March 2017
February was a great month for stocks and a historic month for the Dow Jones Industrial Average. The blue chips closed at record highs for 12 straight trading sessions, a feat unmatched for 30 years. The S&P 500 gained 3.72% for the month. Readings on consumer confidence and purchasing manager indices remained impressive, and a key home price index hit a 30-month high. The latest Consumer Price Index showed mounting inflation pressure, and the Federal Reserve hinted at an oncoming rate move.1,2
DOMESTIC ECONOMIC HEALTH
In January, inflation spiked to a degree unseen in nearly five years as the Consumer and Producer Price Indexes both rose 0.6%. The CPI’s monthly gain was its largest since March 2012, and the PPI’s advance was its greatest since September 2012. Yearly consumer inflation reached 2.5%, a 4-year peak; annualized wholesale inflation rose to 1.6%.3,4
In January, inflation spiked to a degree unseen in nearly five years as the Consumer and Producer Price Indexes both rose 0.6%. The CPI’s monthly gain was its largest since March 2012, and the PPI’s advance was its greatest since September 2012. Yearly consumer inflation reached 2.5%, a 4-year peak; annualized wholesale inflation rose to 1.6%.3,4
It was little wonder, then, that the Federal Reserve considered
the possibility of another rate hike. Minutes from its January 31-February 1
meeting revealed that “many participants” in the Federal Open Market Committee
felt a quarter-point move might be warranted “fairly soon” if the labor market
showed further strength and inflation pressure held. Would March be too early
for an interest rate adjustment? After the minutes were released, market
expectations put the chance of a March move at less than 25%, but that jumped
to 50% by the end of the month.1,5
Both purchasing manager indices maintained by the Institute
for Supply Management were above the 55 level in January: ISM’s factory gauge
improved 1.5 points to 56.0, and its services index ticked down but a tenth of
a point to 56.5. Factory orders were up 1.3% for January, partly countering December’s
2.3% fall. The first month of 2017 also saw a 1.8% gain in hard goods orders.
Industrial output tapered off by 0.3% in January after a (revised) increase of
0.6% in December.6,7
Hiring picked up in January as firms added 227,000 net new
workers, compared with (a revised) 157,000 in December. Both the U-3 and U-6
jobless rates went north, however: the former ticked up 0.1% to 4.8%; the
latter increased 0.2% to 9.4%. The average wage rose 0.1%.6
Consumers remained upbeat. Analysts polled by MarketWatch
projected the Conference Board’s consumer confidence index to rise to 112.0 in
February, but it hit 114.8 instead (a gain of 3.2 points). As for the
University of Michigan’s consumer sentiment index, it went from 98.5 at the end
of January to an initial February mark of 95.7, then a final February reading
of 96.3.6,7
Households were spending freely, at least according to two
critical indicators. Retail sales advanced 0.4% in January, with core retail
purchases up 0.8%. Personal spending had risen 0.5% in December; personal
incomes, 0.3%. January figures had yet to be released as February ended.
Meanwhile, the Bureau of Economic Analysis made its second estimate of Q4
growth, and the number stayed the same: 1.9%.6,7
By executive order, President Donald Trump scheduled a review
of the Dodd-Frank Act, calling for significant alterations to the financial
regulations it imposed. The Trump administration seeks to improve borrowing
conditions for businesses by overhauling large portions of the legislation.8
GLOBAL ECONOMIC HEALTH
With the Trans-Pacific Partnership collapsing, representatives from 16 Asia-Pacific countries – including China – met in late February to discuss an alternative. The Regional Comprehensive Economic Partnership could forge an eventual trade accord between Australia, Brunei, Cambodia, China, India, Indonesia, Japan, South Korea, Laos, Malaysia, Myanmar, New Zealand, the Philippines, Singapore, Thailand, and Vietnam. Prior to last month’s RCEP talks in Kobe, Japan, Japanese Prime Minister Shinzo Abe had stated that he hoped President Trump would reconsider the U.S. withdrawal from the TPP.9
With the Trans-Pacific Partnership collapsing, representatives from 16 Asia-Pacific countries – including China – met in late February to discuss an alternative. The Regional Comprehensive Economic Partnership could forge an eventual trade accord between Australia, Brunei, Cambodia, China, India, Indonesia, Japan, South Korea, Laos, Malaysia, Myanmar, New Zealand, the Philippines, Singapore, Thailand, and Vietnam. Prior to last month’s RCEP talks in Kobe, Japan, Japanese Prime Minister Shinzo Abe had stated that he hoped President Trump would reconsider the U.S. withdrawal from the TPP.9
New
European Commission data showed that the economies of all 28 European Union
member nations grew in 2016. Growth across the E.U. had not happened since
2007. The Commission forecasts inflation-adjusted economic expansion of 1.8%
for the E.U. in both 2017 and 2018, and it also believes the region’s jobless
rate will hit an 8-year low before 2017 ends. Euro area annualized inflation
jumped 0.7% in January to 1.8%. A year earlier, yearly inflation was at just
0.3%.10,11
WORLD MARKETS
With exceptions, February was a good month for stock benchmarks. The major exception was the Russian Micex, which sank 10.16%. Japan’s Nikkei 225 gave back 1.79%; Canada’s TSX Composite, 1.13%; and Mexico’s Bolsa, 1.19%.12
With exceptions, February was a good month for stock benchmarks. The major exception was the Russian Micex, which sank 10.16%. Japan’s Nikkei 225 gave back 1.79%; Canada’s TSX Composite, 1.13%; and Mexico’s Bolsa, 1.19%.12
Now, the gains. Brazil’s Bovespa rose
1.25%; the United Kingdom’s FTSE 100, 1.10%; the FTSE Eurofirst 300, 0.82%;
France’s CAC 40, 0.38%; Spain’s IBEX 35, 0.54%; and Germany’s DAX, 0.17%. Hong
Kong’s Hang Seng gained 1.63%; China’s Shanghai Composite, 2.64%; The South
Korean KOSPI added 0.39%; the Indian Sensex, 3.09%. MSCI’s World Index went
north 2.58% for the month, while its Emerging Markets index climbed 2.99%.12,13
COMMODITIES MARKETS
Oil ended February at precisely $54.00 on
the NYMEX, rising 2.27% during the month. Gold gained 3.15%, concluding
February at a COMEX price of $1,248.80. Beyond oil and gold, some other marquee
commodities advanced nicely.14
Finishing February at $18.30, silver
improved 4.21%. The price of platinum rose 3.22%; although, the value of copper
slipped 0.48%. Heating oil futures added 1.60%; unleaded gasoline, a striking
12.52%. Natural gas futures plummeted 11.59%. Corn futures rose 1.60%, but
soybeans (-0.83%), wheat (-0.77%), coffee (-6.65%), sugar (-6.41%), and cocoa (-3.59%)
were among the ag losers.14
REAL ESTATE
Prices were rising. Supply was tight. Who expected the pace of home buying to pick up in January? It did, though. The National Association of Realtors said that existing home sales rose 3.3%, while Census Bureau data pointed out a 3.7% advance for new home sales. The 12-month numbers were also strong: new home sales, +5.5%; resales, +3.8%. Demand simply overcame other factors. The latest S&P/Case-Shiller home price index (December) affirmed that this winter was a good time to sell: home values had risen 5.8% across the country’s 20 largest cities during 2016, taking the index to a two-and-a-half-year peak.15,16
Prices were rising. Supply was tight. Who expected the pace of home buying to pick up in January? It did, though. The National Association of Realtors said that existing home sales rose 3.3%, while Census Bureau data pointed out a 3.7% advance for new home sales. The 12-month numbers were also strong: new home sales, +5.5%; resales, +3.8%. Demand simply overcame other factors. The latest S&P/Case-Shiller home price index (December) affirmed that this winter was a good time to sell: home values had risen 5.8% across the country’s 20 largest cities during 2016, taking the index to a two-and-a-half-year peak.15,16
In contrast, pending home sales fell off in the first month of
the year – the NAR reported a 2.8% drop. Mortgage rates descended a bit during
February: the average interest on a conventional home loan declined 0.03% to
4.16% between January 26 and February 23, according to Freddie Mac. Freddie’s
Primary Mortgage Market Survey showed similar small retreats for average
interest rates on 15-year FRMs (down 0.03% to 3.37%) and 5/1-year ARMs (down
0.04% to 3.16%).7,17
As for construction activity, the Census Bureau said that
housing starts slipped 2.6% for January after December’s 11.3% gain; building
permits rose 4.6%, complementing their 1.3% advance a month earlier.6
LOOKING BACK…LOOKING
FORWARD
As the S&P 500 advanced 3.72% last month, the Dow Industrials gained 4.77%, and the Nasdaq Composite, 3.75%. Their respective February 28 closes: S&P, 2,363.64; Dow, 20,812.24; Nasdaq, 5,825.44. February was also a solid month for the small caps – the Russell 2000 added 1.83% to go up 2.18% on the year, finishing out the month at 1,386.68. The CBOE VIX rose 7.76% on the month to a February 28 settlement of 12.92; that still left it down 7.98% YTD.1,2
As the S&P 500 advanced 3.72% last month, the Dow Industrials gained 4.77%, and the Nasdaq Composite, 3.75%. Their respective February 28 closes: S&P, 2,363.64; Dow, 20,812.24; Nasdaq, 5,825.44. February was also a solid month for the small caps – the Russell 2000 added 1.83% to go up 2.18% on the year, finishing out the month at 1,386.68. The CBOE VIX rose 7.76% on the month to a February 28 settlement of 12.92; that still left it down 7.98% YTD.1,2
Some analysts look at the current rally in terms
of irrational exuberance, while others wonder if the next phase of a historic
mega-bull might be unfolding. The market will cool off at some point, that we
know. Will we see that point in March? Wall Street’s confidence is such that it
could probably take a quarter-point rate hike in stride this month, should one
happen. So far in 2017, investors haven’t been ruffled by much – not the
disconnect between a stock market at record highs and 2% economic growth, not
the P/E ratio of 21 on the Dow as February ended. Will their confidence send
the blue chips even higher this month? March promises to be interesting and,
perhaps, historic.21
UPCOMING
ECONOMIC RELEASES: The roll call of major
scheduled items for the rest of March starts with February factory orders (3/6)
and then includes February’s ADP payrolls report (3/8), the February jobs
report from the Department of Labor (3/10), the February PPI (3/14), a Federal
Reserve policy decision, the February CPI and February retail sales figures
(3/15), the Census Bureau’s latest data on groundbreaking and building permits
(3/16), the initial March University of Michigan consumer sentiment index and
February industrial output (3/17), February existing home sales (3/22),
February new home sales (3/23), February hard goods orders (3/24), the March
Conference Board consumer confidence index (3/28), February pending home sales
(3/29), the third estimate of Q4 GDP (3/30), and the final March University of
Michigan consumer sentiment index, the February PCE price index, and data on
February personal income and personal spending (3/31).
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any investment or insurance product or service, and should not be relied upon
as such. All market indices discussed are unmanaged and are not illustrative of
any particular investment. Indices do not incur management fees, costs and
expenses, and cannot be invested into directly. All economic and performance
data is historical and not indicative of future results. The Dow Jones
Industrial Average is a price-weighted index of 30 actively traded blue-chip
stocks. The NASDAQ Composite Index is a market-weighted index of all
over-the-counter common stocks traded on the National Association of Securities
Dealers Automated Quotation System. The Standard & Poor's 500 (S&P 500) is a market-cap weighted index composed of
the common stocks of 500 leading companies in leading industries of the U.S.
economy. The Russell 2000 Index measures the performance of the
small-cap segment of the U.S. equity universe. The CBOE Volatility Index®
(VIX®) is a key measure of market expectations of near-term volatility conveyed
by S&P 500 stock index option prices. NYSE Group, Inc. (NYSE:NYX) operates
two securities exchanges: the New York Stock Exchange (the “NYSE”) and NYSE
Arca (formerly known as the Archipelago Exchange, or ArcaEx®, and the Pacific
Exchange). NYSE Group is a leading provider of securities listing, trading and
market data products and services. The New York Mercantile Exchange, Inc.
(NYMEX) is the world's largest physical commodity futures exchange and the
preeminent trading forum for energy and precious metals, with trading conducted
through two divisions – the NYMEX Division, home to the energy, platinum, and
palladium markets, and the COMEX Division, on which all other metals trade. The
MICEX 10 Index (Russian: Индекс ММВБ10) is an unweighted price index that
tracks the ten most liquid Russian stocks listed on MICEX-RTS in Moscow. Nikkei
225 (Ticker: ^N225) is a stock market index for the Tokyo Stock Exchange (TSE). The Nikkei average is the most watched index
of Asian stocks. The S&P/TSX Composite Index is an index of the stock
(equity) prices of the largest companies on the Toronto Stock Exchange (TSX) as
measured by market capitalization. The Mexican Stock Exchange, commonly known
as Mexican Bolsa, Mexbol, or BMV, is the only stock exchange in Mexico. The
Bovespa Index is a gross total return index weighted by traded volume & is
comprised of the most liquid stocks traded on the Sao Paulo Stock Exchange. The
FTSE 100 Index is a share index of the 100 companies listed on the London Stock
Exchange with the highest market capitalization. The FTSE Eurofirst 300
measures the performance of Europe's largest 300 companies by market
capitalization and covers 70% of Europe's market cap. The CAC-40 Index is a
narrow-based, modified capitalization-weighted index of 40 companies listed on
the Paris Bourse. The IBEX 35 is the benchmark stock market index of the Bolsa
de Madrid, Spain's principal stock exchange. The DAX 30 is a Blue Chip stock market
index consisting of the 30 major German companies trading on the Frankfurt
Stock Exchange. The Hang Seng Index is a free float-adjusted market
capitalization-weighted stock market index that is the main indicator of the
overall market performance in Hong Kong. The SSE Composite Index is an index of
all stocks (A shares and B shares) that are traded at the Shanghai Stock
Exchange. The Korea Composite Stock Price Index or KOSPI is the major stock
market index of South Korea, representing all common stocks traded on the Korea
Exchange. The BSE SENSEX (Bombay Stock Exchange Sensitive Index), also-called
the BSE 30 (BOMBAY STOCK EXCHANGE) or simply the SENSEX, is a free-float market
capitalization-weighted stock market index of 30 well-established and financially
sound companies listed on the Bombay Stock Exchange (BSE). The MSCI World Index
is a free-float weighted equity index that includes developed world markets,
and does not include emerging markets. The MSCI Emerging Markets Index is a
float-adjusted market capitalization index consisting of indices in more than
25 emerging economies. Additional risks are associated with
international investing, such as currency fluctuations, political and economic
instability and differences in accounting standards. This material represents
an assessment of the market environment at a specific point in time and is not
intended to be a forecast of future events, or a guarantee of future results.
MarketingPro, Inc. is not affiliated with any person or firm that may be providing
this information to you. The publisher is not engaged in rendering legal,
accounting or other professional services. If assistance is needed, the reader
is advised to engage the services of a competent professional.
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[2/27/17]Financial Health...For Now & Tomorrow
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Website - www.bogettoandassociates.com
Telephone - 314-858-1602
Email - peter@bogettoandassociates.com
10805 Sunset Office Drive, Ste. 202
St Louis, MO 63127
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