Last Friday, stocks closed on more record highs. The S&P 500 rose 1.41% and the Dow climbed 1.04% - both closing at new peaks. The NASDAQ reported a 2.58% gain and the MSCI EAFE posted a 2.38% increase. Despite continuing headlines from Washington, the markets remain productive and strong. New Q2 numbers also rolled in last week, giving us a clearer picture of what happened from April through June.
Q2 Coming Into Focus
Over the second quarter, the S&P 500 rose 2.57%, the Dow gained 3.32%, and the NASDAQ jumped 3.87%. Meanwhile, the MSCI EAFE improved by 5.0%. Analysts are now predicting that Q2 Gross Domestic Product (GDP) will grow to 2.4% - stronger than Q1's soft 1.4% increase.
While we wait for more numbers and reports, here are some highlights so far:
- Corporate Earnings: Corporate Earnings should remain strong for Q2, with an expected S&P 500 earnings growth of 6.5%. As of July 14, only 6% of S&P 500 companies have reported earnings.
- Core Consumer Pricing: Core Consumer Pricing, which measures the price of consumer goods excluding food and energy, remained at 60-year historically low levels. June's numbers increased by only 0.1% - the third month in a row for low rates.
- Retail Sales: Retail sales were soft, declining unexpectedly by 0.2% following May's 0.1% drop and April's 0.3% rise.
- Labor Market: Employers hired at a record increase of 8.3% in May, filling 5.5 million jobs. Consequently, job openings fell in May to 5.7 million from April's strong 6.0 million. The strong labor market further reflected in June's low unemployment rate of 4.4%.
On the international front, global economic growth is set to post a predicted 3.0% increase for Q2. Emerging and advanced economies both should record positive results based on strong global trade growth and favorable economic indicators. Both China and Japan are expected to post strong economic growth.
News From Last Week and Looking Ahead
For Q3 and Q4, the economy should continue to produce strong job data and decent housing markets - along with growing investments in businesses. For the year, the economy is expected to expand at an estimated 2.2% in 2017. With that said, consumer sentiment fell to 93.1 in July - much lower than expected. Because consumer spending makes up more than two-thirds of the economy, the markets will continue to follow consumer attitudes and spending. Given current global economic trends, some analysts expect the global economy to grow by 3.0% for 2017.
Finally, Fed Chair Janet Yellen testified before Congress last week. She confirmed that the Fed's reduction in its $4.5 trillion balance sheet - known as "tapering" - will start later this year. She also suggested that interest rate hikes might continue for a couple of more years. With inflation hovering at 1.4%, however, the Fed may be losing confidence in reaching its targeted goal of an annual 2% increase. Meanwhile, The Bank of Canada has followed the Fed's lead by raising its interest rates 25 basis points to 0.75% - its first raise since 2010.
As always, we are here to help you navigate the often-complex economic environment. Contact us if you have any questions about how this information may impact your financial life.
Quote of the Week
"Optimism is the faith that leads to achievement; nothing can be done without hope and confidence."
Golf Tip of the Week
Avoid Chunking Your Chip
Chunking your chip most often happens when golfers try to avoid swinging their club too hard. They stand too far away from the ball, take a full swing, and try to slow the impact at the last moment. The result: a chunked chip. Try moving closer to the ball, making your shaft vertical so the clubhead is on its toe.
If you find yourself chunking the ball, follow these steps to improve your stance and swing.
- Step 1: Stand directly across from the ball, about 10 inches away. You'll want to step in with your back foot.
- Step 2: Identify your target and aim your clubface directly at it.
- Step 3: Settle your weight forward by stepping in with your front foot; keep your weight shifted as such throughout your swing.
- Step 4: Make sure you lean the shaft slightly toward the target. From there, brush back and through.
Tip courtesy of Golf Digest
Financial Question of the Week
Should I change my investment mix when I retire?
Probably less than you think.
Many retirees think that they can put their savings into fixed income investments and live on the interest. Unfortunately, this strategy does not work unless you have so much money or such a short life expectancy that you do not have to worry about inflation.
Most retirees live well into their eighties. If you retire at 65, that means you may live to see the cost of living double or triple, even if inflation averages 4% a year or less. You must invest for growth as well as for income.
You may want to re-balance your portfolio to achieve a somewhat less aggressive mix, however. Without earned income, you are more vulnerable to the ups and downs of the stock market.
Determining the correct investment mix for you is a major part of portfolio management and something we review with clients on a regular basis.
Please let me know if you or someone you know would like help determining your investment mix.