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February 2017

February 28, 2017 – Weekly American Wealth Review

By | Weekly Newsletter

Weekly Letter

Not many anticipated the stock market rally that began here in the U.S. following the Presidential election last November. If anything, the prevailing expectation by investors was more of the same slow growth economy and choppy stock market like we had seen the past couple of year under President Obama. To be fair, as President Obama’s term was coming to an end, the U.S. economy was beginning to see some green shoots of new growth, such the 2016 third quarter GDP reading of 3.5 percent, though this fell back to 1.9 percent in the fourth quarter of last year.

Unlike President Obama who took over the leadership of our country at one of the worst economic times in history, now known as “the great recession”, President Trump is taking the reins at a point of relative economic stability, but which lacks the growth necessary to provide jobs to the many Americans who would like to work but are still unemployed. Under the Obama administration the Federal Reserve responded to the economic crisis with three separate stimulus programs that essentially lifted the stock market up while keeping interest rates low. This allowed the economy and corporate profits to improve over time and justify stock valuations.

During their service as head of the Federal Reserve both Mr. Greenspan and Mr. Bernanke testified before congress that monetary policy wasn’t enough to reignite the economy, but that it also took fiscal policy from the legislative and executive branches of government to provide a more sustainable growth trajectory to the economy. At the time, the legislative branch didn’t have the will to craft such a plan. Today however, the Trump administration is promising to outline their fiscal stimulus plan in the coming weeks, the centerpiece of which includes an ambitious overhaul to the U.S. tax code. Though the plan has its skeptics, the administration is hopeful their fiscal stimulus package can be passed by August of this year, resulting in a more normalized economic growth rate of 3.0 percent or greater going forward.

Just like a sail boat using the wind to power its voyage, stock investors are attempting to get in front of this new source of stimulus, in hopes it will power their portfolios higher. When and if it occurs, the Trump tax plan could be a significant boom to the U.S. economy and the stock market, just as it was during the Regan years. However, the next several months will likely be a challenge for those investors who were hoping for an easy ride.

From election day (Nov. 8th) through last Thursday the Standard and Poor’s 500 had gained 10.48 percent, a respectable return in a little less than four months. As of Thursday, the Dow Jones Industrial Average had closed higher 10 days in a row, an accomplishment that suggests the advance is due at least for a pause. Though the stock market trends are pointing higher, without any new reason to reignite investor’s enthusiasm, the major market averages are more likely to consolidate their gains for a period before heading much higher.

Also on investors minds lately is the growing likelihood that interest rates are headed higher in the coming months. Recent comments by Federal Reserve President Janet Yellen have left the door open for a rate increase at the next FOMC meeting in March. However, as of Thursday, the Fed Fund Futures are projecting only a 38 percent probability of an increase at the March meeting, versus a 62.7 percent probability of an increase when they meet in May. Currently, U.S. Treasury bond prices are in a trading range, as bond investors attempt to navigate between a stock market that may be headed for a period of weakness and higher interest rates in the near future.

Sincerely,
Laif E. Meidell, CMT

We hope you have a great week,
Pat Meidell, Laif Meidell and Heidi Foster

Weekly Economic Update

A LITTLE LESS OPTIMISM AMONG CONSUMERS

February’s final University of Michigan consumer sentiment index came in at 96.3, down from its January mark of 98.5, but well above the 91.7 reading of a year earlier. Despite the descent, the index just had its best three months since early 2004.1FED

MINUTES SUGGEST RATE MOVE MAY BE NEAR

At the last Federal Reserve policy meeting, “many participants” in the Federal Open Market Committee felt it “might be appropriate to raise the federal funds rate again fairly soon” if inflation and hiring data are strong enough. Even with that language appearing in the latest FOMC minutes, the CME Group’s FedWatch Tool forecasts just a 22% chance of a quarter-point hike when the FOMC convenes in March.2,3

HOME SALES IMPROVED AT START OF 2017

According to reports from the Census Bureau and National Association of Realtors, new home sales advanced 3.7% in January, while existing home sales rose 3.3%. Tight inventory notwithstanding, new home purchases were up 5.5% from January 2016; resales were up 3.8% year-over-year.4

DOW EXTENDS ITS NOTEWORTHY WIN STREAK

Friday, the Dow Jones Industrial Average recorded its eleventh straight daily gain. The last time that happened? 1992. For the week, it rose 0.95% to 20,821.76. The Nasdaq Composite improved 0.11% in four trading days to 5,845.31; the S&P 500, 0.69% to 2,367.34. The S&P and Dow ended the week at all-time highs.5,6

THIS WEEK

Monday offers reports on January durable goods orders and pending home sales, and earnings from Frontier Communications, Hertz Global Holdings, Horizon Pharma, and Priceline Group. The Conference Board’s February consumer confidence index appears Tuesday, plus the second estimate of Q4 GDP and earnings news from Acadia Pharmaceuticals, AutoZone, Big 5, Domino’s, La Quinta Holdings, Palo Alto Networks, Ross Stores, SeaWorld Entertainment, Sempra Energy, Target, and Universal Health Services. On Wednesday, investors consider the latest ISM factory PMI, January’s PCE price index, January consumer spending, a new Federal Reserve Beige Book, and earnings from American Eagle Outfitters, Best Buy, Broadcom, Dollar Tree, Icahn Enterprises, Lowe’s, Monster Beverage, Office Depot, and Shake Shack. Thursday brings a new Challenger job-cut report, new initial claims numbers, and earnings from Abercrombie & Fitch, Autodesk, Barnes & Noble, Costco, Kroger, Staples, and Wingstop. Friday, Fed chair Janet Yellen speaks on the economic outlook in Chicago, ISM issues its latest non-manufacturing PMI, and Big Lots reports Q4 results. (The Department of Labor’s February jobs report arrives on March 10.)

February 21, 2017 – Weekly American Wealth Review

By | Weekly Newsletter

Weekly Letter

After the long holiday weekend, investors appeared to return to the markets with renewed optimism on Tuesday. U.S. stocks gapped higher at the opening bell, following the pre-market release of better than expected earnings news from a few of the U.S.’s top retailers. Within the first half hour of the trading day, investors received an additional boost of confidence as the February PMI Manufacturing Index flash reported a reading of 54.3. Any reading of 50 or above signifies expansion in the manufacturing sector, so even though the February reading was slightly below the prior month’s reading of 55.1, it still signifies a decent rate of growth. The Flash report is usually released about a week prior to the final report and gives investors some heads up on what to expect for the current month.

All the major market averages closed at new all-time highs on Tuesday with the Standard and Poor’s 500 rising 0.60 percent and the Nasdaq Composite gaining 0.47 percent. More importantly, Tuesday’s rally was broad based, with the Russell 2000 Small Cap Index leading the way higher, up 0.78 percent on the day.

In some ways, the stock market’s advance looks completely healthy, such as the resent highs in the New York Stock Exchange’s advance decline line. However, for some subsets of the market such as small companies, other indicators are beginning to show that that number of small company stocks participating in the recent rally is beginning to decline. This means that fewer companies are lifting the indexes, and just one sign that a rally is running out of steam.

Another indication that the recent rally in long in the tooth is the recent outperformance of two typically defensive sectors. On Tuesday, the Dow Jones U.S. Real Estate Index rose 1.26 percent and the Dow Jones U.S. Utilities Index gained 1.01 percent on the day.

We will continue to watch and see what happens with the various government and economic announcements in the next couple of weeks.

Sincerely,
Laif E. Meidell, CMT

We hope you have a great week,
Pat Meidell, Laif Meidell and Heidi Foster

Weekly Economic Update

RETAIL SALES ROSE 0.4% IN JANUARY

Consumer spending on household electronics and appliances powered this gain. Analysts polled by Reuters had expected a 0.1% advance. Core retail purchases also rose 0.4% last month. The Department of Commerce revised the December increase for retail sales upward to 1.0%. Across the 12 months ending in January, retail sales advanced 5.6%.1

INFLATION PRESSURE MOUNTS

In January, the headline Consumer Price Index climbed 0.6%. That was its greatest monthly gain in four years, and it took annualized inflation to a 4-year high of 2.5%. Producer prices also jumped 0.6% in January, in the largest monthly increase seen since September 2012; that development left them up 1.6% year-over-year.1,2

BUILDING PERMITS UP, HOUSING STARTS DOWN

Unsurprisingly, groundbreaking declined in January. The Census Bureau recorded a 2.6% fall for housing starts in the winter weather. The rate of permits issued for future projects, however, increased by 4.6%.3

FURTHER GAINS IN A BULLISH FEBRUARY

The S&P 500 pulled off another weekly advance, adding 1.51% from February 13-17 on its way to a Friday settlement of 2,351.16. Its 5-day performance actually lagged both the Dow and the Nasdaq: the blue chips gained 1.75%, to 20,624.05, as the broad tech sector benchmark rose 1.82%, to 5,838.58.4

THIS WEEK

Monday is Presidents Day, so U.S. stock and bond markets are closed; America’s Car-Mart and Dillard’s report Q4 results. Tuesday, Advance Auto Parts, Cracker Barrel, HealthSouth, Home Depot, Kaiser Aluminum, La-Z-Boy, Macy’s, Medtronic, Newmont Mining, Nautilus, Papa John’s, Red Robin, and Walmart all join the earnings parade. On Wednesday, earnings from Cheesecake Factory, Chico’s FAS, DISH Network, Fitbit, Garmin, Green Dot, HP, Jack-in-the-Box, L Brands, Popeyes, Public Storage, Six Flags Entertainment, Square, Sunoco, Tesla, TJX, Toll Brothers, Transocean, and Weibo complement minutes from February’s Federal Reserve policy meeting and January existing home sales numbers. A new initial claims report arrives Thursday, along with earnings from AMC Networks, Baidu, Chesapeake Energy, Gap, Herbalife, Hewlett Packard Enterprise, Hormel Foods, iHeartMedia, Intuit, Kohl’s, Live Nation, Mitel, Nordstrom, Pinnacle Foods, Sears Holdings, Sprouts, and Toro. Friday, earnings from Berkshire Hathaway, Boise Cascade, Foot Locker, JCPenney, Magellan Health, and Revlon emerge, plus the final February University of Michigan consumer sentiment index and the January new home sales report.

Meidell: S&P 500’s value — a cool $20 trillion

By | Published Articles

The big news Monday was the value of stocks listed on the Standard and Poor’s 500 surpassing $20 trillion for the first time, due to expectations of rising U.S. economic growth and improving corporate profits.

The major market averages continued their assent Monday, led by the Dow Jones Industrial Average, up 142 points or 0.7 percent. Though larger-company stocks received the largest boost from Monday’s rally, the advance was still broad-based, with the Russell 2000 small-company index gaining 0.25 percent and closing at an all-time high. Both the Standard and Poor’s 500 and the Nasdaq Composite rose 0.52 percent. Monday’s gains are a continuation of the rally that began Thursday after President Trump said he would unveil a “phenomenal” business tax package very soon.

According to Credit Suisse, smaller companies like those that make up the Russell 2000 have less access to international tax loopholes. As a result, smaller companies typically have to pay a 32 percent effective tax rate, versus the larger companies that make up the S&P 500 (a roughly 26 percent rate). For this reason, may investors believe smaller companies will benefit more if President Trump is successful in convincing congress to lower the corporate tax rate from 35 percent, the highest rate of any developed nation.

Investors appear to be anticipating the U.S. economy heating up in the coming months by how they are investing today. The top-performing sectors Monday were led by the Dow Jones U.S. Basic Materials index, up 1 percent, followed by the Dow Jones U.S. Financial index gaining 0.92 percent. These sectors appear to be anticipating inflation, which includes not only rising commodity prices, but rising interest rates, as well.

This week the top-performing commodities were led by the S&P GSCI Unleaded Gasoline index, up a staggering 16.54 percent over the past five trading days, followed by the S&P GSCI Wheat index, higher by 10.53 percent.

February 13, 2017 – Weekly American Wealth Review

By | Weekly Newsletter

Weekly Letter

The big news on Monday was the value of stocks listed on the Standard and Poor’s 500 surpassing $20 trillion for the first time, due to expectations of rising U.S. economic growth and improving corporate profits.

The major market averages continued their assent on Monday led by the Dow Jones Industrial Average up 142 points or 0.70 percent on the day. Though larger company stocks received the largest boost from Monday’s rally, the advance was still broad based with the Russell 2000 small company index gaining 0.25 percent and closing at a new all-time high. Both the Standard and Poor’s 500 and the Nasdaq Composite rose 0.52 percent on the day. Monday’s gains are a continuation of the rally that began last Thursday after President Trump said he would unveil a “phenomenal” business tax package very soon.

According to Credit Suisse, smaller companies like those that make up the Russell 2000 have less access to international tax loopholes. As a result, smaller companies typically have to pay a 32 percent effective tax rate, versus the larger companies that make up the S&P 500 and pay a roughly 26 percent rate. For this reason, many investors believe smaller companies will benefit more if President Trump is successful in convincing congress to lower the corporate tax rate from 35 percent, the highest rate of any developed nation.

Investors appear to be anticipating the U.S. economy heating up in the coming months by how they are investing today. The top performing sectors on Monday were led by the Dow Jones U.S. Basic Materials index up 1.00 percent, followed by the Dow Jones U.S. Financial index gaining 0.92 percent on the day. These sectors appear to be anticipating inflation which includes not only rising commodity prices, but rising interest rates as well.

We will be watching to see what happens with the various tax announcements in the next couple of weeks.

Sincerely,
Laif E. Meidell, CMT

Happy Valentine’s Day! We hope you have a great week,
Pat Meidell, Laif Meidell and Heidi Foster

Weekly Economic Update

CONSUMER SENTIMENT SLIPS A BIT

The University of Michigan’s preliminary February index of consumer sentiment came in at a reading of 95.7 Friday, compared with a final January mark of 98.5 (which was a 13-year peak). Economists polled by Bloomberg had expected a slight decline to 98.0. While this was the index’s lowest level in three months, it still topped many of the monthly readings from 2016.1HOW IS

EARNINGS SEASON GOING?

Nearly two-thirds of S&P 500 members have issued Q4 results so far. As Zacks Investment Research noted Wednesday, more than 69% of these S&P components have beaten earnings-per-share estimates; more than 54% have surpassed revenue forecasts. Total Q4 earnings for S&P firms are projected to rise 7.3% over Q4 2015, the strongest annual earnings growth since Q4 2014.2

GOLD GAINS AS OIL WAVERS

Gold futures advanced 1.12% on the COMEX during a choppy week to a Friday settlement of $1,233.30. Light sweet crude for March delivery dipped at midweek, but then rebounded, settling at $53.81 Friday for a 5-day retreat of just 0.09%.3

STOCKS PUSH HIGHER

Wall Street rallied strongly Friday after President Trump (and the White House) mentioned an upcoming outline for business and individual income tax reform. For the week, the S&P 500 gained 0.81% to 2,316.10; the Nasdaq, 1.19% to 5,734.13; and the Dow, 0.99% to 20,269.37.4,5

THIS WEEK

On Monday, Noble Energy, Rent-A-Center, and Snyder’s-Lance offer earnings news. Tuesday, Federal Reserve chair Janet Yellen begins two days of testifying to Congress on monetary policy; the January PPI also arrives, plus earnings from Agilent Technologies, AIG, Devon Energy, Dr. Pepper Snapple, Express Scripts, Molson Coors, and T-Mobile. Reports on January retail sales and industrial output appear Wednesday, along with the January CPI and earnings announcements from Analog Devices, Applied Materials, Avis Budget Group, CBS, Choice Hotels, Cisco, Denny’s, GoDaddy, Groupon, Hilton Worldwide Holdings, Huntsman, Kraft Heinz, Marathon Oil, Marriott International, NetApp, NetEase, PepsiCo, TiVo, TripAdvisor, and Wyndham Worldwide. Thursday offers fresh data on building permits, housing starts, and initial claims; investors also review earnings from Avon, Boise Cascade, Cabela’s, Dean Foods, DISH Network, Duke Energy, Hyatt, and Waste Management. Bloomin’ Brands, Campbell Soup, Deere, Fluor, J.M. Smucker, and Spectra Energy announce earnings Friday.

Meidell: Market takes cues from Washington

By | Published Articles

After reporting on the stock market the past few weeks, I am beginning to get a sense of how our local meteorologist growing up must have felt, having to report the weather in a coastal town in south central California where the local temperature never seemed to change by more than a few degrees. With 310 companies that make up the Standard & Poor’s 500 having reported earnings so far, according to FactSet, earnings are now expected to grow by 5.2 percent year over year, which is well above the 3.2 percent rate that analysts had expected at the end of 2016.

However, even with the recent news of above average earnings, the stock market still appears to be a policy driven market. This means that investors are currently content to take their cues primarily from Washington. This might explain why the stock market appears to be going nowhere lately. Just as the recent tug of war going on between the Trump administration and Washington D.C. lawmakers has had the effect of slowing much of what the new Trump administration has tried to move forward, the stock market appears unable to move forward (upward) as well.

On Tuesday, the S&P 500 eked out a gain of 0.02 percent while the Nasdaq Composite rose 0.19 percent. Though the stock market appears to be in a trance lately, one of the bright spots on Tuesday was the technology sector with the Dow Jones U.S. Technology index up 0.49 percent on the day. However, one concern has been the recent underperformance of small companies. The broad stock market performs best when small companies are in the lead, but that hasn’t been the case lately, with Russell 2000 declining 0.44 percent on Tuesday. When small companies under perform, it typically signifies that there is less money sloshing around in the stock market, and an indication that investors are holding on to their dollars a little tighter.

This week’s top performing sectors are led by the Dow Jones U.S. Technology index up 2.35 percent over the past five trading days, followed by the Dow Jones U.S. Healthcare index higher by 1.44 percent over the same period.

Meidell: Major markets stuck in a time correction?

By | Published Articles

Though the major market averages briefly closed at all-time highs during January, those rallies ended almost as quickly as they began, leaving the markets with little upward progress. However, all of this waiting and hoping for the stock market to continue higher might be causing some investors to grow impatient. As of Monday’s close, the Standard and Poor’s 500 hadn’t exceeded a daily range of more than 1 percent for 35 consecutive days, making this the longest run of low volatility of this type going back to 1974, according to Thompson Reuters data.

Some believe that stocks can go through both price corrections and time corrections. A price correction is when stocks move for a period of time in the opposite direction of the primary trend. In other words, if the price has been moving higher for a period of time, it typically declines for a short spell, before resuming its trend and moving higher once again. On the other hand, if price has moved too quickly in one direction, it can appear to stall out, as it trades horizontally for a time before once again resuming its primary trend.

With the major market averages so far stubbornly holding on to their gains, the stock market appears to be in a time correction. The major averages were little changed Monday, with the Standard and Poor’s 500 down 0.21 percent and the Nasdaq Composite slipping 0.06 percent.

As we begin the new month, earning season continues. As of Monday, earnings season is a little over halfway completed, with 279 of the companies that make up the S&P 500 having reported their fourth-quarter earnings.

This past week, Philippine President Rodrigo Duterte ordered the closure of 23 mines for environmental reasons. These mines produce mainly nickel and represent roughly 8 percent of the world’s supply. The silvery metal is used primarily in the production of stainless steel, magnets and coins. As speculators rushed back into the nickel market, this week’s top performing commodities were led by the S&P GSCI Nickle index, up 7.96 percent over the past five trading days, followed by the S&P GSCI Palladium index, higher by 4.86 percent.

February 6, 2017 – Weekly American Wealth Review

By | Weekly Newsletter

Weekly Letter

Though the major market averages briefly closed at new all-time highs during the month of January, those rallies ended almost as quickly as they began, leaving the market averages with little upward progress. However, all of this waiting and hoping for the stock market to continue higher may be causing some investors to grow impatient. As of Monday’s close, the Standard and Poor’s 500 hadn’t exceeded a daily range of over 1.0 percent for 35 consecutive days, making this the longest run of low volatility, of this type, going back to 1974, according to Thompson Reuters data.

Some believe that stocks can go through both price corrections and time corrections. A price correction is when stocks move for a period of time in the opposite direction of the primary trend. In other words, if the price has been moving higher for a period of time, it typically declines for a short spell, before resuming its trend and moving higher once again. On the other hand, if price have moved too quickly in one direction, price can appear to stall out, as it trades horizontally for a time, before once again resuming its primary trend.

With the major market averages so far stubbornly holding on to their gains, the stock market appears to be in a time correction. The major averages were little changed on Monday with the Standard and Poor’s 500 down 0.21 percent on the day.

As we begin the new month, earnings season continues. As of Monday, earrings season is a little over half way completed with 279 of the companies that make up the S&P 500 having reported their fourth quarter earnings.

Sincerely,
Laif E. Meidell, CMT

We hope you have a great week,
Pat Meidell, Laif Meidell and Heidi Foster

Weekly Economic Update

POSITIVES & NEGATIVES IN JANUARY’S JOB DATA

The Department of Labor’s latest jobs report showed 227,000 net new hires last month. Unfortunately, wages grew just 0.1% in January as the headline jobless rate rose slightly to 4.8%. The U-6 rate, counting the underemployed, rose 0.2% to 9.4%.1

STRONG CONSUMER CONFIDENCE & SPENDING

While the Conference Board’s monthly consumer confidence index declined 1.5 points in January, it remained at a high level with a 111.8 reading. Personal spending improved 0.5% in December, with personal incomes up 0.3%.2

ISM INDICES SHOW FURTHER SECTOR EXPANSION

The Institute for Supply Management’s purchasing manager indices were at high levels in January. ISM’s factory index gained 1.5 points to 56.0. Its service sector gauge ticked down 0.1 points to 56.5, but that still signaled solid growth.3

DODD-FRANK ACT FACES A REVIEW

Through an executive order issued Friday, President Donald Trump authorized a review of this law aimed at regulating activities of big banks. According to the New York Times, the directive also calls for major sections of Dodd-Frank to be revised.4

MINOR PROGRESS FOR THE S&P 500

The Federal Reserve stood pat on interest rates, bank shares rose on the Dodd-Frank news, and January hiring totals exceeded forecasts. These developments helped stocks make small weekly gains. In five days, the S&P 500 rose 0.12% to 2,297.42, and the Nasdaq 0.11%, to 5,666.77. The Dow lost 0.11% to settle at 20,071.46 Friday.5

THIS WEEK

CNA Financial, Hasbro, Loews Corp., Sysco, Tesoro, 21st Century Fox, and Tyson Foods announce earnings Monday. Tuesday’s earnings roll call features results from Akamai, Aramark, Archer Daniels Midland, Buffalo Wild Wings, Container Store, General Motors, Genworth Financial, Gilead Sciences, Lennox, Michael Kors, Mosaic, NETGEAR, O’Reilly, Panera Bread, Penske, Spirit Airlines, Take-Two Interactive, Vulcan Materials, and Walt Disney Co. Wednesday, earnings emerge from Alaska Air, Allergan, Exelon, GlaxoSmithKline, Goodyear, Humana, Prudential Financial, Time Warner, W.R. Grace, and Whole Foods. New initial claims numbers arrive Thursday, plus earnings from Activision Blizzard, Advance Auto Parts, Beazer, Coca-Cola, Cummins, CVS Health, Dunkin’ Brands, Expedia, Gannett, Kellogg, Kemper, NCR, Nvidia, Occidental Petroleum, Pandora, Skechers, Twitter, Viacom, Western Union, Yelp, Yum! Brands, and Zynga. Friday, the University of Michigan’s latest household sentiment index appears, plus Q4 results from CBRE Group.