The following economic awareness entry is based on short-term events and therefore should not be taken as information towards making investment decisions, which are of a long-term nature. It is only meant to provide clarity regarding current economic events, as there is often a large degree of incorrect information dispersed through the media or other sources.
Fourth-quarter earnings season is in full swing and will continue to play a role in stock performance in future weeks. With reports in from 201 S&P 500 members, overall earnings are down 3.2% on 3.6% lower revenues from Q4 2015. The overall picture so far is one of growth challenges from a slowing global economy, a strong U.S. dollar, and weak commodity prices. However, despite the challenges, 72.5% of firms have been able to beat their earning targets, indicating that managers are doing a good job of managing expectations. On the other hand, reports show that the headwinds that dogged earnings last year will affect performance in 2016 as well.
We also got our first look at fourth-quarter economic growth, which showed that the economy grew at a lukewarm 0.7% pace in the final months of 2015. Low consumer spending weighed on growth, suggesting that Americans are pocketing gasoline savings instead of spending them. We certainly can't fault folks for financially prudent behavior, but consumer spending accounts for 70% of economic activity. While we can attribute some of the slow economic growth to seasonal factors like an unusually warm winter, analysts will be closely watching data releases in the weeks ahead for signs of deeper weakness.
After meeting for the first time in 2016, the Federal Reserve declined to raise interest rates last week but gave no indication that it intends to abandon rate hikes later this year. Predictably, talking heads exploded on all sides. Some believe that the Fed made a mistake by not raising rates and giving markets more confidence in the economy. Others believe that the Fed is being appropriately cautious given the market turmoil and concerns about economic growth. What's clear is that the Fed is telling investors: "We're aware of the uncertainty and we're keeping an eye on many indicators."
Bottom line: In our view, market volatility will remain with us for the foreseeable future. Looking ahead, we expect attention to remain on earnings releases as well as a raft of economic reports that could show whether the economy is slowing or not. Traders will be especially interested in seeing if Friday's January jobs report shows sustained strength in the labor market.
Monday: Personal Income and Outlays, PMI Manufacturing Index, ISM Mfg. Index, Construction Spending
Tuesday: Motor Vehicle Sales
Wednesday: ADP Employment Report, ISM Non-Mfg. Index, EIA Petroleum Status Report
Thursday: Jobless Claims, Productivity and Costs, Factory Orders
Friday: Employment Situation, International Trade
Notes: All index returns exclude reinvested dividends, and the 5-year and 10-year returns are annualized. Sources: Yahoo! Finance and Treasury.gov. International performance is represented by the MSCI EAFE Index. Corporate bond performance is represented by the DJCBP. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly.
Consumer confidence edges up. A measure of consumer optimism about the economy improved slightly in January, indicating that Americans are (so far) brushing off concerns about financial markets.
Durable goods orders slump. New orders for long-lasting factory goods plummeted 5.1% in December, showing that the manufacturing sector slowed considerably last quarter.
Weekly jobless claims fall. The number of Americans filing new claims for unemployment benefits fell sharply after reaching a six-month high two weeks ago, suggesting that labor market growth remains strong.
China set growth target for 2016. For the first time, Chinese leaders set economic growth targets of 6.5-7.0% for this year as they attempt to support a transition to a more modest pace of growth.
These are the views of Platinum Advisor Marketing Strategies, LLC, and not necessarily those of the named representative, Broker dealer or Investment Advisor, and should not be construed as investment advice. Neither the named representative nor the named Broker dealer or Investment Advisor gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your financial advisor for further information.
Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.
Diversification does not guarantee profit nor is it guaranteed to protect assets.
The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.
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 DJIA was invented by Charles Dow back in 1896.
The Nasdaq Composite is an index of the common stocks and similar securities listed on the NASDAQ stock market and is considered a broad indicator of the performance of stocks of technology companies and growth companies.
The MSCI EAFE Index was created by Morgan Stanley Capital International (MSCI) that serves as a benchmark of the performance in major international equity markets as represented by 21 major MSCI indexes from Europe, Australia and Southeast Asia.
The Dow Jones Corporate Bond Index is a 96-bond index designed to represent the market performance, on a total-return basis, of investment-grade bonds issued by leading U.S. companies. Bonds are equally weighted by maturity cell, industry sector, and the overall index.
The S&P/Case-Shiller Home Price Indices are the leading measures of U.S. residential real estate prices, tracking changes in the value of residential real estate. The index is made up of measures of real estate prices in 20 cities and weighted to produce the index.
The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.
Google Finance is the source for any reference to the performance of an index between two specific periods.
Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.
Past performance does not guarantee future results.
You cannot invest directly in an index.
Consult your financial professional before making any investment decision.
Fixed income investments are subject to various risks including changes in interest rates, credit quality, inflation risk, market valuations, prepayments, corporate events, tax ramifications and other factors.
By clicking on these links, you will leave our server, as they are located on another server. We have not independently verified the information available through this link. The link is provided to you as a matter of interest. Please click on the links below to leave and proceed to the selected site.