What I’m Watching This Week – 16 January 2018

The Markets (as of market close January 12, 2018)

Equities continued their strong showing to start the year. Each of the benchmark indexes listed here posted solid gains, led by the Russell 2000. The S&P 500 advanced more than 1.0% for the second week in a row — the first time that’s happened since last July. Investors may be expecting a continuation of strong corporate profits as the fourth-quarter earnings reporting season began Friday. News that China may curtail or even halt its purchase of U.S. Treasuries pushed yields on the 10-year note to their highest level in several months. The price of oil continues to rise, boosting energy stocks. Strong retail sales in December may have encouraged investors to believe that the economy will continue to expand while sending retail stocks higher.

The price of crude oil (WTI) climbed to $64.40 per barrel last Friday, up from the prior week’s closing price of $61.55 per barrel. The price of gold (COMEX) rose to $1,338.30 by early Friday evening, ahead of the prior week’s price of $1,320.90. The national average retail regular gasoline price increased to $2.522 per gallon on January 8, 2018, $0.002 above the prior week’s price and $0.134 more than a year ago.

Market/Index 2017 Close Prior Week As of 1/12 Weekly Change YTD Change
DJIA 24719.22 25295.87 25803.19 2.01% 4.39%
Nasdaq 6903.39 7136.56 7261.06 1.74% 5.18%
S&P 500 2673.61 2743.15 2786.24 1.57% 4.21%
Russell 2000 1535.51 1560.01 1591.97 2.05% 3.68%
Global Dow 3085.41 3175.51 3229.08 1.69% 4.66%
Fed. Funds target rate 1.25%-1.50% 1.25%-1.50% 1.25%-1.50% 0 bps 0 bps
10-year Treasuries 2.41% 2.47% 2.54% 7 bps 13 bps

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

Last Week’s Economic Headlines

  • Consumer prices have remained relatively stable through 2017, according to the Consumer Price Index. The price increase was driven primarily by an increase in housing and medical care costs. For the last month of the year, the CPI increased a marginal 0.1%. Over the year, the index rose 2.1%. Core prices, less food, and energy, increased 0.3% in December — the largest increase since last January. For 2017, core prices have increased 1.8%.
  • In yet another sign that price inflationary pressures are stagnant, the Producer Price Index for December fell 0.1% after advancing 0.4% in both October and November. This drop in prices is the first such decline since August 2016. Most of the decline is attributable to a 0.2% decline in the prices for services. Core prices (less food, energy, and trade services) edged up 0.1% in December. For the 12 months ended in December, the PPI rose 2.6% after advancing 1.7% in 2016. Core prices increased 2.3% in 2017, after climbing 1.8% the prior year.
  • With prices remaining consistent, it isn’t surprising that retail sales picked up in December, particularly during the holiday shopping season. Advance estimates of U.S. retail and food services sales for December 2017 increased 0.4% from the previous month, and 5.4% from December 2016. Total sales for 2017 were up 4.2%.
  • There were 5.9 million job openings on the last business day of November, according to the Job Openings and Labor Turnover report from the Bureau of Labor Statistics. There were 5.5 million hires and 5.2 million separations. The quits rate was 2.2%, while the rate of layoffs and discharges was 1.1%. Job openings increased in retail trade (+88,000), but decreased in other services (-64,000); transportation, warehousing, and utilities (-60,000); and real estate and rental and leasing (-39,000). Over the 12 months ended in November, hires totaled 64.6 million and separations totaled 62.4 million, yielding a net employment gain of 2.1 million.
  • The federal deficit was $23.2 billion in December. Over the first three months of fiscal 2018, the total deficit sits at $224.9 billion. For December, government receipts were $325.8 billion, while the government spent about $349 billion.
  • Prices for U.S. imports ticked up 0.1% in December, following an 0.8% rise the previous month. Higher fuel prices more than offset a decline in the price index for nonfuel prices in December. In contrast, U.S. export prices edged down 0.1% in December, after advancing 0.5% in November. Nevertheless, export prices rose 2.6% in 2017 following a 1.3% rise in 2016. The 2017 advance was the largest calendar-year increase since 2011 when the index rose 3.6%.
  • In the week ended January 6, initial claims for unemployment insurance was 261,000, an increase of 11,000 from the previous week’s level. The advance insured unemployment rate dipped to 1.3%. The advance number of those receiving unemployment insurance benefits during the week ended December 30 was 1,867,000, a decrease of 35,000 from the prior week’s level, which was revised down by 12,000. This is the lowest level for insured unemployment since December 29, 1973, when it was 1,805,000.

Eye on the Week Ahead

The holiday (Martin Luther King Jr. Day) week offers little in terms of economic reports. However, the latest report on new residential construction for December is out this week. Applications for building permits and housing completions were down in November, although housing starts were up. Frigid temperatures and some inclement weather may put a further damper on new home building in December.

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What I’m Watching This Week – 8 January 2018

The Markets (as of market close January 5, 2017)

The first week of 2018 saw equities enjoy a strong start to the new year. Less than a year after breaking the 20000 mark, the Dow soared past 25000 last week. The wide-ranging S&P 500 also posted a record close while climbing 2.60%. The Nasdaq picked up in 2018 right where it left off in 2017, posting a 3.38% weekly gain, boosted by surging technology stocks. Energy stocks were strong as the price of oil rose again last week. As bond prices fell, bond yields moved higher, with the yield on 10-year Treasuries increasing by 6 basis points.

The price of crude oil (WTI) climbed to $61.55 per barrel last Friday, up from the prior week’s closing price of $60.10 per barrel. The price of gold (COMEX) rose to $1,320.90 by early Friday evening, ahead of the prior week’s price of $1,305.10. The national average retail regular gasoline price increased to $2.520 per gallon on January 1, 2018, $0.048 above the prior week’s price and $0.143 more than a year ago.

Market/Index 2017 Close Prior Week As of 1/5 Weekly Change YTD Change
DJIA 24719.22 24719.22 25295.87 2.33% 2.33%
Nasdaq 6903.39 6903.39 7136.56 3.38% 3.38%
S&P 500 2673.61 2673.61 2743.15 2.60% 2.60%
Russell 2000 1535.51 1535.51 1560.01 1.60% 1.60%
Global Dow 3085.41 3085.41 3175.51 2.92% 2.92%
Fed. Funds target rate 1.25%-1.50% 1.25%-1.50% 1.25%-1.50% 0 bps 0 bps
10-year Treasuries 2.41% 2.41% 2.47% 6 bps 6 bps

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

Last Week’s Economic Headlines

  • The employment sector finished 2017 in good shape. There were 148,000 new jobs added in December and the unemployment rate, at 4.1%, was unchanged for the third consecutive month. Job gains occurred in health care, construction, and manufacturing. In 2017, payroll employment growth totaled 2.1 million, compared with a gain of 2.2 million in 2016. Over the year, the unemployment rate and the number of unemployed persons were down by 0.6 percentage point and 926,000, respectively. The labor force participation rate, at 62.7%, was unchanged over the month and over the year. The employment-population ratio was unchanged at 60.1% in December but was up by 0.3 percentage point over the year. The average workweek was unchanged at 34.5 hours in December. Average hourly earnings for December rose by $0.09 to $26.63. Over the year, average hourly earnings have risen by $0.65, or 2.5%.
  • The international trade deficit for goods and services was $50.5 billion in November, up $1.6 billion from October. November exports were $200.2 billion, $4.4 billion more than October exports. November imports were $250.7 billion, $6.0 billion more than October imports. Year-to-date, the goods and services deficit increased $53.4 billion, or 11.6%, from the same period in 2016.
  • Purchasing managers noted an improving manufacturing sector in December, according to the survey conducted by IHS Markit. The U.S. Manufacturing Purchasing Managers’ Index™ registered 55.1 in December, up from 53.9 in November — the highest such reading since March 2015. Greater demand spurred acceleration in new orders, stronger production growth, and cost inflation.
  • According to the Manufacturing ISM® Report On Business®, supply managers/respondents also reported that economic activity in the manufacturing sector expanded in December. The December PMI® registered 59.7%, up from November’s 58.2% reading. New orders, production, supplier deliveries, inventories, and prices increased in December. Only employment decreased last month.
  • Growth slowed in the services sector in December, according to the Non-Manufacturing ISM® Report On Business®. The Non-Manufacturing Index registered 1.5 percentage points lower than the November reading. Business activity and new orders also decreased last month. On the plus side, business managers reported an uptick in employment and prices. Included in the report are service industries such as retail trade; utilities; arts, entertainment and recreation; health care; accommodation and food services; finance and insurance; and real estate.
  • In the week ended December 30, initial claims for unemployment insurance was 250,000, an increase of 3,000 from the previous week’s level, which was revised up by 2,000. The advance insured unemployment rate remained 1.4%. The advance number of those receiving unemployment insurance benefits during the week ended December 23 was 1,914,000, a decrease of 37,000 from the previous week’s level, which was revised up 8,000.

Eye on the Week Ahead

Trading is expected to pick up this week following the prior two holiday-shortened weeks. Inflation indicators for December are available this week, led by the Consumer Price Index. Inflation had been stagnant for much of 2017, although consumer demand for goods and services during the holiday season may nudge prices upward — at least for December.

Cryptocurrency – You’re doing this all wrong

So, you bought some bitcoin or one of the other cryptocurrencies. Outstanding, I sincerely believe that you have made a good investment, albeit a very speculative investment.

For many people perhaps including you, making that initial investment was facilitated quite easily by way of an app on your phone. And hopefully, you’ve probably transferred that cryptocurrency into a digital wallet, for safe keeping. If so, brilliant move. But one last thing I need to mention.

You’re doing this all wrong.

Here’s the picture as I see it. You’ve purchased an asset that has the potential to increase in value, wildly, over the next several years. It’s an aggressive investment that frankly, many people aren’t able to stomach. That level of risk deserves a reward, don’t you think?

You made a small original long-term investment, and let’s say hypothetically in 10 years your, for easy numbers, $5,500 investment is now worth 100 million dollars. Ho Lee Cow Right! Not only are you going to enjoy the profits your investment made, Uncle Sam is also going to enjoy taxing you to Timbuktu on all your capital gains. D ’oh!

Now, let’s look at how you got your self into this taxable mess. You made your purchase with after-tax money, didn’t you? You know, you got your W2 paycheck, paid your bills and had some cash left over, right? You used some of that money to make your purchase, didn’t you?

Thing is, that money you utilized to make the purchase is after-tax money. You already paid the taxes on it via payroll deductions. There’s an investment scenario that you have overlooked, and it’s a massive one regarding cryptocurrency specifically.

IRAs

You are probably aware of how a Traditional IRA works, right? Here’s a quick refresher – Let say you’re working for a company and every pay period you have money deducted from your check to go into your Traditional IRA – pre-taxed. This means that the money you have going directly into your retirement fund isn’t being taxed right now but rather later, when you withdraw it, whether at retirement or earlier, Uncle Sam is going to tax you at your then current, taxable rate. So, if you are being taxed at 25% now, when you retire, conceivably your tax rate will more than likely drop (because you’re no longer working) to say 12%. When you begin to withdraw from your Traditional IRA, that 12% is what the money coming out will be taxed at. Uncle Sam always gets his money, always. Also, you cannot hold cryptocurrency in a Traditional IRA.

Or you can utilize a ROTH IRA. It’s like a Traditional IRA, except that the money you put into it, has already been taxed. The advantage? Your money grows tax-free. You put money in after you’ve paid taxes on it, and no other taxes are levied on the account (assuming you don’t withdraw your earnings early). Your money then grows tax-free, read that again. Kinda nice to alleviate some of the future concerns of how your investment growth would have been hit with taxes, eh? The catch? You cannot hold cryptocurrency in a ROTH IRA either.

Now regarding cryptocurrencies, one thing you need to understand straight away is that it is an Alternative Investment, it’s not a stock, bond, mutual fund, or an ETF. It’s not currency either. Per the IRS – IRS Notice 2014-21 declares the asset as property for tax purposes, having “an equivalent value in real currency”. Property cannot be held in either a Traditional IRA or a ROTH IRA.

You can hold property in a Self-Directed IRA, however.

This presents you with a unique opportunity, one that could potentially reward you in the years to come.

First off, let’s introduce you to a Self-Directed IRA. Like Traditional and ROTH IRAs – a Self-Directed IRA (SD-IRA) can have the investment in traditional assets like:

  • stocks
  • bonds
  • mutual funds
  • exchange-traded funds (ETFs)
  • public REITs
  • annuities
  • money markets
  • certificates of deposit (CDs)

What you probably didn’t know is that you can choose Alternative Assets that are not normally offered by traditional financial institutions or even mentioned to you by your current broker such as:

  • real estate
  • precious metal
  • private equity and…
  • cryptocurrency

The Self-Directed Roth IRA removes the uncertainty of what future taxes can do to your retirement account. When you retire, your Self-Directed Roth IRA earnings will be exempt from taxes, while your traditional IRA or 401k earnings won’t be. That is, any money that comes out of a Self-Directed Roth IRA after you retire will be tax-free, while money from your traditional 401(k) or IRA will be taxed.

Self-Directed ROTH IRA with Single Member LLC

D’arcy Wealth Management is one of the few Wealth Management firms in the United States that provides an opportunity for our clients to hold cryptocurrency utilizing a tax-advantaged retirement account. Many are unaware that you can hold digital currency inside a retirement account. You can purchase cryptocurrency via your Self-Directed ROTH IRA with a Single Member LLC. What this structure allows is rather quite simple. However, that simplicity can accommodate a complex, and highly speculative investment in a tax-advantaged way, unlike any method of Wealth protection that you have probably been aware of.

We endeavor to recognize the opportunities within global financial markets; by providing guidance to meet the next generation of financial challenges and investment opportunities. We present a different approach to building, managing and preserving your Wealth. Our expertise is in delivering solid investment strategies, superior risk-adjusted returns while adhering to the highest ethical standards and prioritizing your interests above everything else.

Contact us to discuss your Wealth Management circumstances today. www.darcywealthmanagement.com

Annual Market Review 2017

Overview

The year 2017 was eventful, to say the least. President Trump and Congress tried, without success, to repeal the Affordable Care Act, known as Obamacare. However, the new year-end tax law included the elimination of the individual health insurance mandate. The U.S. economy started slowly but picked up steam as the year progressed. Ten years after its onset, the financial crisis officially came to an end in 2017. The gross domestic product expanded at an annual rate of 3.2% in the third quarter. The unemployment rate fell from 4.7% to 4.1%, while upwards of 2 million new jobs were added. The Federal Reserve, based on the strength of the economy and labor market, began to roll back its stimulus program and raised interest rates three times during the year. The stock market reached several historic highs in 2017. Consumer income rose and purchases increased, but inflation remained stubbornly below 2.0%. Business investment expanded in 2017 and is expected to surge in 2018. The year ended with the passage of sweeping tax reform legislation.

Market/Index 2016 Close As of 9/29 2017 Close Month Change Q4 Change 2017 Change
DJIA 19762.60 22405.09 24719.22 1.84% 10.33% 25.08%
Nasdaq 5383.12 6495.96 6903.39 0.43% 6.27% 28.24%
S&P 500 2238.83 2519.36 2673.61 0.98% 6.12% 19.42%
Russell 2000 1357.13 1490.86 1535.51 -0.56% 2.99% 13.14%
Global Dow 2528.21 2907.67 3085.41 2.38% 6.11% 22.04%
Fed. Funds 0.50%-0.75% 1.00%-1.25% 1.25%-1.50% 25 bps 25 bps 75 bps
10-year Treasuries 2.44% 2.33% 2.41% 0 bps 8 bps -3 bps

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

Snapshot 2017

The Markets

  • Equities: The stock market saw several benchmark indexes reach record highs throughout 2017. Market growth occurred despite several events that could have been challenging, such as the Russian probe, Federal interest rate increases, damaging hurricanes, domestic violence, and a potential struggle over the debt ceiling. Nevertheless, strong corporate profits and a general upswing in domestic and global economic growth helped push equities to new highs. Market volatility was generally low throughout the year, as the benchmark indexes saw very few weeks of negative returns. The large caps of the Dow closed the year with gains exceeding 25%, while the S&P 500 expanded over 19%. The small caps of the Russell 2000, which grew over 19% in 2016, enjoyed a more modest, yet noteworthy, year-over-year climb of over 13%. The Nasdaq gained nearly 30% over last year’s closing value, driven by robust performances from the technology sector. Globally, stocks were also higher. The Global Dow and the MSCI EAFE each closed 2017 up over 20%, while the Stoxx Europe 600 posted a year-over-year gain of about 10%.
  • Bonds: As stock prices soared for much of 2017 and interest rates moved incrementally higher, the demand for long-term bonds was marginal. Yields on 10-year Treasuries were volatile for the second straight year, ultimately falling below their 2016 year-end totals. The yield on the benchmark 10-year Treasuries closed 2017 at 2.41%, down from the 2016 yield of 2.44%. During the early part of the year, bond prices rose as yields sunk below 2.30%. However, as investors saw a strengthening economy and rising interest rates, a period of bond sales occurred, which peaked during the last quarter, ultimately pushing yields closer to last year’s final value.
  • Oil: It took almost the entire year, but oil prices began to surge at the end of 2017, reaching over $60.00 per barrel. Oil prices dipped below $45.00 per barrel, eventually hovering around $51.00 per barrel for much of the early part of the year. However, U.S. oil prices soared nearly 27% since September as OPEC limited supplies while demand increased. Retail regular gasoline prices closed the year around $2.472 per gallon on December 25, about $0.163 more than a year ago.
  • FOMC/interest rates: The Federal Open Market Committee raised interest rates three times during 2017. The first increase occurred in March, followed by a rate increase in June and another in December. Each rate increase was 25 basis points for a total rate increase of 75 basis points. Following each rate increase, the Committee expressed the expectation that the labor market would remain strong and the economy would continue to expand while noting that inflation has not risen as quickly as anticipated. The Committee forecasts three 25 basis point rate increases in 2018.
  • Currencies: The dollar weakened in 2017, particularly against its performance for much of 2016. The Wall Street Journal Dollar Index, which measures the U.S. currency against the currencies of 16 other countries, closed 2017 at $85.98, down from its 2016 year-end mark of $93.26 — a decrease of almost 9%. This marks the first annual decline in the value of the dollar in five years. Stagnant inflation and positive economic strengthening in other parts of the world weighed on the U.S. currency. A weakening dollar could help exports, particularly if this trend continues into 2018. However, consumers may not be so happy because the cost of imports should rise with the dwindling value of the dollar.
  • Gold: Gold rose roughly 15% on the year, closing 2017 at $1,305.10. A weakening U.S. dollar, political unrest, and minimal impact of the Fed’s interest rate hikes contributed to the surge in gold prices.

The Economy (through November 2017)

  • Employment: Overall, the U.S. labor market endured a few bumps during the year, but closed 2017 in relatively good shape. Despite destructive hurricanes that likely impacted new hires over the latter part of the summer into the fall, employment growth averaged 174,000 new jobs per month in 2017, compared with an average monthly increase of 187,000 new jobs in 2016. The unemployment rate ended the year (as of November 2017) at 4.1% — lower than the 4.6% rate at the close of 2016. According to the Bureau of Labor Statistics, there were 6.6 million unemployed persons in November 2017, down from 7.4 million unemployed in November 2016. The employment participation rate remained the same in 2017 as it was in 2016 — 62.7%. The employment to population ratio was 60.1% in 2017, up slightly from 59.7% in 2016. In 2017, the average workweek was 34.5 hours (34.3 hours in 2016). Average hourly earnings in 2017 increased 2.5%, or $0.64, to $26.55 (the same percentage gain as occurred between 2015 and 2016).
  • GDP: Economic growth, as measured by the gross domestic product, expanded throughout the year, increasing at an annual rate of 3.2% in the third quarter of 2017. The third-quarter annual rate of growth is the highest since the first quarter of 2015. The first-quarter GDP rose 1.2%, followed by a 3.1% gain in the second quarter. Gross domestic product essentially measures what the economy produces, such as goods and services. On the other hand, gross domestic income measures all income earned from the production of goods and services, such as wages, profits, and taxes. GDI rose 2.0% in the third quarter of 2017, compared to a 4.1% increase in the third quarter of 2016. The average of gross domestic product and gross domestic income, a supplemental measure of U.S. economic activity that equally weights GDP and GDI, increased 2.6% in the third quarter, compared with an average annual increase of 1.2% in 2016.
  • Inflation/consumer spending: Inflationary trends did not keep up with economic growth in 2017. Inflation, as it relates to the consumer, remained below the Federal Reserve’s stated target rate of 2.0%. Indications are that inflation is expanding, albeit at a deliberate pace. The personal consumption expenditures (PCE) price index is the measure of the increase in the prices of goods and services purchased by consumers. The PCE price index was 1.8% higher in November 2017 compared to November 2016. Core PCE, which excludes the volatile food and energy components, expanded at an annual rate of 1.5%. Personal (pre-tax) income increased 2.8% in the third quarter of 2017 compared to a rate of 3.0% for the third quarter of 2016. After-tax income (disposable personal income) increased 2.1% in the third quarter of 2017 after expanding at an annual rate of 2.5% in the third quarter of 2016. Another measure of inflation, the Consumer Price Index, measures the price level of a basket of consumer goods and services purchased by individuals. Over the 12 months ended November 2017, the CPI rose 2.2%.
  • Housing: The housing market had been relatively strong for much of the year, although a lack of inventory may have impacted sales and prices. Through November, existing home sales are up 3.8% over a year ago. The November annual sales rate of 5.81 million is the highest since December 2006. The median existing-home price for all housing types in November was $248,900, up 5.8% from November 2016 ($234,400). November’s price increase marks the 69th consecutive month of year-over-year gains. Total housing inventory was 1.67 million existing homes for sale — 9.7% lower than last November (1.85 million). According to the National Association of Realtors®, the expected increase in mortgage rates in 2018 could cut into the affordability of new homes in many markets if inventory remains low. New home sales jumped 26.6% above the November 2016 annual rate of sales. The median sales price of new houses sold in November 2017 was $318,700 ($305,400 in 2016); the average sales price was $377,100 ($359,900 in 2016). The seasonally adjusted estimate of new houses for sale at the end of November was 283,000, representing a supply of 4.6 months at that sales rate. Over the same period in 2016, there were 250,000 homes for sale for a supply of 5.1 months.
  • Manufacturing: Manufacturing and industrial production performed better in 2017 than the prior year. The Federal Reserve’s index of industrial production revealed that total industrial production rose 3.4% over the 12 months ended in November. Over the same period, the output of consumer goods increased 2.2% and production of business equipment expanded 5.2%. Capacity utilization for manufacturing increased 1.1% over the past year. New orders for manufactured durable goods (expected to last at least three years) increased by 5.4% from 2016. Shipments were up 4.1%. Capital goods — tangible assets used by manufacturers to produce consumer goods — also expanded in 2017. New orders for capital goods increased by 6.9% and shipments of capital goods expanded by 4.5%.
  • Imports and exports: Through October, the goods and services trade deficit had increased $49.1 billion, or 11.9%, compared to the same period in 2016. Exports increased $97.5 billion, or 5.3%. Imports increased $146.6 billion, or 6.5%. The prices of both import and export goods and services expanded by 3.1% over the 12 months ended November 2017. However, excluding energy, import prices were up only 1.4%.
  • International markets: The global economy was relatively stable in 2017 amid low inflation and easing of accommodative monetary policies. In Europe, negotiations continued to progress, leading to Britain’s exit from the European Union. Possibly impacted by the impending Brexit, Britain’s economy expanded at a subdued 1.5% rate, effectively pushing its economy behind that of France in the world rankings. Eurozone inflation increased by 1.5% over a year earlier, prompting a reduction in stimulus measures including an interest rate hike. Germany, Italy, and Finland saw their third-quarter GDPs expand at a rate exceeding expectations, while economic growth slowed in France, Spain, and the Netherlands. The Japanese economy also pushed toward its 2.0% target inflation goal. A jump in capital spending helped propel Japan’s third-quarter GDP to an annualized 2.5% growth rate. The world’s second-largest economy continued to expand as China’s GDP enjoyed a 6.5% annualized growth rate. The Chinese government continued to maintain its grip on economic activity, particularly considering President Trump’s tough anti-China trade rhetoric.

Eye on the Year Ahead

The year 2018 is off to a rousing start, with the passage of major tax overhaul legislation that could impact consumer and business income and equities. The U.S. economy, which got off to a slow start in 2017, picked up steam throughout the year and enters 2018 in pretty good shape. The U.S. economy, as well as major world economies, are expected to continue to grow this year. The Fed has indicated that it expects to raise interest rates three times this year despite stubborn inflationary expansion. The housing market should continue to grow, especially if builders pick up the pace of new residential construction to add to dwindling inventory. However, political unrest continues to plague Washington, with the cloud of the Russian investigation hanging overhead as we begin 2018.

What I’m Watching This Week – 2 January 2018

The Markets (as of market close December 29, 2017)

While 2017 surely was a strong year for equities overall, the last week of the year was lackluster at best. Each of the benchmark indexes listed here posted week-over-week losses, except for the Global Dow, which increased 0.23%. Much of last week’s performance could be attributable to nothing more than light trading during the holiday-shortened week. The Nasdaq, which led the way for the year, lost the most ground, followed by the small-cap Russell 2000. The large-cap indexes of the Dow and S&P 500, which had been consistent gainers all year, pulled back the last week of 2017. Long-term bond prices rose, pushing yields on the 10-year Treasuries down more than 7 basis points by the end of the week.

The price of crude oil (WTI) climbed to $60.10 per barrel last Friday, up from the prior week’s closing price of $58.35 per barrel. The price of gold (COMEX) rose to $1,305.10 by early Friday evening, ahead of the prior week’s price of $1,279.10. The national average retail regular gasoline price increased to $2.472 per gallon on December 25, 2017, $0.022 above the prior week’s price and $0.163 more than a year ago.

Market/Index 2016 Close Prior Week As of 12/29 Weekly Change YTD Change
DJIA 19762.60 24754.06 24719.22 -0.14% 25.08%
Nasdaq 5383.12 6959.96 6903.39 -0.81% 28.24%
S&P 500 2238.83 2683.34 2673.61 -0.36% 19.42%
Russell 2000 1357.13 1542.93 1535.51 -0.48% 13.14%
Global Dow 2528.21 3078.46 3085.41 0.23% 22.04%
Fed. Funds target rate 0.50%-0.75% 1.25%-1.50% 1.25%-1.50% 0 bps 75 bps
10-year Treasuries 2.44% 2.48% 2.41% -7 bps -3 bps

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

Last Week’s Economic Headlines

  • The international trade deficit was $69.7 billion in November, up $1.6 billion, or 2.3%, from $68.1 billion in October. Exports of goods for November were $133.7 billion, $3.8 billion more than October exports. Imports of goods for November were $203.4 billion, $5.4 billion more than October imports.
  • The Conference Board Consumer Confidence Index® fell to 122.1 in December, down from 128.6 in November. The Present Situation Index, which measures consumers’ views on the present state of the economy, increased from 154.9 to 156.6, although the Expectations Index declined from 111.0 in November to 99.1 in December.
  • In the week ended December 23, initial claims for unemployment insurance was 245,000, unchanged from the previous week’s level. The advance insured unemployment rate remained 1.4%. The advance number of those receiving unemployment insurance benefits during the week ended December 16 was 1,943,000, an increase of 7,000 from the previous week’s level, which was revised up 4,000.

Eye on the Week Ahead

The first week of 2018 should see trading pick up. The December 2017 employment report is out this Friday, which could reveal a slight drop in the unemployment rate.

What I’m Watching This Week – 26 December 2017

The Markets (as of market close December 22, 2017)

Last week saw moderate trading and lukewarm gains. The small caps of the Russell 2000 outperformed the Dow and S&P 500, while the Global Dow posted the highest gains last week. Rising energy shares helped push the S&P 500, as oil prices continued to expand. The tax code overhaul didn’t seem to impact equities, at least not in the immediate aftermath of the passage of the landmark legislation. Meanwhile, long-term bond prices fell, pushing yields higher. The yield on 10-year Treasuries eclipsed its 2016 year-end closing yield heading into the last week of 2017.

The price of crude oil (WTI) climbed to $58.35 per barrel last Friday, up from the prior week’s closing price of $57.63 per barrel. The price of gold (COMEX) rose to $1,279.10 by early Friday evening, ahead of the prior week’s price of $1,258.20. The national average retail regular gasoline price decreased for the fourth week in a row to $2.450 per gallon on December 18, 2017, $0.035 lower than the prior week’s price but $0.186 more than a year ago.

Market/Index 2016 Close Prior Week As of 12/22 Weekly Change YTD Change
DJIA 19762.60 24651.74 24754.06 0.42% 25.26%
Nasdaq 5383.12 6936.58 6959.96 0.34% 29.29%
S&P 500 2238.83 2675.81 2683.34 0.28% 19.85%
Russell 2000 1357.13 1530.42 1542.93 0.82% 13.61%
Global Dow 2528.21 3041.15 3078.46 1.23% 21.76%
Fed. Funds target rate 0.50%-0.75% 1.25%-1.50% 1.25%-1.50% 25 bps 75 bps
10-year Treasuries 2.44% 2.35% 2.48% 13 bps 4 bps

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

Last Week’s Economic Headlines

  • According to the Bureau of Economic Analysis, the gross domestic product for the third quarter grew at an annual rate of 3.2%. The second-quarter GDP increased 3.1%. Gross domestic income — the sum of incomes earned and costs incurred in the production of GDP — increased 2.0% in the third quarter, compared with an increase of 2.3% in the second. The increase in the third-quarter GDP reflected growth in consumer spending, private inventory investment, nonresidential (commercial/business) fixed investment, exports, and government spending. Negatives in the report reflected decreases in residential fixed investment and imports. Also noteworthy, corporate profits increased $90.2 billion in the third quarter compared with an increase of $14.4 billion in the second quarter.
  • Consumer income and spending increased in November, according to the latest report from the Bureau of Economic Analysis. Personal (pre-tax) income increased $54.0 billion, or 0.3%; disposable (after-tax) personal income increased $50.9 billion, or 0.4%; and personal consumption expenditures (consumer spending) increased $87.1 billion, or 0.6%. Core personal consumption expenditures (excluding the volatile food and energy components) gained only 0.1% in November. Core PCE is an inflation indicator closely followed by the Fed. Personal saving, as a percentage of disposable personal income, increased 2.9% in November.
  • New residential construction (all housing types) slowed in November, according to the latest report from the Census Bureau. Building permits, an indicator of future construction, fell 1.4% compared to October, although applications for single-family homes increased 1.4%. Home completions dropped 6.1% in November from the prior month (single-family completions declined 4.6%). While permits and home completions fell, the number of new home construction starts increased by 3.3% in November, led by building starts for single-family homes, which climbed 5.3%.
  • Sales of new single-family homes soared in November, increasing 17.5% above the revised October rate. November’s new home sales are 26.6% above the November 2016 estimate. The median sales price of new houses sold in November 2017 was $318,700 ($319,600 in October). The average sales price was $377,100 ($394,700 in October). The seasonally adjusted estimate of new houses for sale at the end of November was 283,000. This represents a supply of 4.6 months at the current sales rate.
  • According to the National Association of Realtors®, sales of existing homes in November jumped 5.6% over October’s sales pace. Total sales, which include single-family homes, townhomes, condominiums, and co-ops, are 3.8% higher than a year ago, and haven’t been this high since the 6.42 million annual sales pace of December 2006. The median existing-home price for all housing types in November was $248,000, up 5.8% from November 2016 ($234,400). November’s price increase marks the 69th straight month of year-over-year gains. Total housing inventory at the end of November dropped 7.2% to 1.67 million existing homes available for sale (9.7% lower than a year ago), and has fallen year-over-year for 30 consecutive months. Unsold inventory is at a 3.4-month supply at the current sales pace, which is down from 4.0 months a year ago. The lack of inventory could slow sales down in December.
  • Demand for long-lasting manufactured goods increased in November — a good sign for manufacturers. New orders for durable goods increased $3.1 billion, or 1.3%, in November over the prior month. This increase, up 3 of the last 4 months, followed a 0.4% October decrease. Shipments of manufactured durable goods in November, up 6 of the last 7 months, increased $2.4 billion, or 1.0%, to $244.5 billion. This followed a 0.5% October increase. Unfilled orders for manufactured durable goods in November, up 3 consecutive months, increased $1.1 billion, or 0.1%, to $1,137.0 billion. Inventories of manufactured durable goods in November, up 16 of the last 17 months, increased $0.9 billion, or 0.2%, to $405.2 billion.
  • In the week ended December 15, the advance figure for initial claims for unemployment insurance was 245,000, an increase of 20,000 from the previous week’s level. The advance insured unemployment rate ticked up to 1.4%. The advance number of those receiving unemployment insurance benefits during the week ended December 9 was 1,932,000, an increase of 43,000 from the previous week’s level, which was revised up 3,000.

Eye on the Week Ahead

Typically, the week between Christmas and New Year’s Day does not provide much in terms of economic reports or stock market movement. However, this week does offer an opportunity to reflect on 2017 in general, and the stock market in particular, which has outpaced its 2016 performance.

What I’m Watching This Week – 18 December 2017

The Markets (as of market close December 15, 2017)

Each of the benchmark indexes listed here closed last week in the black, led by the Nasdaq and the Dow, both of which climbed over 1.00%. Stocks appear to have followed the ebb and flow of the proposed tax plan, which seems to have enough support for congressional passage this week. Investors may see a lowering of corporate taxes as leading to an increase in company profits and value. A 25 basis point increase in the federal funds rate did not seem to have much of an impact on investors.

The price of crude oil (WTI) climbed slightly to $57.63 per barrel last Friday, up from the prior week’s closing price of $57.34 per barrel. The price of gold (COMEX) rose to $1,258.20 by early Friday evening, ahead of the prior week’s price of $1,250.50. The national average retail regular gasoline price decreased to $2.485 per gallon on December 11, 2017, $0.015 lower than the prior week’s price but $0.249 more than a year ago.

Market/Index 2016 Close Prior Week As of 12/15 Weekly Change YTD Change
DJIA 19762.60 24329.16 24651.74 1.33% 24.74%
Nasdaq 5383.12 6840.08 6936.58 1.41% 28.86%
S&P 500 2238.83 2651.50 2675.81 0.92% 19.52%
Russell 2000 1357.13 1521.72 1530.42 0.57% 12.77%
Global Dow 2528.21 3015.17 3041.15 0.86% 20.29%
Fed. Funds target rate 0.50%-0.75% 1.00%-1.25% 1.25%-1.50% 25 bps 75 bps
10-year Treasuries 2.44% 2.37% 2.35% -2 bps -9 bps

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

Last Week’s Economic Headlines

  • Not unexpectedly, the Federal Open Market Committee decided to raise the target range for the federal funds rate 25 basis points to 1.25%-1.50%. This marks the third such rate increase in 2017. The Committee based this rate hike on continued strengthening of the labor market and rising economic activity. Despite hurricane-related disruptions, the Committee continues to expect that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace and labor market conditions will remain strong. Inflation on a 12-month basis is expected to remain somewhat below 2% in the near term but to stabilize around the Committee’s 2% objective over the medium term.
  • Producer prices increased 0.4% in November, the same increase as in each of the previous two months. Over the last 12 months, producer prices are up 3.1%, which is the largest 12-month price gain since the 12-month period ended January 2012. The producer prices less foods, energy, and trade services rose 0.4% in November, the largest advance since increasing 0.6% in April. For the 12 months ended in November, prices less foods, energy, and trade services moved up 2.4%.
  • The increase in producer prices may be impacting consumer prices. The Consumer Price Index (CPI) rose 0.4% in November and is up 2.2% over the past 12 months. Energy prices rose 3.9% for the month and accounted for about three-fourths of the increase in the CPI. The index for all items less food and energy increased a marginal 0.1%, and is up 1.7% over the 12 months ended in November.
  • November retail sales were $492.7 billion, an increase of 0.8% from the previous month, and 5.8% above November 2016. Retail sales excluding auto sales increased 1.0% in November. Gasoline station sales increased 2.8% for the month and are up 12.2% over last November. Nonstore (online) retail sales climbed 2.5% in November and are 10.4% ahead of November 2016 sales.
  • The number of job openings dipped by about 181,000 in October compared to September, according to the latest Job Openings and Labor Turnover report from the Bureau of Labor Statistics. Job openings have been at or near record high levels since June. Job openings increased in accommodation and food services (+94,000), construction (+48,000), and real estate and rental and leasing (+40,000). Job openings decreased in wholesale trade (-90,000), finance and insurance (-47,000), information (-32,000), and nondurable goods manufacturing (-26,000). In October, hires increased to 5.6 million and separations were little changed at 5.2 million. Over the 12 months ended in October, hires totaled 64.3 million and separations totaled 62.2 million, yielding a net employment gain of 2.1 million.
  • The federal deficit for November soared to $138.5 billion, about $75 billion higher than the October deficit and $1.8 billion higher than the November 2016 deficit. Total government receipts for November were $208.4 billion, and total government outlays were $346.9 billion. Over the first two months of the 2018 fiscal year, the deficit stands at $201.8 billion, which is 10.6% greater than the deficit over the same period last fiscal year.
  • S. import prices rose 0.7% in November after ticking up 0.1% in October. Higher prices for fuel drove the increase in November as nonfuel prices recorded no change. Import fuel prices rose 22.2% over the past year, driven by a 24.1% increase in petroleum prices. U.S. export prices increased 0.5% in November following a 0.1% advance the previous month. Export prices advanced 3.1% over the past 12 months and have not recorded an over-the-year decrease since the index fell 0.2% in November 2016.
  • According to the Federal Reserve, industrial production moved up 0.2% in November after posting an upwardly revised increase of 1.2% in October. Manufacturing production also rose 0.2% in November, its third consecutive monthly gain. The output of utilities dropped 1.9%. The index for mining increased 2.0%. The index for mining increased 2.0%, as oil and gas extraction returned to normal levels after being held down in October by Hurricane Nate. Excluding the post-hurricane rebound in oil and gas extraction, total industrial production would have been unchanged in November. Total industrial production was 3.4% above its year-earlier level.
  • In the week ended December 9, the advance figure for initial claims for unemployment insurance was 225,000, a decrease of 11,000 from the previous week’s level. The advance insured unemployment rate slipped to 1.3%. The advance number of those receiving unemployment insurance benefits during the week ended December 2 was 1,886,000, a decrease of 27,000 from the previous week’s level, which was revised up 5,000.

Eye on the Week Ahead

The week before Christmas is a busy one for economic news. The third and final report on the gross domestic product for the third quarter is available this week, along with November’s monthly report on sales of new and existing homes.