4/7/17 – Stocks Calm in Busy Geopolitical Week

  • Stocks essentially flat in a busy week for news
  • March jobs report disappoints
  • US launches targeted strike in Syria
  • Trump meets with Chinese leader Xi

There was a lot of geopolitical news this week coupled with important jobs data. With all the news though, stocks were very calm this week. On the week, the Dow was essentially unchanged while the S&P 500 declined 0.3%.

The March jobs report came in well below estimates, but it didn’t seem to impact markets today. The economy added only 98k net new jobs in the month. This was well below consensus estimates of 180k. Additionally, figures for January and February were revised lower by a combined 38k jobs. Total job creation in the first quarter was 533k, or a reasonably attractive 178k per month, essentially the same as the 176k monthly average in 2016. Wage growth was a bright spot in the report though, increasing at a 2.7% annualized rate. The unemployment rate dropped to 4.5%. The market had a very muted reaction to this report for a couple reasons I think. First, these monthly reports are notoriously volatile. Second, last month was strong amidst a very warm month in many parts of the country. March, however, dealt with a large snowstorm through the entire Northeast that likely hurt construction employment in the month. Finally, we’ve had these weak months periodically in the last few years, but they have always been blips. In May 2016, the economy added only 24k jobs, but rebounded to a strong 271k in June. At this point, people are comfortable chalking this up as an anomaly not the start of a trend. Read More

Lots of geopolitical news this week. North Korea launched another ballistic missile into the Sea of Japan. The launch occurred before the meeting between Trump and Chinese leader Xi where North Korea was expected to be a major topic of discussion. Additionally, the US launched 59 cruise missiles into Syria destroying an air base and some Syrian air force planes over night. The strike was in response to a chemical weapons attack believed to be coordinated by the Assad regime. It’s unclear where this goes from here. Russia, who has backed Assad, has been pretty moderated in its response, even saying its support of Assad isn’t unconditional. Neither event seemed to concern investors. Markets were down early today, but quickly rebounded and some of the negativity could have come from the headline jobs figure. Defense stocks actually did well today, with Raytheon and Lockheed Martin both up over 1%. Read More

President Trump met with Chinese Leader Xi Jinping this afternoon. As of yet, they have not issued a joint statement. Trade and North Korea were expected to be important topics of discussion. Many have speculated the Syria strike was timed to make clear to Xi that the US would be willing to act alone against North Korea if China is unable, or unhelpful in reigning in Kim Jung Un. There’s been few little details about the substance of the meeting release yet, but markets will be looking for details on the trade portions of the discussion. While Trump has continued to talk tough on trade, his actions have been more measured. Hopefully that trend continues because we benefit greatly as a nation from trade with China.

Oil increased 3.0% this week, closing at $52.23/barrel. The yield on the 10-yr Treasury decreased slightly, closing at 2.38%, from 2.40% a week ago. The average rate on a 30-yr mortgage declined again, moving to 4.10% from 4.14% last week.

Close Weekly YTD
Dow Jones 20,656.10 (0.0%) 4.5%
S&P 500 2,355.54 (0.3%) 5.2%
Oil 52.23 3.0% (3.1%)
10-yr Treasury (∆ in bps) 2.38 (1) (6)

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