Weekly Commentary, 1/2/17 to 1/6/17
Equities continued their hot streak into the new year with all four major indices having recently established new highs. The Dow Jones Industrial Average and Russell 2000 Index achieved their new high water mark in December, while the S&P 500 Index and the NASDAQ Composite reached theirs this week.
The monthly employment release Friday helped push the indexes even higher. The NASDAQ led the week gaining +2.56%. The S&P 500 and the Dow Jones also had solid weeks gaining +1.70% and +1.02%, respectively.
The highly anticipated monthly employment numbers for December showed the unemployment rate ticking up to 4.7% from 4.6% in November, thus leading to disappointment amongst forecasters. However, investors seem focused on average hourly earnings which rose 2.9% on the year, the strongest uptick in more than seven years. Higher earnings can translate to increased consumer spending which makes up 70% of our GDP.
The minutes from the Federal Reserve December 13-14 meeting were released on Wednesday. At that time, the Federal Reserve (Fed) struggled with “considerable uncertainty” about the impact of Trump’s election victory. However, the federal funds rate was nudged up by a quarter of one percent, and the Fed anticipated 3 rate increases in 2017. Fed officials agreed that the prospects for tax cuts and infrastructure spending blur the outlook for future rate increases. In mid-December, the yield on the benchmark U.S. 10-year treasury got as high as 2.62%. The rise in yield may have been overdone as fixed income investors stepped up their buying. The benchmark issue has continued the decline shedding another 10 basis points closing week at 2.41%.
Earnings season kicks off next week. It is worth noting that the S&P 500 rally has brought its valuation to 17.1 times trailing earnings, up from 15.7 times two months ago. Earnings releases and forward guidance will be watched closely to justify current valuations. The bigger question at hand is if accelerating economic growth can offset the removal of Federal Reserve accommodation that many analysts believe has helped fuel the current 7 ½ year bull market.
The market technicals are encouraging and supportive of current equity levels. Breadth, as measured by the S&P 500 advance-decline line, continues to make new highs. 70% of stocks in the S&P 500 are above their 200-day moving average, one measure of a long term trend. Lastly, small capitalization stocks continue to outperform their larger capitalization brethren.
We will not be making any forecasts or predictions for 2017. Predicting human behavior is a difficult endeavor which was exemplified in the BREXIT vote and the U.S. presidential elections. We believe our strategies are positioned properly for the current environment and will make adjustments as events unfold.
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 Russell 2000 Index is a small-cap stock market index of the bottom 2,000 stocks in the Russell 3000 Index. It is the most widely quoted measure of the overall performance of the small-cap to mid-cap company shares. 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. 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.