Last week, major indexes experienced losses for the second week in a row. Markets closed on April 14 for the Good Friday holiday, but in the four trading days, a number of headlines dominated the news cycles:
- International tensions surrounding Syria and North Korea continued to heighten.
- The U.S. dropped its biggest non-nuclear bomb in Afghanistan.
- United Airlines lost $250 million in market value on Tuesday after footage emerged of a passenger's violent removal from an overbooked flight.
These headlines drew great attention last week, and we will continue to follow events as they develop. Meanwhile, we want to focus on newly released data from last week that gives perspectives on where the economy is today - and what we should watch for in the coming months. In a nutshell, the reports hinted at relatively slow growth in the first quarter of 2017.
Inflation and Spending Dropped
- The producer price index, which measures price changes for producers of goods and services, missed expectations and fell 0.1% in March.
- The consumer price index, which measures price changes in a group of goods and services consumers purchase, fell 0.3% - much more than predicted.
- Retail sales declined 0.2% in March, the second monthly drop in a row.
Consumer Sentiment and Jobless Claims Were Positive
- The April Consumer Sentiment Index readings beat expectations, revealing people's assessment of current economic conditions being near the all-time high.
- Jobless claims came in well below expectations to show fewer people filing first-time unemployment claims - indicating a strong labor market.
Analyzed together, this new data could indicate that the Federal Reserve will be less likely to raise rates in June. However, we still have two more months of data and market performance until that meeting, and much can change in that time. Consumer spending accounts for approximately 70% of the total economy. Thus, high consumer sentiment and a tightening labor market - coupled with delayed income-tax returns - could help the economy pick up in the coming months.
Right now, we are in the thick of quarterly earnings season. Last Thursday, we saw J.P. Morgan Chase and Citigroup exceed their earnings estimates and still lose value in their shares that day. Determining whether this investor response is industry specific or indicative of other sentiment changes will be a key detail to examine in the coming weeks. The forthcoming reports will give key insights into the health of corporate America - and the market's reaction to the companies' performance.
We will continue to watch political and market developments and how they affect our overall economy. In the meantime, we encourage you to keep a focus on your long-term goals and the strategies that can help support your financial life.
Quote of the Week
"Aim at the sun, and you may not reach it; but your arrow will fly far higher than if aimed at an object on a level with yourself."
Golf Tip of the Week
Strengthen Your Game by Compressing Your Irons
Do you struggle to complete your backswing before starting your downswing? If so, you're not alone. Amateur players often have short, quick backswings that keep them from loading up which creates a powerless, out-of-synch downswing. By learning to create and store energy in your swing, you'll be able to go hard when hitting the ball. Follow these tips to better compress your irons.
Load Your Swing: Use Your Glutes
When you take your club back, you should feel two things happening:
- You shift your weight into the inside of your back foot at the heel.
- Your muscles in the right side of your butt (left for lefties) will contract (very important!).
You want to keep turning until your glutes feel fully loaded - this is when your backswing ends.
Carry Through Your Swing: Shift, Push, then Swing
Once you end your backswing, you'll want to laterally shift your lower body in the direction of the target. This move shifts your weight into your left heel (right heel for lefties). Pay attention to how you move your feet. You want to push into the ground without falling out of your position. Keep your feet planted and fire your club through the ball.
Financial Question of the Week
What steps should I take with my portfolio to adjust for inflation and higher interest rates?
Traditionally, standard inflation hedging investments have consisted of real estate, gold and other commodities. It may be time to consider another asset class to address your inflation concerns.
Equities, an asset class that is more typically thought of as something to avoid in times of rising inflation, may be a good choice as an inflation hedge. Believe it or not, corporate earnings have a good historical track record of keeping pace with inflation.
During periods of higher inflation, companies are able to raise the prices they charge faster than they were before -- in other words, they have greater pricing power.
As for rising interest rates, when 10-year Treasury yields are below 5%, rising rates have historically been associated with rising stock prices.
Ultimately, the best way to address threats of higher rates and inflation depends on your current situation, needs, and goals. Please contact my office if you or someone you know would like to discuss your concerns.