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Week Ending 3/10/2017

Summary

  • The S&P 500 broke its 6-week winning streak
  • Multiple asset classes reported sizable losses for the week
  • Oil price dips below $50 as inventories build
  • Trade Deficit hits a 5-year high
  • U.S. Employment Report comes in strong
  • The Week Ahead: Federal Reserve expected to raise interest rates

Notable Market Headlines

The performance of the Dow Jones Industrials and S&P 500, down -0.5% and -0.3% respectively, didn’t capture the broader declines, some that were somewhat significant, that occurred this week.

There were some sizable losses in several asset classes including small U.S. stocks falling -1.9%. This week’s loss brings the year-to-date performance for small stocks to just +0.8%. This is a sharp reversal from what has been called the “Trump Bump” that initial favored the stocks of small U.S. companies.

Real estate and commodities were the biggest losers with declines of -4.5% and -5.1% respectively. Both of these asset classes are in negative territory for the year. Real estate stocks are feeling the pressure from higher interest rates (reducing the profitability of owning properties). The commodity market is primary being impacted by the decline in the price of oil to below $50 this week.

International stocks were mixed for a second week but remain well in positive territory for the year. Stocks in Latin America were down more than -3% while European markets were mostly higher. One notable winner is Spain’s stock market recording a 3.3% gain for the week following a 4.1% gain the prior week.

Last week bonds posted a loss of -0.6% following an equal-sized gain the prior week.

Economic Trivia Question

$92.8 TRILLION! That is the total net worth of all U.S. households at the end of 2016 as reported by the Federal Reserve. This total net worth is the highest in the world with Japan being a distant second at $24 trillion. According to the Credit Suisse Global Wealth Databook for 2016, the U.S. has net worth of $344,692 PER ADULT. How many countries have a great net worth per adult than the U.S.?

Market Leaders

H&R Block (HRB), our nation’s largest tax preparer, reported market shares gains in its most recent quarter. The stock jumped +13.1% marking a strong recovery from earlier losses this year.

Incyte Corp. (INCY), a biopharmaceutical company, is rumored to be a takeover target by Gilead Sciences (GILD). The stock jumped +9.0% for the week and is higher by an impressive +48.8% year-to-date.

Signet Jewelers (SIG) stock recovered some of its losses for the year with its stock up +8.1% for the week. The company, one of the largest jewelry retailers including Zales in the U.S., reported lower sales and earning but they were better than expect. As you can see in the accompanying graph, sales have been declining for three quarter. In spite of the stock’s rally this week it remains lower by -25.9% for the year.

Market Laggards

Although the S&P 500 was down only -0.3% for the week, 75% of small to mid-sized stocks were lower. The selling was wide spread but energy stocks took the biggest hit. Several stocks in this sector fell by -7% to -9% for the week with most adding to their year’s losses. Some bigger names in the sector with the biggest losses where Transocean (RIG), Noble Energy (NBL), and Devon Energy (DVN).

Real estate stocks were a close second behind energy stocks as the biggest losers for the week. The expectation of higher interest rates is putting significant downward pressure on this sector. A couple of the bigger names with meaningful losers are Regency Centers (REG) and Kimco Realty (KIM).

Economic Indicator - Reported

The February U.S. Employment Report showed continued strength and optimism in our country with 235,000 jobs added for the month. The job gains were more than expected and follows a better than expected January report as well. The unemployment rate ticked down 0.1% to 4.7% and remains below the long-term average of 5.8% as illustrated in the below graph.

The U.S. Trade Deficit for January was $48.49 billion, up 9.6% from the prior month. This is the largest deficit since March 2012. In 2016 the total deficit was $502 billion with China representing approximately 60% of the total and Mexico about 12%.

Economic Indicators – Upcoming

Retail Sales, making up about two-thirds of our total U.S. economy, are expected to have increased by 0.2%. Auto sales are expected to be a drag on this overall number.

The Consumer Price Index and the Producer Price Index, both measures of inflation, will be reported for February. Both are expected to show a 0.1% increase in prices following what were much steeper gains in January.

Housing Starts, which have been lead recently by multi-family housing, are expected to rise 1.6% in February.

Economic Trivia ANSWER

Three countries have a higher net worth PER ADULT than the United States. Of the 12 countries with the greatest net worth per adult, the growth in wealth per adult since 2010 was the slowest in the U.S. at 67%.

Source: Credit Suisse Global Wealth Databook 2016

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