Week Ending 3/10/2017

Summary

Notable Market Headlines

The performance of the Dow Jones Industrials and S&P 500, down -0.5% and -0.3% respectively, didn’t capture the broader declines, some that were somewhat significant, that occurred this week.

There were some sizable losses in several asset classes including small U.S. stocks falling -1.9%. This week’s loss brings the year-to-date performance for small stocks to just +0.8%. This is a sharp reversal from what has been called the “Trump Bump” that initial favored the stocks of small U.S. companies.

Real estate and commodities were the biggest losers with declines of -4.5% and -5.1% respectively. Both of these asset classes are in negative territory for the year. Real estate stocks are feeling the pressure from higher interest rates (reducing the profitability of owning properties). The commodity market is primary being impacted by the decline in the price of oil to below $50 this week.

International stocks were mixed for a second week but remain well in positive territory for the year. Stocks in Latin America were down more than -3% while European markets were mostly higher. One notable winner is Spain’s stock market recording a 3.3% gain for the week following a 4.1% gain the prior week.

Last week bonds posted a loss of -0.6% following an equal-sized gain the prior week.

Economic Trivia Question

$92.8 TRILLION! That is the total net worth of all U.S. households at the end of 2016 as reported by the Federal Reserve. This total net worth is the highest in the world with Japan being a distant second at $24 trillion. According to the Credit Suisse Global Wealth Databook for 2016, the U.S. has net worth of $344,692 PER ADULT. How many countries have a great net worth per adult than the U.S.?

Market Leaders

H&R Block (HRB), our nation’s largest tax preparer, reported market shares gains in its most recent quarter. The stock jumped +13.1% marking a strong recovery from earlier losses this year.

Incyte Corp. (INCY), a biopharmaceutical company, is rumored to be a takeover target by Gilead Sciences (GILD). The stock jumped +9.0% for the week and is higher by an impressive +48.8% year-to-date.

Signet Jewelers (SIG) stock recovered some of its losses for the year with its stock up +8.1% for the week. The company, one of the largest jewelry retailers including Zales in the U.S., reported lower sales and earning but they were better than expect. As you can see in the accompanying graph, sales have been declining for three quarter. In spite of the stock’s rally this week it remains lower by -25.9% for the year.

Market Laggards

Although the S&P 500 was down only -0.3% for the week, 75% of small to mid-sized stocks were lower. The selling was wide spread but energy stocks took the biggest hit. Several stocks in this sector fell by -7% to -9% for the week with most adding to their year’s losses. Some bigger names in the sector with the biggest losses where Transocean (RIG), Noble Energy (NBL), and Devon Energy (DVN).

Real estate stocks were a close second behind energy stocks as the biggest losers for the week. The expectation of higher interest rates is putting significant downward pressure on this sector. A couple of the bigger names with meaningful losers are Regency Centers (REG) and Kimco Realty (KIM).

Economic Indicator - Reported

The February U.S. Employment Report showed continued strength and optimism in our country with 235,000 jobs added for the month. The job gains were more than expected and follows a better than expected January report as well. The unemployment rate ticked down 0.1% to 4.7% and remains below the long-term average of 5.8% as illustrated in the below graph.

The U.S. Trade Deficit for January was $48.49 billion, up 9.6% from the prior month. This is the largest deficit since March 2012. In 2016 the total deficit was $502 billion with China representing approximately 60% of the total and Mexico about 12%.

Economic Indicators – Upcoming

Retail Sales, making up about two-thirds of our total U.S. economy, are expected to have increased by 0.2%. Auto sales are expected to be a drag on this overall number.

The Consumer Price Index and the Producer Price Index, both measures of inflation, will be reported for February. Both are expected to show a 0.1% increase in prices following what were much steeper gains in January.

Housing Starts, which have been lead recently by multi-family housing, are expected to rise 1.6% in February.

Economic Trivia ANSWER

Three countries have a higher net worth PER ADULT than the United States. Of the 12 countries with the greatest net worth per adult, the growth in wealth per adult since 2010 was the slowest in the U.S. at 67%.

Source: Credit Suisse Global Wealth Databook 2016

The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. Any specific securities or investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own situation before making any investment decision including whether to retain an investment adviser.

All expressions of opinion are subject to change without notice in reaction to shifting market, economic or political conditions.  Data contained herein from third party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed. This content was created as of the specific date indicated and reflects the author’s views as of that date. Supporting documentation for any claims or statistical information is available upon request.

Past performance is no guarantee of future results.  Any comments about the performance of securities, markets, or indexes and any opinions presented are not to be viewed as indicators of future performance.

Investing involves risk including loss of principal.

Indexes are unmanaged, do not incur management fees, costs and expenses, and cannot be invested in directly. For more information on specific indexes please see full disclosure here.

Any charts, tables, forecasts, etc. contained herein are for illustrative purposes only, may be based upon proprietary research, and are developed through analysis of historical public data.

All corporate names shown above are for illustrative purposes only and are NOT recommendations.

International investments involve additional risks, which include differences in financial accounting standards, currency fluctuations, geopolitical risk, foreign taxes and regulations, and the potential for illiquid markets. Investing in emerging markets may accentuate these risks.

Fixed income securities are subject to increased loss of principal during periods of rising interest rates. Fixed-income investments are subject to various other risks including changes in credit quality, market valuations, liquidity, prepayments, early redemption, corporate events, tax ramifications and other factors. Lower-rated securities are subject to greater credit risk, default risk, and liquidity risk.