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:
Strong Markets for the Holidays
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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Stocks Slide as Uncertainty Rises
After posting gains every week since September, U.S. stocks declined by market’s close on Friday. The S&P 500 and Dow ended their longest stretch of weekly increases since 2013, and the NASDAQ ended its own 6-week streak.[1] By November 10, the S&P 500 declined 0.21%, the Dow was down 0.50%, and the NASDAQ slipped 0.20%.[2] Meanwhile, the MSCI EAFE dropped by 0.45%.[3]
While these declines are not huge, understanding why stocks dropped after several weeks of steady gains is important. The markets are incredibly complex, so we cannot point to one single detail that drove their performance. We can, however, help you gain insight into what influenced investors’ decisions.
The Market’s Drop in Context
In many ways, uncertainty is to blame for last week’s losses, from a variety of angles:
- Healthcare: Equities dropped as companies continue to analyze changing dynamics in the industry, including potential competition from the tech world. Developments on medical devices and healthcare equipment could create quicker distribution models while decreasing costs, threatening traditional business practices.[4]
- Energy: Tension between Iran, Saudi Arabia, and Lebanon—and the accompanying geopolitical uncertainty—contributed to crude oil prices slipping, which led Energy stocks to lose ground.[5]
- Tax Reform: On Thursday, November 9, the Senate released its tax-reform proposal, which includes significant differences from the current House bill.[6] In particular, the Senate’s decision to delay corporate-tax reductions until 2019 led to a stock sell-off. This change from the House bill also fueled concern about the likelihood of fiscal reform moving forward at all.[7]
Stocks End Up After Busy Week
Once again, the markets ended the week in positive territory—and all 3 major domestic indexes hit new record highs. The S&P 500 added 0.26%, and the Dow was up 0.45%, with both indexes notching their 8th straight week of growth. The NASDAQ was up for the 6th week in a row with a 0.94% gain.[1] International stocks in the MSCI EAFE joined in the growth, posting a 0.90% increase.[2]
Why did markets continue to perform well last week? In part, economic data, political developments, and policy decisions gave investors a variety of details to digest.
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Data Drives More Growth
Another week, another round of positive market performance. The 3 major domestic indexes again ended the week with gains and new record highs. The S&P 500 rose 0.23% and marked a 7th-straight week of increases—its longest string of weekly gains in almost 3 years.[1] The Dow added 0.45%, and the NASDAQ grew by 1.09%.[2] Meanwhile, international stocks in the MSCI EAFE slipped slightly, losing 0.35% for the week.[3]
On October 25, we learned that September home sales were higher than anticipated and durable goods orders grew by 2.2% in the same month. This data provided more evidence that the economy is on solid ground. However, two other occurrences last week contributed even more to the continuing market gains: 1) Q3 GDP numbers and 2) tech companies’ corporate earnings reports.[4]
What Drove Markets Last Week?
- Economic growth beat expectations.
We received the first 3rd-quarter Gross Domestic Product (GDP) readings, and the results strongly beat expectations. Despite hurricanes Harvey and Irma causing billions of dollars of damage, the U.S. economy grew by 3% between July and September.[5] Combined with the 3.1% growth in Q2, the economy has now experienced its best 6 months since 2014.[6]
- Tech stocks surged.
Last week, 180 companies in the S&P 500 released their 3rd-quarter earnings data—marking the busiest week of this earnings season.[7] Among the releases, several major tech companies reported much higher-than-expected earnings, contributing to the NASDAQ’s biggest daily gain since 2016. With approximately 30% growth so far this year, the tech sector has grown at around twice the rate of 2017’s overall market.[8]
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Another Banner Week for Markets
Last week, all 3 major U.S. markets hit record highs once again.[1] The Dow added 2.00% to notch both intraday and closing records, the S&P 500 rose 0.86%, and the NASDAQ gained 0.35%.[2] International stocks in the MSCI EAFE dipped by 0.32% for the week.[3]
On Thursday evening, the senate passed the blueprint for a $4 trillion budget.[4] The vote sets the stage for a tax overhaul that could lower taxes for many families and businesses.[5] In addition, some investors believe the promise of tax cuts could push market valuations even higher.[6]
Other investors, however, have expressed concern about the continuing market highs. Although the economy is growing and corporate earnings are up, they fear a potential market correction.[7]
Against this backdrop, last week marked a key milestone in financial history: the 30th anniversary of Black Monday¾the largest single-day market percentage drop in history. Remembering the over 22% loss the Dow experienced that day, some investors may worry about whether the same type of precipitous drop is possible today.[8]
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More Record Highs
Last Friday, all 3 major domestic indexes continued their streak of weekly gains and record highs. The S&P 500 added 0.15%, and the Dow was up 0.43%. Meanwhile, both indexes posted their 5th weekly gain in a row. In addition, the S&P 500 and Dow each hit intraday trading records on Friday. The NASDAQ also increased 0.24%, ending on a record high with a 3rd straight week of growth.[1] International stocks in the MSCI EAFE rose as well, gaining 1.61% for the week.[2]
What drove market performance last week?
We received a number of new reports last week, including data showing jumps in the Producer Price Index, Consumer Price Index, and Retail Sales. Recovery efforts from hurricanes contributed to the gains in all three of these readings. And they could continue to affect the markets for a while.[3]
In addition to this new data, two key events contributed to the markets’ continuing growth: 1) a positive start to earnings season and 2) high consumer sentiment numbers.
- Earnings Season Started Strong
Companies have started releasing their 3rd quarter earnings reports, and so far, 87% of them beat bottom-line expectations. Corporate earnings have been strong since Q4 2016, and this quarter will likely continue that trend. However, the growth rate may not match what we have seen for the past few earnings seasons.[4]
- Consumer Sentiment Hit 13-Year High
After 8 years of economic growth, many consumers are feeling more content about their circumstances. The University of Michigan’s consumer sentiment poll for September revealed that consumers held positive perspectives overall—across income, age, and political spectrums. Last month’s reading has the highest consumer sentiment since 2004.[5]
We believe that the ongoing record highs we are witnessing are a good reminder to not let headlines or fear drive your financial choices. This year has certainly provided a variety of geopolitical drama to distract from the economic fundamentals. Nonetheless, in 2017, U.S. share prices have gained $3 trillion in value so far. At the same time, investors have taken $45 billion out of their ETFs and mutual funds—essentially missing this market rally.[6]
Investors exit markets for myriad reasons. But when emotion drives choices, rather than true strategy, those decisions can have a lasting affect on long-term goals. If you have questions about how the markets are performing—or what choices you should be considering right now—we are always here to talk.
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Third Quarter Review
This Monday, October 9, marks the 10-year anniversary of the S&P 500’s highest point before the Great Recession. While the ensuing decade has provided quite a rocky road for the markets at times, the recovery is undeniable. The S&P 500 is now double its peak 10 years ago.[1]
In fact, last week, markets posted one record high after another—and the S&P 500 had its longest streak of record closes since 1997.[2] At the markets’ close, the S&P 500 added 1.19%, the Dow gained 1.65%, and the NASDAQ grew by 1.45%.[3] International stocks in the MSCI EAFE lost 0.07%.[4]
These domestic gains came despite stocks stumbling slightly on Friday in reaction to disappointing jobs numbers. After 7 years of monthly growth, the September jobs report indicated the first labor market contraction since 2010, with 33,000 jobs lost. The decrease was largely due to the aftermath of Hurricanes Harvey and Irma. Despite this unexpected contraction, however, the unemployment rate fell to its lowest level in 16 years, and average hourly earnings increased by 2.9%.[5]
We also began the first trading week of the 4th quarter last Monday, so we will review Q3’s performance and what lies ahead for Q4. Continue reading
Stocks Mixed, Fed Changes Policy
Domestic indexes were mixed last week, as the Dow gained 0.36%, the S&P 500 eked out a 0.08% increase, and the NASDAQ lost 0.33%.[1] International stocks in the MSCI EAFE added a solid 0.68%.[2]
Three stories that have dominated conversations and driven investor attention in 2017 continued last week:
- Healthcare policy: The Senate’s continuing discussion of healthcare reform impacted stock performance in connected industries.
- Tension with North Korea: The markets responded quietly to continuing conflict between President Trump and Kim Jong Un, although some investments saw a bump later in the week.[3]
- Interest rate updates: While the Fed chose not to raise interest rates in its most recent meeting, it indicated that a December hike is definitely still on the table.[4]
When announcing its latest interest rate perspectives, the Federal Reserve also indicated that it would begin to reduce its balance sheet next month.[5]
But, what does that really mean—and why does the Fed have a $4.2 trillion balance sheet, anyway? Continue reading
Understanding Record Highs
After briefly stumbling the week of September 4, domestic indexes notched significant gains last week and hit record highs. By Friday, the S&P 500 exceeded 2,500 for the first time, the Dow closed at its highest level ever, and the NASDAQ reached an intraday record.[1] Each of the indexes gained well over 1% for the week, with the S&P 500 adding 1.58%, the Dow jumping 2.16%, and the NASDAQ increasing 1.39%.[2] International stocks in the MSCI EAFE also performed well, with a weekly gain of 0.55%.[3]
When looking at these sizable increases, you might expect that positive data and geopolitical calm filled the news last week. Instead, we experienced a number of occurrences that could have derailed stock performance:
