March 13, 2017 – Weekly American Wealth Review

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.