Monthly Archives

March 2017

Meidell: Market upbeat after Fed rate hike

By | Published Articles

Investors began the past week in a general malaise, with high expectations that the Federal Reserve would raise interest rates following its Federal Open Market Committee meeting on Wednesday, but with uncertainty about how both bond and stock markets would react to the news. In hindsight, the Fed pulled off something that would have made Houdini proud, not only raising the benchmark federal-funds rate by a quarter percentage point to the 0.75 percent to 1.0 percent range, and projecting two more rate increases later this year, but making investors feel good about it as well.

The Fed meeting is more than just a potential rate change announcement, it’s also an opportunity for economists and investors to learn the Federal Reserve’s opinion of the U.S. economy, along with its forecast for economic growth and inflation in the coming year.

In a news conference following the FOMC meeting, Fed Chairwoman Janet Yellen said, “The simple message is the economy’s doing well.” She went on to say that although the Fed had not changed its forecast for economic growth, unemployment or inflation, it expected further improvement. The central bank also reminded investors that its goal of 2.0 percent inflation “Is not a ceiling on inflation. It’s a target.” It also expects inflation will run above and below that mark from time to time.

Yellen also said, “We have confidence in the robustness of the economy and its resilience to shocks.”

Some are calling the Fed’s deliberate trajectory for higher rates later this year, and into next year, a new phase for the Federal Reserve. At the same time, this new phase comes with some challenges, such as keeping inflation under control while not stalling out the growth plans of President Donald Trump, who has hopes of boosting the economy to levels not seen for over a decade.

Up until last week’s FOMC announcement, the stock market had been experiencing a subtle erosion below the surface, as shares of smaller companies underperformed larger ones, like those found in the Standard & Poor’s 500 index, over the past month. This type of behavior is indicative of a lack of liquidity in the stock market, or in other words less money sloshing around as investors hold more cash. However, by the end of the trading day on Wednesday, the stock market had experienced a significant rebound, led by smaller companies. An indication that investors were feeling more comfortable with taking risk.

Heading into the FOMC meeting, the bond market’s apprehension was not so subtle, as bond prices fell and interest rates rose in anticipation of the rate adjustment. These concerns seemed justified, as investors recalled the two-day drop in bond prices following the rate increase just three months ago, in December. To the surprise of many, like the stock market, bonds also got a boost from the Fed announcement, with high quality and low quality bonds alike experiencing the largest one day gains since the middle of last year.

Most importantly, the market’s reaction to the rate increase this week is an indication that investors believe the financial conditions exist for the Fed to continue with its two additional rate hikes later this year, without hurting the economy and scaring markets.

March 13, 2017 – Weekly American Wealth Review

By | Weekly Newsletter

Weekly Letter

The state of Missouri is commonly known as the “Show-Me” state a nickname that is said to have come from a speech given in 1899 by Missouri’s U.S. Congressman Willard Duncan Vandiver. During his speech, he said, “I come from a state that raises corn and cotton and cockleburs and Democrats, and frothy eloquence neither convinces nor satisfies me. I am from Missouri. You have to show me.”

This past week marked the beginning of the Trump administration’s rollout of the American Health Care Act, which if eventually passed will replace the Patient Protection and Affordable Care Act, also known as Obamacare. The choppiness in the broad market this past week, almost appeared to be a reflection of the back and forth goings on in congress over the proposed healthcare bill. With the U.S. stock market riding high on campaign promises of major reform to both healthcare and tax laws, investors will be watching closely in the coming weeks to see how well congress can work together to pass a health care bill that will benefit the majority of Americans.

Like Missourian’s, investors are at the point of saying to congress, “You have to show me.” Should congress lack the will to work together on health care reform, this would cause a significant erosion in investor confidence and lower expectations that congress can pass a meaningful tax reform bill later this year. As of Thursday’s market close, investors appear to be in favor of the new health care bill, with the Dow Jones U.S. Healthcare Index up 0.11 percent over the past five trading days, versus the S&P 500 which has slipped 0.71 percent over the same period.

Health care companies only make up approximately 14 percent of the Standard and Poor’s 500, so the success or failure of congress to agree on a new health care bill will only directly impact a slice of the companies that make up the U.S. economy. Of course, most if not all American companies will be impacted in some way by any new healthcare law.

Though Washington D.C. is having more of an impact on the stock market lately than the Federal Reserve, this week’s FOMC meeting seems to be having an impact on the bond market lately. Currently, the Fed Fund Futures were predicting a 100 percent probability of a rate increase at the conclusion of the Fed meeting this Wednesday, and a 47.6 percent probability of another rate increase at their June meeting.

Recently bond investors have become increasingly nervous, such that over the past two weeks the ICE U.S. Treasury 7-10 Year Bond index has declined 1.73 percent, and the ICE U.S. Treasury 20+ Year Bond index has fallen 3.17 percent over the same period.

However, the fact that the stock market is holding together as well as it is in the face of rising short-term and long-term interest rates is a good sign. It also means that investors will be looking for positive news from both economic reports and from Washington, that suggests the U.S economy can continue to grow in a higher rate environment.

Sincerely,
Laif E. Meidell, CMT

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

Weekly Economic Update

COMPANIES HIRED READILY IN FEBRUARY

U.S. firms added 235,000 net new jobs last month, and the latest Department of Labor employment report showed the largest growth occurring in the construction and education/health care sectors. The DoL also revised January’s job gains upward by 11,000 to 238,000. Payroll expansion has averaged 209,000 per month since December. The headline (U-3) jobless rate ticked down 0.1% to 4.7%, and the total (U-6) jobless rate, counting the underemployed, fell 0.2% to 9.2%.1

FED FUTURES MARKET: MARCH RATE HIKE A GIVEN

The CME Group’s FedWatch Tool, which tracks the prices of 30-day Fed Fund futures to get a bead on traders’ reactions to potential monetary policy moves, put the chance of a March 15 quarter-point interest rate hike at 93% Friday. The odds of another quarter-point move in June were put at 51%.2

OIL SLUMPS 9.1% IN A WEEK

During March 6-10, WTI crude had its worst week since November, retreating to a Friday close of $48.49 on the NYMEX. News of rising output and plentiful stateside inventory hurt prices. In other oil news, a billion-barrel crude reserve was just found in the Alaskan interior – the largest such discovery since the 1980s.3,4

STOCKS RETREAT, BUT JUST SLIGHTLY

As the bull market turned eight years old, the S&P 500 turned a bit south, losing 0.44% in five days. At the closing bell Friday, it stood at 2,372.60. The Nasdaq Composite also fell for the week, declining 0.15% to 5,861.73. The Dow Jones Industrial Average gave back 0.49% in the same interval, settling at 20,902.98 Friday.5

THIS WEEK

Monday, Del Taco and Jamba report Q4 results. The February PPI arrives Tuesday, along with earnings from Bon-Ton Stores, DSW, and Hostess Brands. Wednesday, investors worldwide react to the Federal Reserve’s latest monetary policy statement, plus the February CPI, February retail sales figures and earnings news from GUESS, Jabil Circuit, Oracle, and Williams-Sonoma. On Thursday, Wall Street reviews initial jobless claims, and the Census Bureau’s report on February construction activity; investors also consider earnings from Adobe Systems and Dollar General. The preliminary March University of Michigan consumer sentiment index appears Friday, complementing the Fed’s report on February industrial output and Q4 results from Tiffany & Co.

Meidell: Investors’ eyes on health care debate

By | Published Articles

The state of Missouri is commonly known as the “Show-Me” state, a nickname that is said to have come from a speech given in 1899 by Missouri’s U.S. Congressman Willard Duncan Vandiver. During his speech, he said, “I come from a state that raises corn and cotton and cockleburs and Democrats, and frothy eloquence neither convinces nor satisfies me. I am from Missouri. You have to show me.”

This past week marked the beginning of the Republican rollout of the American Health Care Act, which if eventually passed will replace the Patient Protection and Affordable Care Act, also known as Obamacare. The choppiness in the broad market this past week almost appeared to be a reflection of the back-and-forth going on in Congress over the proposed health care bill. With the U.S. stock market riding high on campaign promises of major reform to both health care and tax laws, investors will be watching closely in the coming weeks to see how well Congress can work together to pass a health care bill that will benefit the majority of Americans.

Like Missourians, investors are at the point of saying to Congress: “You have to show me.” Should Congress lack the will to work together on health care reform, this would cause significant erosion in investor confidence and lower expectations that lawmakers can pass a meaningful tax reform bill later this year. As of Thursday’s market close, investors appeared to be in favor of the new health care bill, with the Dow Jones U.S. Healthcare index up 0.11 percent over the past five trading days, versus the Standard & Poor’s 500 index, which has slipped 0.71 percent over the same period.

Health care companies only make up approximately 14 percent of the S&P 500, so the success or failure of Congress to agree on a new health care bill will only directly impact a slice of the companies that make up the U.S. economy. Of course, most, if not all, American companies will be impacted in some way by any new health care law.

Though Washington, D.C., is having more of an impact on the stock market lately than the Federal Reserve, next week’s FOMC meeting seems to be having an impact on the bond market lately. As of Thursday’s close, the Fed fund futures were predicting a 100 percent probability of a rate increase at the conclusion of the Fed meeting this Wednesday, and a 47.6 percent probability of another rate increase at its June meeting.

Recently bond investors have become increasingly nervous, such that over the past two weeks the ICE U.S. Treasury 7-10 Year Bond index has declined 1.73 percent, and the ICE U.S. Treasury 20+ Year Bond index has fallen 3.17 percent over the same period.

However, the fact that the stock market is holding together as well as it is in the face of rising short term and long term interest rates is a good sign. It also means that investors will be looking for positive news from both economic reports and from Washington, that suggests the U.S economy can continue to grow in a higher rate environment.

Meidell: A pro-growth agenda is a powerful thing

By | Published Articles

Whether you loved or hated President Trump’s speech to Congress on Tuesday evening, it’s clear that the U.S. stock market went from nearly flatlining on Tuesday to receiving a huge adrenaline shot on Wednesday, lifting the major market averages to new all-time highs, and the Dow Jones Industrial Average by more than 300 points to close above 21,000 for the first time in history. Over that past two decades, large swings in the stock market were more likely to have been associated with comments or actions from a central banker, and not from a sitting president. We have to go back to President Bill Clinton’s term in office to find a time where the stock market was making new highs driven in part by a pro-growth presidential agenda.

It used to be that investors turned to central bankers like the Federal Reserve or the European Central Bank for direction on the economy and how to allocate their capital within the financial markets. Over the past two decades, from Federal Reserve Chairman Alan Greenspan to Chairman Ben Bernanke, and now Chairwoman Janet Yellen, investors have tried to follow the money in order to ride the coattails of the central bank where possible. I say used to because that’s the way it was up until last week just before President Donald Trump spoke to Congress on Tuesday. In fact, following Monday’s close of this past week it was beginning to appear as though the stock market’s recent advance was likely running out of steam, particularly after posting a gain for the 12th consecutive day in a row, an event that has only taken place two other times in the last 120 years (there has never been a 13-day streak).

To be fair, Trump’s comments shouldn’t get all the credit for the market’s oversized rally on Wednesday, but it clearly lit the fuse. Don’t forget there were a fair number of investors early in the week who thought the market was going lower, at least for a few days, and had started to short the market in hopes of making some money on the way down. Some of these investors likely decided to reverse their short position, creating what is called a short covering rally. Additionally, in a report earlier this year, Aldridge and Krawciw estimated that in 2016 the daily trading volume on the stocks exchanges by computers, also referred to as algorithmic trading, accounted for 10 to 40 percent of the daily volume here in the U.S. This means that some of Wednesday’s rally, and Thursday’s decline, can also be attributed to computer programs trying to make a buck, and not just enthusiastic investors.

The point is not to diminish the impact of Trump’s comments on the stock market, but to keep a sober view of the short-term nature of some market rallies. In a larger context, what we are likely seeing, and maybe relearning, is that a pro-growth economic agenda is a powerful thing and should not be underestimated, if it can be supported by Congress later this year. This is a time when patience is a virtue. The problem some investors may have, particularly those who support the president, is becoming overly aggressive with their portfolio at a time in their life when they should be reducing their risk.

Looking ahead, the stock market still has to maneuver past the March FOMC meeting to be held on March 14 and 15. Like a 5-year-old on Christmas Eve, investors tend to get a little anxious just before the Fed’s interest rate announcement. Give that Yellen has left the door open for an interest rate increase this month, this time shouldn’t be any different.