Weekly Commentary, 1/23/17 to 1/27/17
After struggling for the last month, the Dow Jones Index finally cleared the 20,000 level on optimism that President Trump will usher in an era of business and economic growth. Both the S&P 500 and the Nasdaq Composite also established new all-time highs. On the week, the Dow was up 1.34%, the S&P 500 rose 1.03% and the Nasdaq gained 1.90%.
It was a busy week for corporate earnings. According to FactSet, with approximately a third of S&P 500 companies reporting, earnings are on track to rise 4.2% from a year ago, outpacing the 3.2% growth rate predicted by analysts.
U.S. economic growth slowed more than expected last quarter. Gross Domestic Product (GDP), which is a broad measure of the goods and services produced in the economy, grew at an annual rate of 1.9% following the prior quarter’s 3.5% gain. For all of 2016, the economy grew 1.6%. Analysts believe there were signs in the GDP report that housing and business investment could lead to stronger growth in 2017. President Trump has set a goal of 4% GDP growth through ambitious programs including tax cuts, deregulation and increased infrastructure spending.
Last week brought talk of tariffs and increasing tensions with Mexico. Mexican President, Enrique Peña Nieto, canceled a visit to the U.S. next week amid pressure from President Trump to pay for a border wall. As highlighted in the news, Investors face serious challenges determining if President Trump’s policy mix will stimulate growth or if his protectionist policies will hinder economic progress.
Trends continue to look bullish supported by the major averages having broken out of their multi-month range and are trading near all-time highs. The S&P 500 advance-decline line continues to generate new highs. Cyclically sensitive sectors like materials and industrials are outperforming more defensive sectors like staples and utilities. It is also encouraging to see the international markets performing in line with the domestic markets.
However, we are beginning to see early signs of market breadth deterioration. Smaller capitalization stocks failed to achieve new highs alongside larger capitalization stocks. Although stocks trading above their 50 and 200-day moving averages could be considered high, they have failed to achieve new highs. It is also worth noting that banks have contributed nearly 30% of the S&P return since the end of July despite only having a 6% weighting in the S&P 500. We will watch for further signs of divergence between price trends and market breadth.
Volatility, as measured by the VIX, continues to print new lows and is trading below 11 which is indicative of a complacent stock market. After eight years of ultra-easy monetary policy and the Federal Reserve hinting of upcoming interest rate hikes, there will likely be speed bumps ahead. Investors will be required to balance upside and downside risks.
Past performance is no guarantee of future results. Investments are subject to risk, and any of Stadion’s investment strategies may lose money. The investment strategies presented are not appropriate for every investor and financial advisors should review the terms and conditions and risks involved. Stadion’s actively managed portfolios may underperform during bull markets. Some information contained herein was prepared by or obtained from sources that Stadion believes to be reliable. There is no assurance that any of the target prices or other forward-looking statements mentioned will be attained. Any market prices are only indications of market values and are subject to change. The S&P 500 Index is the Standard & Poor’s Composite Index of 500 stocks and is a widely recognized, unmanaged index of common stock price. The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ. The NASDAQ Composite is a stock market index of the common stocks and similar securities listed on the NASDAQ stock market and it is highly followed in the U.S. as an indicator of the performance of stocks of technology companies and growth companies. The VIX is the Chicago Board Options Exchange Market Volatility Index, a popular measure of the implied volatility of S&P 500 index options. Often referred to as the fear index or the fear gauge, it represents one measure of the market's expectation of stock market volatility over the next 30 day period. It is not possible to invest directly in indexes (like the S&P 500) which are unmanaged and do not incur fees and charges. The U.S. 10-Year Treasury Note is a debt obligation issued by the United States government that matures in 10 years. The Sharpe ratio measures the excess return per unit of deviation, or risk. The core personal consumption expenditures index measures the prices paid by consumers for goods and services without the volatility caused by movements in food and energy prices. Any references to specific securities or market indexes are for informational purposes only. They are not intended as specific investment advice and should not be relied on for making investment decisions.
Past Performance is no guarantee of future results. Investments are subject to risk, and any of Stadion's investment strategies may lose money.