Early last week, both the S&P and NASDAQ recorded all time highs before tumbling along with the Dow as political concerns rose. By Friday, though, the markets had largely rebounded and steadied. The S&P 500 closed the week down 0.38%, the Dow saw a 0.44% loss, and the NASDAQ reported a 0.61% decline.
The CBOE Volatility Index (VIX) is designed to measure market volatility. For most of the year, volatility in the markets has been low. However, the VIX spiked 40% midweek before falling back by week's end, indicating a possible increase in market volatility.
Through the week's ups and downs, investors followed some other important economic developments.
LAST WEEK'S DEVELOPMENTS:
Solid Regional Business Index
The Philadelphia Fed Business Outlook Survey again pointed to progress in the factory sector. While the consensus range was 16.0 - 25.0, the General Business Conditions Index-Level reported 38.8.
Strong Corporate Earnings
With 90% of S&P 500 company Q1 earnings reports in, the earnings growth rate for S&P 500 companies remains bright with an average increase of 13.6%. The softening U.S. dollar - down 5% so far in 2017 - is helping companies that sell overseas. A weaker dollar will help companies with foreign earnings, as those earnings are more valuable when converted into U.S. dollars.
Mixed Housing Reports
New home sales remained strong as the housing market index rose 2 points to 70. The data came out well ahead of the 65 - 69 consensus range. However, April housing starts were lower than expected. Housing starts are now at a 1.172 million annualized rate, after falling 2.6%.
Household Debt Rises
Total household debt rose to a new high, reporting a $149 billion increase to come in at $12.73 trillion. Student loans and auto loans were major contributors to the rising debt:
- Student loans now make up about 10.6% of all U.S. household debt, rising to $1.3 trillion. Comparatively, in 2003, student loans only accounted for 3.3% of total household debt.
- Auto loans tighten as balances rose by 0.9%. Auto debt that is overdue by more than 90 days increased to 3.82% of total auto loans in Q1, the highest percentage in four years.
Manufacturing output rose 1.0 percent in April, the strongest monthly result in over 3 years. As such, investors will track how the rest of the second quarter shakes out. In addition, we will be interested in this week's housing reports, hoping for a better handle on where this up-and-down sector is heading.
Financial markets could experience some headwinds as geopolitical situations fester. Concerns over North Korea and political opposition to globalization remain. In addition, Brazil is facing political disruption and a deep recession that could mean problems for companies with business interests in that country. Similarly, continuing political challenges for the current U.S. administration may adversely affect proposed tax reform, health-care legislation, and infrastructure initiatives.
As always, we will continue keeping abreast of market and economic updates. We encourage you to focus on your long-term financial outlook. Should you have any questions, we are happy to help.
Quote of the Week
"If we are bold, love strikes away the chains of fear from our soul."
Golf Tip of the Week
New to Golf? Beginner Tips for Selecting the Right Clubs
Golf is a sport you can enjoy no matter what age you begin playing. For those who are new to the game, one of the first steps is choosing the right clubs. Since golf clubs can be expensive - and the right or wrong clubs can greatly affect how you play - here are some tips to help you get started.
Test a friend's golf clubs first
Before you invest in any clubs for yourself, testing a friend's can help you familiarize yourself with how they feel. Join one of your friends at the driving range and practice swinging with their clubs. While at the range, you also should talk to a professional who can answer any additional questions you have about the clubs.
Buy a half set of clubs made for beginners
The typical beginner half sets include 5 irons (a 4, 6, 8, pitching wedge, and sand). They also have a 3- and 5-wood and a putter. The sets leave out the driver and 2, 3, and 4 irons, which typically are more difficult for beginners to master. You can use the half set to focus on improving your swing before switching to a complete club set.
Use clubs with perimeter-weighted heads
These clubs have an expanded "sweet spot," making them more forgiving. The lighter-weight graphite shafts (instead of steel shafts) allow you to swing the club faster and more quickly get a hang of the game.
Financial Question of the Week
Should I Report Income Earned from a Hobby?
Across the country, millions of people have passions they pursue on the side, earning money from their hobbies and interests. Even if you haven't officially formed your hobby as a business, you still must claim the income you make through these efforts. Here are some tips to help you report your income.
1. Identify whether you have a hobby or a business
- Hobby: You earn income but do not do so to make a profit, rather for your pastime recreation
- Business: You purposefully work to make a profit.
You can explore the 9 factors the IRS lists to help clarify if you have a hobby or business.
2. Manage your hobby's allowable expense deductions
When claiming hobby-earned income, you can typically deduct your expenses, but only if they are ordinary and necessary.
- Ordinary expense: Considered common and acceptable for the hobby you engage in
- Necessary expense: Considered appropriate for participating in your hobby
3. Report expenses up to the allowable limit
You can report hobby expenses, but the limit is the amount of income you make from it. If your expenses exceed your income, then you have a loss. However, the IRS doesn't allow you to deduct hobby-income losses.
Other details may apply, and you can find more information on the IRS website.