Given the disappointments caused by congress over the past two weeks, it’s somewhat surprising the major market averages are holding up as well as they are.
A little over a week ago, Americans watched as Republican lawmakers in the House of Representatives failed to meet their own deadline to repeal and replace the Affordable Care Act, also known as Obamacare. Wall Street was particularly interested in the event not only because of its potential impact on the healthcare sector, but because the event itself would serve as a litmus test for how well President Trump and the Republican congress would work together to accomplish the President’s major campaign promises during his term.
U.S. stocks suffered their largest decline in over five months, two days prior to the scheduled House vote on the new healthcare bill, as it became evident that the bill lacked the necessary votes to pass. Investors had every right to be disappointed and interpret the Republican House’s inability to work together as a preview of what to expect in the future. The tax reform bill, expected to go before congress later this year, is the real stimulus package that investors are interested in, and what’s generally believed to be creating most of the optimism seen in the stock market.
Surprisingly, investors appeared to overcome their disappointment relatively quickly, with the Standard and Poor’s 500 building a base over the next four days, as investors used the dip as a buying opportunity. This was followed by a multi-day rally this past week that has regained a significant portion of the prior week’s losses. Though Republican lawmakers have clearly stumbled in some investors eyes, it does not appear that they have fallen.
Fortunately, there has been plenty of positive economic news this past week to shore up investor optimism. This included favorable comments from a Federal Reserve President and better than expected U.S. economic news.
Last Thursday in a prepared speech given in Sarasota, Florida, Federal Reserve President William Dudley said, “While there is still considerable uncertainty about fiscal policy and its potential contribution to economic activity, it seems likely that it will shift over time to a more simulative setting.” He went on to say, “Consequently, it appears that the risks for both economic growth and inflation over the medium term may be shifting gradually to the upside.” That’s “Fed Speak” for the economy is getting stronger. The Mr. Dudley’s comments are distinctly more optimistic than a year ago when he along with other Fed officials felt the risks were to the downside, due to weak economic growth and diminishing inflation forecasts.
This past week, investors learned that pending home sales for the month of February rose by 5.5. Additionally, during the fourth quarter GDP rose by 2.1 percent, beating estimates, and personal consumption gained 3.5 percent, also above expectations.
At the moment, both stock and bond indexes appear to be trading sideways, with favorable economic news putting a floor under the stock market, and a lack of direction out of Washington keeping stock prices from going much higher.
Laif E. Meidell, CMT
We hope you have a great week,
Pat Meidell, Laif Meidell and Heidi Foster
Weekly Economic Update
PERSONAL SPENDING SLOWS
Consumers apparently chose saving over spending in the second month of the year. Last week, a Department of Commerce report noted only a 0.1% gain for personal spending in February. That happened even with personal incomes rising 0.4%, nearly matching the 0.5% January advance. In other news concerning personal spending, the Bureau of Economic Analysis raised its estimate of fourth-quarter GDP to a final reading of 2.1% from the previous 1.9%.1
HOUSEHOLDS MAINTAIN THEIR OPTIMISM
The Conference Board’s much-watched consumer confidence index came in at 125.6 for March, soaring 9.5 points to a level unseen since December 2000. Economists polled by Reuters expected the index to descend slightly to 114.0. Losing 0.7 points from its preliminary March result, the University of Michigan’s household sentiment index remained high at 96.9.1,2
A BOOST FOR PENDING HOME SALES
Housing contract activity increased 5.5% in February by the estimate of the National Association of Realtors, more than reversing January’s 2.8% decline. The latest S&P/Case-Shiller 20-city home price index (January) showed a 0.2% seasonally adjusted monthly gain and a 5.7% year-over-year improvement.1
A GREAT QUARTER ENDS WITH GAINS
The past five trading days left the three major indices higher: during March 27-31, the Nasdaq Composite advanced 1.42%; the S&P 500, 0.80%; and the Dow Jones Industrial Average, 0.32%. The quarter-ending settlements: Dow, 20,663.22; Nasdaq, 5,911.74; S&P, 2,362.72. Of the three, only the Nasdaq had a winning March, but the year-to-date column in the table below confirms the strength of the first quarter.3
Monday, the Institute for Supply Management releases its March manufacturing PMI. A report on February factory orders appears Tuesday. Wednesday, investors consider minutes from the March Federal Reserve policy meeting, the latest ISM service sector PMI, a fresh ADP payrolls report, and earnings from Bed Bath & Beyond, Monsanto, Rite Aid, and Walgreens Boots Alliance. The March Challenger job-cut report and new initial claims figures arrive Thursday, along with earnings from CarMax, Constellation Brands, Fred’s, Ruby Tuesday, and WD-40. The Department of Labor issues its March employment report on Friday.