Market Recap – January 27, 2017

Dow Breaks 20,000 for First Time

  • Stocks up on the week, Dow reaches milestone
  • 4th quarter economic growth underwhelming
  • Busy week of earnings reports sees mixed results

Stocks rebounded this week and earnings season got into full swing. The Dow increased 1.3% while the S&P 500 added 1.0%. The Dow surpassed 20,000 for the first time on Wednesday and stayed above 20k through the rest of the week. While reaching this milestone is purely symbolic, it does provide some optimism and confidence. The Dow reached 10,000 for the first time in the fall of 2009. Interestingly, the top performing Dow stock over the period between Dow 10k and Dow 20k was the health insurance giant UnitedHealth.

The latest US economic growth estimate was released this morning showing the 4th quarter of 2016 grew at an annualized rate of 1.9%. This was below the consensus estimate of 2.2%. For the full year, economic growth was a pedestrian 1.6%. The 1.6% annual growth rate was the lowest since 2011. Declining exports were a large portion of the slowdown with export activity dropping at a 4.3% annualized rate. There were some positive signs though. Business investment increased at a healthy 3.1% annualized rate and consumer spending remained strong. From the end of World War II through 2008, the US economy grew at a annualized rate of 3.1%, but since 2009 growth has only averaged 1.8%. Read More

This was a busy week for earnings, with names such as IBM, Google and Microsoft delivering better than expected numbers, while Verizon, Chevron and Colgate disappointed. On the whole though, more than 70% of companies that have reported so far exceeded earnings expectations. The companies that have disappointed have generally disappointed on top-line sales numbers rather than earnings. This trend of companies beating earnings but missing revenue has been happening for years and yet recently we’ve seen stocks respond more negatively to them. I think the concern among investors is how much more cost cutting can keep earnings growing without stronger revenue growth.

Oil increased this week, closing up 1.7% to $53.20/barrel. The yield on the 10-yr Treasury increased, closing at 2.48% from 2.47% a week ago. The average rate on a 30-yr mortgage increased this week, moving to 4.19% from 4.09% a week ago.

Close Weekly YTD
Dow Jones 20,093.78 1.3% 1.3%
S&P 500 2,294.69 1.0% 2.5%
Oil 53.20 1.7% (1.3%)
10-yr Treasury (∆ in bps) 2.48 1 3

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