The Week in Review
- Prolonged Shutdown Averted… For Now
- Housing Market Strength
- Looking Ahead
Despite a government shutdown last weekend, global and U.S. markets continued their rise with the Dow closing Thursday at its tenth record of the month and the S&P 500 ending the day at an all-time high. Better-than-expected earnings reports, continued low interest rates and positive economic data are proving to be a much larger force than the disruption in D.C.
The U.S. economy expanded at a 2.6% clip in the fourth quarter on the back of increased spending by consumers and businesses, according to an initial estimate released this morning. With fourth-quarter numbers reported for roughly a quarter of the companies in the S&P 500 index, earnings are up 12.7% from the same time last year.
Looking beyond our shores, the International Monetary Fund expects global growth to approach 4% in 2018 and at least 120 countries are experiencing an upsurge in economic activity.
The fundamentals are holding up. Business and consumer confidence remain robust. Despite what headline hyperbole might have you believe, it’s steady as she goes in the markets and the global economy.
For the year through Thursday, the Dow Jones Industrial Average has returned 6.9%, while the broader S&P 500 index has gained 6.3%. The MSCI EAFE index, a measure of developed international stock markets, is up 6.6%. As of Thursday, the yield on the Bloomberg Barclays U.S. Aggregate Bond index has climbed to 2.89% from 2.71% at 2017’s end. On a total return basis, the U.S. bond market has fallen 0.7% for the year.
Prolonged Shutdown Averted… For Now
The government shutdown last weekend did not furlough the markets at home or abroad but we’ll revisit the scenario in two weeks. While government shutdowns feel unusual—setting aside the three-day episode we just moved through, we hadn’t seen the government stop running since 2013—shutdowns were more common in the past. We saw five shutdowns during the Carter administration and eight during Reagan’s White House tenure.
The unfortunate reality is that we may have to get used to more, not less, shutdown drama and actions as we wind our way through 2018. Political discord is only likely to pick up as we approach the November mid-term elections.
Political discussions may be interesting around the dinner table, but remember that mixing politics and investing is rarely a profitable formula. We’ll maintain our focused approach on making investment decisions in a proven, disciplined, unemotional and apolitical manner.
Housing Market Strength
The housing market continues to reflect our fully employed and confident workforce as well as the health of the financial lending system. While December sales were down slightly from November as low inventory pushed prices higher, overall sales of previously owned homes rose 1.1% in 2017—making it the strongest year since 2006. And when it comes to new home sales, builders are rushing to meet demand.
Next week, we shift from a focus on earnings—where the macro trend is one of businesses benefitting from domestic and global expansion, combined with a potential tax-law tailwind for U.S. companies—to a focus on multiple market-moving economic reports.
The slate includes personal income, savings, and spending; consumer confidence and sentiment; the ADP private sector jobs report and Friday’s unemployment report for January; a Federal Reserve meeting and policy announcement; construction spending and car sales; and factory orders.
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Please note: This update was prepared on Friday, January 26, 2018, prior to the market’s close.
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