the declines: trade war concerns.[4]
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Domestic stocks leapt ahead last week as the latest jobs report inspired renewed confidence in our economic standing. The S&P 500 added 3.54%, and the Dow gained 3.25%.[1] The NASDAQ erased its losses from February’s market correction to hit a new record close while growing 4.17% for the week.[2] International stocks in the MSCI EAFE increased by 1.79%.[3]
In addition to solid stock growth, Friday, March 9, also brought a significant milestone in the markets: the 9^th anniversary of our current bull market. The Dow is now in the midst of its longest-ever bull run, and the S&P 500’s bull market is its 2^nd-longest and -largest ever.[4]
To put the recovery in perspective, 9 years ago, the S&P 500 closed at only 676.53. By market’s close last Friday, the index was at 2,786.57—more than 4 times its value at the bull market’s start.[5]
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Volatility continued last week as markets posted their 1^st weekly loss in 3 weeks.[1] Despite some recovery on Friday, the S&P 500 dropped 2.04%, the NASDAQ slipped 1.12%, and the Dow lost 3.05% for the week.[2] Internationally, the MSCI EAFE fell 2.91%.[3]
Last week’s ups and downs began with continued questions over whether the Fed will raise interest rates. By the week’s end, however, rumors of an international trade war dominated the attention of investors.
Fed Suggests Raising Interest Rates
New Fed Chair Jerome Powell testified on Tuesday that inflation and a strong economy may lead to interest rate hikes sooner than expected.[4] Whether the Fed will impose a 4^th hike this year caused investor uncertainty and led to mid-week market drops.[5] Powell noted, however, that increased market volatility will not influence the Fed’s decisions regarding rate increases.[6]
Trump Announces Tariffs on Imports
Investor attention shifted on Thursday as President Trump announced plans to impose a 25% tariff on steel and a 10% tariff on aluminum imports.[7] While the move could protect American metal workers, some analysts worry it may also trigger a possible trade war.[8]
Countries around the world reacted to the news, with some announcing their own plans for U.S. tariffs in response.[9] Over the weekend, the President reacted by noting possible tariffs on imported autos, where the U.S. has a deficit. Some analysts worry this could further hurt an already negative trade gap in our Gross Domestic Product (GDP).[10]
Signs of Strength
Despite the developments with tariffs and rising interest rates, we did receive encouraging economic reports:

• Strong Consumer Sentiment: Last month’s consumer sentiment report hit its 2^nd highest recording in over 10 years. Upon the approved tax bill, companies gave nearly $30 billion in bonuses, boosting consumer incomes and attitudes.[11]
• Outstanding Jobless Claims: Last week’s reported jobless claims were the lowest in 49 years. A healthy demand for labor and few layoffs have helped keep unemployment numbers low.[12]

What’s ahead?
Expect more market volatility going forward as investors follow the Fed’s interest rate plans to keep potential inflation in check. The President has also promised to announce specific details concerning the proposed new tariffs this week.[13] If you have questions concerning how these developing economic policies may impact your financial life, we are always here to help. 
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Last week, the Presidents’ Day holiday meant markets were only open for 4 trading days, and during that time, we received comparatively few economic reports. Nonetheless, major domestic indexes showed considerable volatility and posted losses for 3 straight days. By Friday, however, stocks rebounded and ended the week in positive territory.[1] For the week, the S&P 500 gained 0.55%, the Dow added 0.36%, and the NASDAQ was up 1.35%.[2] International stocks in the MSCI EAFE lost ground, dropping 0.50%.[3]
What drove market performance last week?
Once again, inflation and interest rates were on many investors’ minds. In particular, multiple reports from the Federal Reserve contributed to performance.
On Wednesday, the Fed released minutes from its January meeting, which indicated that officials had concerns about inflation.[4] The minutes revealed that between rising inflation and economic growth, the Fed sees justification for continued interest-rate increases. In reaction to the news, 10-year Treasury note yields hit their highest level in 4 years.[5]
How do treasury yields and stock prices affect each other?
To say that the interaction between treasuries and stocks is complex would be an understatement. At its most basic, prices for stocks and bonds usually move in opposite directions. When stock prices go up, bond prices drop—and vice versa. For treasuries and other bonds, yields rise when their prices drop. As a result, when the stock market jumps, treasury yields often do, too.[6]
Last Wednesday, however, rising yields may have contributed to a drop in the markets.[7] Why?
Some investors become concerned when 10-year Treasury yields hit 3%, since that percentage level has aligned with bear markets for the past several decades.[8] On Wednesday, the yields hit 2.94%—just a sliver away from that “warning” level.[9]
Please note that the rate-driven analysis triggering this concern is likely far too simple and may not accurately predict what’s ahead.[10] With that said, the concern still has the ability to affect investor reactions. Continue reading →

After months of relative calm, market fluctuations are causing many investors to wonder what is happening to the economy. Last week, the S&P 500 lost 5.16%, the Dow dropped 5.21%, and the NASDAQ declined 5.06%. The MSCI EAFE also gave back 6.19%. These losses pushed all four indexes into negative territory for the year.[1]   In addition, the weekly performance included significant volatility, as stocks had large fluctuations both within days and from one day to the next. The Dow, for example, lost over 1,000 points twice during the week—and also twice gained over 300 points.[2]
During times like these, viewing events in their proper context is imperative. This week, we are going beyond our typical market update in an effort to provide you with clarity and perspective.
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We’re only a few weeks into 2018, and stocks are showing quite a strong performance so far. Last week, major domestic indexes posted gains yet again, with all 3 up at least 5% this year. By Friday, the S&P 500 had added another 0.86%, and both the Dow and NASDAQ were up 1.04%.[1] All 3 indexes hit new record highs at least once during the week.[2]
In addition to the solid performance for U.S. equities, we’re also experiencing synchronized global growth. European and Asian stocks grew last week, and China’s growth data was more positive than expected.[3] Overall, international stocks in the MSCI EAFE added a healthy 1.24% last week. Year to date, the MSCI is up 4.95%.[4]
What happened last week?
Two key topics drove conversations: corporate earnings and a government shutdown.

1. Corporate Earnings

In the U.S., corporate earnings season dominated much of the economic news as reports continue to show companies doing well. For organizations that released their 4^th-quarter results, 79% beat earnings projections and 89% exceeded sales estimates.[5]

2. Government Shutdown

The Federal government shut down on Saturday morning, January 20th, after the House and Senate failed to pass a bill to extend funding. This shutdown is the first since 2013.[6]
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The first week of 2018 is behind us, and across the globe, stocks experienced a strong start to the year. International stocks in the MSCI EAFE gained 2.44% last week.[1] In the U.S., our major indexes also leapt forward, hitting a number of records and milestones.[2]
Domestic Index Performance for the First Week of 2018[3]
S&P 500:

• Gained 2.60%
• Hit 2,700 for the first time
• Posted its largest weekly gain since December 2016

Dow:

• Gained 2.33%
• Hit 25,000 for the first time
• Had its best yearly start since 2006

NASDAQ:

• Gained 3.38%
• Hit 7,000 for the first time
• Posted its largest weekly gain since December 2016
• Had its best yearly start since 2006

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In the final trading days of a strong 2017, U.S. indexes lost some ground. During the holiday-shortened week, the S&P 500 dropped by 0.36%, the Dow lost 0.14%, and the NASDAQ gave back 0.81%.[1] A selloff toward the end of the day on Friday contributed to the domestic indexes’ weekly losses.[2] International stocks in the MSCI EAFE ended the week in positive territory, gaining 0.89%.[3]
Despite the losses, all three major domestic indexes experienced their best year since 2013.[4] During 2017, the Dow hit 71 record highs, and the NASDAQ gained in all but 1 month for the first time ever.[5]
Overall, indexes posted the following growth for the year:

• S&P 500 up 19.42%[6]
• Dow up 25.08%[7]
• NASDAQ up 28.24%[8]
• MSCI EAFE up 21.78%[9]

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As the holiday season progresses, the markets continue to impress. Last week, many energy, financial, and industrial sector stocks helped drive performance.[1] Hitting record highs yet again, the S&P gained 0.35%, and the Dow jumped 0.40% for the week.[2] Meanwhile, the NASDAQ fell slightly by 0.11%, and the MSCI EAFE rose 0.08%.[3]
Solid labor market conditions and a rebounding retail climate are helping to support the economy as the year closes.[4] Here are some developments that stood out last week:
Promising Labor Market Numbers
Encouraging news came on Friday when we learned that nonfarm payroll jobs rose more than expected in November, coming in at 228,000.[5] Manufacturers have created almost 200,000 new jobs in the last 12 months and 1 million new factory jobs since 2010.[6] We have now had 86-straight months of job gains, the longest stretch in U.S. history.[7]
This growth in new jobs has helped to keep unemployment down, which remains at a 17-year low of 4.1%.[8] Additionally, average hourly wages have increased by 2.5% for the year.[9]
Retail Climate in Positive Territory
As the job market expands and people have more spending power, we’re experiencing a robust retail climate. Retail stocks are rebounding after a long market lag, and holiday shopping is strong this season with predicted growth from 3.6% to 4% over last year. Further, brick-and-mortar shops are even feeling the shopping strength, emerging as some of the best performing retail investments, despite their general drop in 2017.[10]
What Lies Ahead
Now that Congress has avoided a government shutdown—at least for a few weeks—the Senate and the House can focus on the tax bill.[11] While progress has been made, they still need to negotiate the financial bill’s terms.[12]
Next week, investors will follow the Fed to see if it raises interest rates, as expected. In addition, the Fed could also comment on inflation expectations and address concerns about potential asset bubbles.[13]
As the holidays wind up, we will continue to monitor the markets and focus on the fundamentals. If you have questions about how this news affects your financial life, we’re here to talk. Feel free to contact us and find the answers you need.
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