Market Recap – February 3, 2017

Strong Jobs Report Fuels Friday Rally

  • Jobs reports leads to the Dow’s best performing day of the year
  • Headline jobs report strong, but wage growth disappoints
  • New admin delays changes to fiduciary rules

Both indices were helped by strong Friday rally, with the Dow gaining almost 1% today, its best day of 2017. On the week, the Dow lost 0.1% while the S&P 500 increased 0.1%.

The January jobs report came in well above expectations. The economy added 227k net new jobs in January, well ahead of the 175k consensus estimate. Construction hiring was noticeably strong as well, which is generally a positive for the overall economy. However, the Northeast had a very warm January, so it’s likely weather patterns allowed for more construction work than a typical January. It wasn’t all good news though. Wage growth was a paltry 0.1% on a month-over-month basis. Last month’s wage growth figures were revised down as well. Wage growth was still a reasonably healthy 2.5% over the last year. We’ve seen steadily improving wage growth over the last six months, so hopefully this month’s data is just a blip. The unemployment rate moved higher to 4.8% as more people returned to the labor force. Read More

I have always had a fiduciary responsibility to clients and will continue to going forward. That means, as a Registered Investment Advisor (RIA), I am legally required to put your interests ahead of my own. This is important for many reasons, but one of the most important is the use of high-fee products like front-end load mutual funds, unit trusts, annuities, etc. All of those products pay very generous commissions to advisors that would be hard to argue were in your best interest. Most advisors (Fidelity, Schwab, Edward Jones, Bank of America, etc) have never been held to a fiduciary standard, instead they are only required to put client assets into ‘suitable’ investments. Suitable is a very vague term open to significant interpretation, including many high-fee investments. Over the past year, the Obama administration put together new rules requiring all retirement accounts to be managed with a fiduciary obligation. This new rule was supposed to take effect in April, but the new administration is delaying/cancelling the new rule. There are legitimate reasons why a broker-dealer firm would struggle to provide a fiduciary responsibility, but clients would definitely benefit. Strangely, this is a good thing for me because having a fiduciary responsibility to clients is a good selling point relative to other advisors, but it’s not good for most customers. RIAs only make up 5-8% of total advisors, so most Americans do not benefit from the protections of an advisor who’s a fiduciary. Read More

Oil increased this week, closing up 1.2% to $53.83/barrel. The yield on the 10-yr Treasury remained flat, closing at 2.48%, the same as a week ago. The average rate on a 30-yr mortgage also held steady at 4.19%.

Close Weekly YTD
Dow Jones 20,071.46 (0.1%) 1.6%
S&P 500 2,297.42 0.1% 2.6%
Oil 53.83 1.2% (0.1%)
10-yr Treasury (∆ in bps) 2.48 0 3

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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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Market Recap – January 20, 2017

Stocks Down in Inauguration Week

  • Donald Trump inaugurated as 45th President
  • Mixed earnings see markets up today, down on the week
  • What to expect going forward

Donald Trump was inaugurated as the 45th President of the United States this afternoon. This was a very contentious election yet our constitutional republic managed to peacefully transfer power for the 45th time over the last ~240 years. From an investing standpoint, I see some reasons for optimism and some areas for concern with the new administration. Significant reforms to corporate taxes and regulation strike me as a positive while actions that seek to limit international trade through tariffs or others mechanisms seems dangerous.

While the inauguration dominated the news this week (CNBC hasn’t talked about stocks all day) there were some interesting earnings reports. Target downgraded its forecast and its shares are down almost 10% since the announcement. Holiday sales seem to have been a disappointment to many brick and mortar retailers. GE disappointed investors today while Procter & Gamble exceeded expectations and raised future guidance. Both GE and P&G seemed optimistic about future US growth, but were both cautious to comment too much on the incoming administration. Many companies seem to want to see details instead of talking points before commenting or adjusting business plans. This seems to be the best course for investors as well. There’s been a lot of talk out of the incoming Trump administration, some of it contradictory. Now that’s he’s officially the President, we will hopefully start seeing policy specifics and can make investment decisions as such.

The Dow and S&P 500 were both up today, but finished down on the week. The Dow was down 0.3% while the S&P 500 was down 0.1%. This is the second consecutive week the indices declined, but both are still up slightly on the year.

There was an article in Forbes this week about a phishing scam that is happening on Gmail. A phishing scam is how John Podesta’s email was accessed during the election. It got me thinking about online security for your investment and other financial websites. E-trade, and many other financial firms, offer what is called a 2-step authentication process. I set it up on all my accounts this week and encourage you to do the same. Systems differ, but with this level of security, you either receive a text message with a code or use a third party app to create a temporary code to enter along with your password when you login. This means that even if your login and password are compromised, someone won’t be able to access your account unless they also have access to your cell phone. In E-trade, you go to Accounts>My Profile>Security & Passwords. Then click the ‘Manage Secure ID’ link and follow the directions.

Oil declined slightly this week, closing down 0.2% to $52.33/barrel. The yield on the 10-yr Treasury increased, closing at 2.47% from 2.39% a week ago. The average rate on a 30-yr mortgage declined for the 3rd straight week, moving to 4.09% from 4.12% a week ago.

Close Weekly YTD
Dow Jones 19,827.25 (0.3%) 0.3%
S&P 500 2,271.31 (0.1%) 1.5%
Oil 52.33 (0.2%) (2.9%)
10-yr Treasury (∆ in bps) 2.47 8 2

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Market Recap – January 13, 2017

Markets Retreat, Financial Earnings and Corporate Taxes

  • Stocks retreated slightly in the 2nd week of the year
  • Initial financial earnings generally better than expected and optimistic about 2017
  • Is an overhaul of corporate taxes in the works?

Stocks retreated slightly this week in the second trading week of the year. The Dow declined 0.4% while the S&P 500 was off 0.1%. Markets are closed Monday in observance of Martin Luther King, Jr. Holiday.

JP Morgan, Bank of America and Wells Fargo kicked off earnings season today with numbers that generally beat expectations. While the 4th quarter numbers were good, most investors looked to improved future forecasts as the key takeaway. The banks are already seeing the benefit of higher interest rates and they expect economic activity to pick up in 2017. JP Morgan CEO Jamie Dimon noted strength in a number of areas, including wage growth, unemployment, consumer confidence, real estate, etc as the basis for his optimism this year. Next week we’ll start to see major non-financial firms start reporting such as IBM, GE and others. Read More

Corporate taxes are becoming a hot topic in the new Congress. Since we’re going to start hearing more about ‘Border Adjustment Taxes’ I wanted to review the current situation and what this potential change means. The US currently uses a global tax system. This means that the US taxes the global earnings of all US companies. The federal corporate tax rate is 35%, although most companies pay an effective rate below that level. Companies get credits for taxes paid overseas and can delay paying taxes on foreign earnings as long as the profits stay outside the US. We are the only country in the world that taxes global earnings.

House Republicans have an idea to completely overhaul the corporate tax code in ways that seem to have good and bad consequences. The key aspects of the new plan is to lower the tax rate to 20% and only tax US sales less US costs. This is called a ‘border adjustment tax’ which encourages domestic production and exports while discouraging imports. Under this type of system, all sales in the US would be subject to the tax. Expenses incurred in the US would be tax deductible, but expenses incurred outside the US would no longer be deductible. Sales on products exported to other countries would not be taxed.

In a simple example, if Apple sold a $500 phone in the US and it had US costs of $100 and non-US costs of $100, Apple would pay a 20% tax on $400, or $80. That’s the US revenue minus the US costs. If Apple sold two phones for $500 each, one in the US and one in Canada with $200 of US costs and $200 of non-US costs, Apple would pay taxes based on $500 of revenue minus $200 in US costs = $300. The tax bill would be $60. This is because Apple gets the deduction for US costs, but doesn’t have to pay taxes on sales outside of the US. This is how this type plan encourages exports.

There are parts of this plan that are very appealing. This system eliminates companies’ ability to move profits around the globe to low-tax countries because those transactions aren’t counted in the tax liability calculations. It also brings our corporate tax code and tax rate in-line with other industrialized nations. It also potentially encourages more companies to keep producing in the US or even move production back to the US. On the downside, this is effectively a tax on imports, which could cause price increases on a variety of consumer products. This could also cause large disruptions among companies and industries. We can see the difference by looking at companies like Harley-Davidson (almost all manufacturing happens in the US) versus a company like Walmart (most products sold are made outside the US). The proposed system would have drastically different consequences for these companies. Harley-Davidson would see its tax bill decrease because the tax rate is lower and it exports motorcycles to other countries. Walmart on the other hand would see its taxes skyrocket because a large percentage of its costs are buying inventory made overseas, which would no longer be tax-deductible. Some economists believe a plan like this would strengthen the US Dollar, thus making up the losses to retailers, and other large importers, since input costs would decrease. That sounds very theoretical to me and unlikely to happen exactly as planned. If you’ve made it this far, you can see this is a complicated issue and one that promises significant debate if Congress begins to consider this type of plan. You’re also more familiar with the issue than 98%+ of the public.

Oil declined again this week, closing down 2.2% to $52.45/barrel. The yield on the 10-yr Treasury declined again this week, closing at 2.39% from 2.42% a week ago. The average rate on a 30-yr mortgage declined, moving to 4.12% from 4.20% a week ago.

Close Weekly YTD
Dow Jones 19,885.73 (0.4%) 0.6%
S&P 500 2,274.64 (0.1%) 1.6%
Oil 52.45 (2.2%) (2.7%)
10-yr Treasury (∆ in bps) 2.39 (3) (6)

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Market Recap – January 6, 2017

Markets Start Strong in 2017

  • Stocks move higher in first week of the year
  • Jobs report below expectations, but still strong
  • Corporate earnings start next week

Happy New Year! Stocks started the year off right with both the Dow and the S&P 500 increasing. The Dow still hasn’t touched 20,000 although it came within 0.37 points this afternoon. On the week, the Dow was up 1.0% while the S&P 500 increased 1.7%.

The December jobs report came out this morning slightly below estimates. The economy added a net 156k new jobs last month and the unemployment rate increased to 4.7%. While the consensus estimate was for 183k new jobs, I think this is a positive report. Wage growth was the best since 2009 and continued the steady increase in wage growth over the last few months. Consumer spending is roughly two-thirds of the US economy, so seeing wage growth improve is a good signal for future economic activity. Wage growth can be a source of future inflation as additional dollars chase products and services. However at the current 2.9% annualized rate, I don’t view inflation as a near-term threat. On the year, the economy added 2.2 million jobs. While a good year, job creation was down fro 2.7 and 3.0 million in 2015 and 2014, respectively. Read More

Next week we kick-off the latest round of corporate earnings. Many of the big financial firms report later in the week and the weeks following will see most major US companies report. Earnings are always important to watch, but these reports could offer significant clues to the economy and the stock market. Since the election, financial and energy firms have done very well and these reports give managements an opportunity to explain whether the underlying activity warranted the moves. For other sectors, we’ll get to hear how companies are preparing for the new administration and what they expect going forward.

Oil declined this week, closing down 0.4%% to $53.65/barrel. The yield on the 10-yr Treasury declined again this week, closing at 2.42% from 2.45% a week ago. The average rate on a 30-yr mortgage declined for the first time since the election, moving to 4.20% from 4.32% a week ago.

Close Weekly YTD
Dow Jones 19,963.80 1.0% 1.0%
S&P 500 2,276.98 1.7% 1.7%
Oil 53.65 (0.4%) (0.4%)
10-yr Treasury (∆ in bps) 2.42 (3) (3)

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Market Recap – December 30, 2016

Quiet Week Wraps up Trading for 2016

Happy New Year! I hope you all enjoy ringing in 2017 this weekend. Markets are closed Monday for the holiday.

Stocks retreated in the final week of the year. The Dow declined 0.9% while the S&P 500 declined 1.1% in a slow, low-volume week. This has been quite the year. We started out with a massive sell-off. Both indices were down ~10% in the first 4-6 weeks of the year. After rebounding from early volatility markets moved sideways until after the election when financials and energy fueled a market rally. We’ve seen sharp divergence between sectors this year as well. Healthcare was down over 5% on the year while Consumer Staples was up ~3%. Financials and Energy led the way and were up over 20%.

As we head into 2017 we will see whether the run up in financial and energy stocks was warranted by actual policy. Financials have rallied on the hope that large sections of Dodd-Frank will be repealed. That might help banks’ short-term profits, but is it good for long-term systemic stability? Will these regulations even be eliminated? There’s a lot of uncertainty in the sector and it’s unclear whether this recent optimism will continue when actual policies start coming out.

Energy is a similar story. So far it appears OPEC is willing to keep supply constrained. Historically this hasn’t happened, which could put downward pressure on oil prices. Additionally, there’s significant production that can start coming back online if oil exceeds $60/barrel. Over time, energy hasn’t been a great sector to own. It has sharp ups and down as oil prices move, but it’s a capital intensive industry that struggles with excess supply.

Healthcare will be an interesting sector this year as well. Regardless of the election, it appears there will be increased pricing pressure for many drugs, medical devices and other services. However, the market is large and growing as Baby Boomers continue increasing their use of pharmaceuticals and other health services. The sector looks undervalued at this point and could set up nicely to do well in 2017.

Dividend stocks have sold-off the last few months as interest rates increased. The Fed increased rates earlier this month and I think we’re looking at two additional increases next year. This could pressure dividend stocks next year as the gap between interest rates and dividend yield declines. However, dividend-paying stocks have historically been good performers, even in environments with significantly higher interest rates than the current one. While the ride has been bumpy the last few months, I continue to like high-quality dividend stocks as long-term holdings. A few months of under-performance doesn’t change my thinking on companies that have thrived over many years.

Oil moved higher this week, closing up 1.6%% to $53.89/barrel. Oil increased over 45% this year. The yield on the 10-yr Treasury pulled back again this week, closing at 2.45% from 2.54% a week ago. A volatile year in Treasuries finished with the 10-yr 18 basis points (0.18%) higher than year-end 2015. The average rate on a 30-yr mortgage continued higher to 4.32% from 4.30% a week ago. Mortgage rates started the year at 4.01% and while they reached historic lows during the year, they remain very low relative to historical averages.

Close Weekly YTD
Dow Jones 19,762.60 (0.9%) 13.4%
S&P 500 2,238.83 (1.1%) 9.5%
Oil 53.89 1.6% 45.4%
10-yr Treasury (∆ in bps) 2.45 (10) 18

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Market Recap – December 23, 2016

  • The Dow and S&P 500 continued higher this week
  • Strong 3rd quarter US economic growth
  • Financial tips heading into year-end

Stocks continued higher in the last full week of trading in 2016. The Dow increased 0.5% and has now increased for seven straight weeks. The S&P 500 rebounded to increase 0.3% this week. Markets are closed Monday in observance of the Christmas holiday and the rest of the week will likely be a slow trading week.

US economic growth in the 3rd quarter was revised higher to a 3.5% annualized rate. The prior estimate was 3.2%. This is the best quarter for economic growth since the 3rd quarter in 2014. The 3rd quarter is typically a strong quarter as business inventories increase heading into the holiday shopping season. Like past strong quarters, this is expected to be an outlier. The current consensus estimate for 4th quarter growth is just 2.2%. Read More

As we approach year-end, here’s a few tips or things to consider from a financial standpoint:

  1. Donate to Charity – If you’ve thought about donating to your favorite charity, now is a great time. Make your donation before 12/31 and get a 2016 tax deduction.
  2. Check Account Beneficiaries – This is a good time to check your beneficiary information and confirm that all your investment and bank accounts have updated information. This is a simple process that can save your heirs a headache if something happens to you.
  3. Revisit Life Insurance Needs – Is your current insurance appropriate for your needs. I think Term Life Insurance is all most people need, but as time goes on you might find you need more or less than you currently have. A good way to start is to consider future living expenses as well as the timing and amounts of large future expenses your family will have. Once you have those figures, you can determine how much insurance you need and what term lengths are most appropriate.
  4. Required Minimum Distribution (RMD) – If you turned 70 1/2 this year, make sure you understand whether you need to take an RMD in 2016. If you are already taking RMD from your IRA accounts, make sure you take the 2016 amount by year-end. If you have questions on this, please let me know.
  5. Increase your Savings Rate – This is a great time to increase your 401k contribution rate or max out your (Roth) IRA. For IRA contributions, you have until April 15th to make a contribution for your 2016 taxes. Increasing your savings rate today can pay long-term dividends in retirement.

Oil moved higher this week, closing up 2.0% to $53.06/barrel. The yield on the 10-yr Treasury pulled back this week, closing at 2.54% from 2.60% a week ago. The average rate on a 30-yr mortgage continued higher to 4.30% from 4.16% a week ago. Mortgage rates are at their level since April 2014.

I hope you all have a Merry Christmas!

Close Weekly YTD
Dow Jones 19,933.81 0.5% 14.4%
S&P 500 2,263.79 0.3% 10.8%
Oil 53.06 2.0% 43.2%
10-yr Treasury (∆ in bps) 2.54 (5) 27

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Market Recap – December 16, 2016

Stocks Mixed, Fed Raises Interest Rates

  • The Dow continued higher while the S&P 500 declined slightly this week
  • The Dow didn’t reach 20,000 this week as many had predicted
  • Fed raises interest rates 0.25%

In a relatively quiet week, in spite of the Fed news, the Dow continued higher while the S&P 500 pulled back slightly. The Dow has now increased six straight weeks. On the week the Dow gained 0.4% while the S&P 500 declined 0.1%.

As expected the Fed raised the Fed Funds rates by 25 basis points at the Federal Open Market Committee (FOMC) meeting. The new target range for the Fed Funds rate is 0.50 – 0.75%. This is the first rate increase since last December and only the second in the last ten years. Last December, the Fed said it expected four rate increases during 2016. For various reasons, they decided against raising rates in the first half of this year. After June I don’t think the Fed wanted to appear to be doing anything to influence the election. If this wasn’t an election year we likely would have seen this move a few months ago. The Committee said it expects three rate increases next year. I am not sure we will see that I do think the Fed will raise at least one more time in the first half of 2017. Read More

Retail stocks declined sharply today after JP Morgan downgraded Nordstrom’s stock this morning. Nordstrom lead the decline, falling almost 9%, but companies such as Kohl’s, JC Penney, Macy’s and the Gap all declined more than 6%. While the report dealt only with Nordstrom, many investors look at weakness in Nordstrom as another piece of evidence in the long-term decline of brick and mortar retail shops. All of these companies are aggressively trying to build their online businesses, but so far investors aren’t convinced. We are in the midst of the important holiday-shopping season and the next two weeks will be critical for all these companies. Read More

Oil moved slightly higher this week, closing up 1.1% to $52.03/barrel. The yield on the 10-yr Treasury moved higher, closing at 2.60% from 2.47% a week ago. The 10-yr is up a full percentage point since the end of the September, a very large move for interest rates in that time frame. The average rate on a 30-yr mortgage continued higher to 4.16% from 4.13% a week ago.

Close Weekly YTD
Dow Jones 19,843.41 0.4% 13.9%
S&P 500 2,258.07 (0.1%) 10.5%
Oil 52.03 1.1% 40.4%
10-yr Treasury (∆ in bps) 2.60 13 33

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Market Recap – December 9, 2016

Stocks Continue Higher, Pet Rock Making a Comeback?

  • Broad-based rally drives stocks higher this week
  • The Dow is approaching 20,000 in another record close
  • Italy referendum fails, Prime Minister resigns
  • Nordstrom attempting to modernize the Pet Rock

For the first time since the election, every sector rallied in the stock market for the week. Financials continued to lead the way, while Healthcare lagged, but every sector was up in a strong week. The Dow, S&P 500 and NASDAQ each increased all five trading days this week. This is the first time in five years that has happened. For the week the Dow and S&P 500 each increased 3.1%.

Last week I wrote about the Italian referendum. The people voted ‘No,’ meaning the Senate’s power won’t be reduced, making it nearly impossible to pass the economic reforms of now former Prime Minister, Matteo Renzi. True to his word. Mr. Renzi officially resigned on Wednesday. The populist party has already increased calls for Italy to leave the EU, although we are still many steps from that potential outcome. The markets had predicted a ‘No’ vote, but the lack of market impact of this issue surprised some investors. This continues a trend we’ve seen with Brexit and Trump where markets responded much more favorably to the populist outcomes than was predicted ahead of time. Read More

This holiday season Nordstrom is selling a rock in a leather bag for $85. When reports started coming out, most assumed this was fake, but the company confirmed they are selling them and apparently they are selling quite well. It’s a rock in a small leather bag. Many talk about the marketing genius it took for the Pet Rock to make a $1 million in the 70s, but this might surpass the Pet Rock on that front. What a great country when a major retailer can sell a rock in a leather bag for $85. Read More

Oil retreated slightly this week, closing down 0.4% to $51.45/barrel. The yield on the 10-yr Treasury moved higher, closing at 2.47% from 2.40% a week ago. The average rate on a 30-yr mortgage continued higher to 4.13% from 4.08% a week ago.

Close Weekly YTD
Dow Jones 19,756.85 3.1% 13.4%
S&P 500 2,259.53 3.1% 10.5%
Oil 51.45 (0.4%) 38.8%
10-yr Treasury (∆ in bps) 2.47 7 20

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Market Recap – December 2, 2016

November Jobs Report Steady, Stocks Mixed

  • Stocks finished mixed this week with the Dow increasing and S&P 500 declining
  • November jobs report showed 178k new jobs, in-line with expectations

The Dow squeaked out a small gain this week, increasing 0.1%. This was the 4th consecutive week of gains for the Dow. The S&P 500, however, declined 1.0% this week. The S&P 500 is a much broader index while the Dow is comprised of only 30 of the largest US companies. We continue to see sharp divergences between sectors. Utilities, Technology, Healthcare and Consumer Staples continue to lag while Financials and Energy lead the way this week.

The November jobs report showed 178k net new jobs were created last month. This was right in-line with the 175k estimate. The unemployment rate dropped to 4.6% and wage growth remained at a greater than 2% annualized rate. We continue to have lingering problems with long-term unemployed people that have given up looking for work. Overall though, I think this report continues the trend we’ve seen for several years. Reasonably healthy job creation, wages growing above the inflation rate and the unemployment rate artificially low due to people giving up on seeking work. One of the interesting trends we’ve seen over the last year is that average weekly wage growths trails average hourly wage growth. That means that as people are being paid more per hour, their average hours worked is slightly decreasing. Read More

Italians head to the polls Sunday for a referendum on Constitutional changes that would reduce the size and power of their Senate. The Prime Minister, Matteo Renzi, proposed the changes to help him pass a massive economic reform package that was going nowhere in the current government. It’s an interesting issue in that a ‘yes’ vote will consolidate power within the government. I would think this would normally be viewed as a bad thing, but Mr. Renzi has pledge to resign if a ‘No’ vote prevails. Many believe a populist movement in favor of Italy leaving the EU could win if Mr. Renzi resigns. So, many view the referendum as a de facto vote on whether the people of Italy want to remain in the EU.

Italy doesn’t allow polling in the two weeks prior to an election, but the latest polls showed ‘No’ holding an 8-point lead with many undecided voters. We’re several steps away from any vote on Italy potentially leaving the EU (some are dubbing this Italeave), but this could be a market moving event next week and in the months ahead. Italy is still reeling from the financial crisis. The economy is almost 9% smaller than it was in 2008 and unemployment tops 11%. The economic malaise is leading to voter disillusionment with the current system.  Read More

Oil moved sharply higher this week, increasing 12.4% to close at  $51.66/barrel. The move came on the heels of the OPEC agreement to cut production. I wrote a few months ago about the OPEC deal and thought any production cut would likely be short-lived. Every country wants higher prices, but as prices go up they have incentives to over-produce to increase their own oil revenue. OPEC members have historically always produced more than their allotted amounts. It will be interesting to see whether this production cut provides the price support it seeks to accomplish.

The yield on the 10-yr Treasury move slightly higher, closing at 2.40% from 2.36% a week ago. The average rate on a 30-yr mortgage continued higher to 4.08% from 4.03% a week ago.

Close Weekly YTD
Dow Jones 19,170.42 0.1% 10.0%
S&P 500 2,191.95 (1.0%) 7.2%
Oil 51.66 12.4% 39.4%
10-yr Treasury (∆ in bps) 2.40 4 13

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