On April 12, 2017

Monthly market insights

By Kevin Theissen

The U.S Market

The bull market celebrated its eighth anniversary in March, but stock prices were mixed for the month.

The Dow Jones Industrial Average slipped 0.7 percent, while the Standard & Poor’s 500 Index ended essentially flat. The NASDAQ Composite rose 1.48 percent, according to The Wall Street Journal.

Stocks carried forward their momentum from February into the early days of March, as the earnings season drew to a close and investors turned their attention toward politics, the economy and the Fed. Positive economic reports and an upbeat speech by President Trump reignited investors’ enthusiasm.

Stocks eventually stalled as a decline in oil prices weighed the markets down. The stock market, however, resumed its climb after the Fed raised rates a quarter of a percentage point, signaling to investors just how much strength the Fed currently sees in the U.S. economy.

Eyes on Healthcare

The markets turned downward again as President Trump and House GOP leaders had trouble securing the passage of healthcare reform, sparking concern that the White House may also encounter similar challenges with tax reform and other policy priorities.

The month closed out with yet another shift in direction, as economic reports renewed investors’ hope in potentially sustained acceleration in economic growth.

What investors may be talking about in April

Since the populist revolt by British voters to exit the European Union (EU), there has been an underlying current of anxiety about the prospect of other EU member countries electing leaders that share a similar desire to break away.

The Dutch election in March was a victory for the political establishment, fending off the populist candidate Geert Wilders, who campaigned on a platform that included leaving the EU.

Markets were relieved by the election results, but a new test of the establishment’s ability to hold the affections of voters is expected to occur in late April, with the first round of elections in France.

The French bond market has been roiled by the possibility of a win by National Front candidate Marine Le Pen, who, among other positions, supports disentangling France from the EU.

Markets have calmed in the wake of the Dutch election, and polls pointing to a win by the French centrist, Emmanuel Macron. That said, investors are well aware of how mistaken such polls can be. Just prior to the vote in Britain, the polls had the “remain” vote leading.

Should Ms. Le Pen’s numbers perform in a way that suggests that she could win in May’s run-off election, European markets may become unsettled, potentially sending a ripple effect across the Atlantic.

World Markets

Overseas markets enjoyed a better month of performance than U.S. stocks, as the MSCI-EAFE Index gained 2.8 percent.

European stocks turned in a strong performance in the wake of signs that real, sustainable economic growth was finally taking root. Markets were also buoyed by the election results in the Netherlands, which rejected the populist candidate in favor of the political establishment. At least for the moment, this result allayed fears of a populist wave undermining the EU. Most major markets were sharply higher, including France, Germany, the Netherlands, and the U.K.

Markets in the Pacific Rim were mixed, with Australia and Hong Kong higher while Japan closed lower.

Indicators

Gross Domestic Product: Economic growth for the fourth quarter was revised higher, from the initially reported 1.9 percent to 2.1 percent. The upward revision was attributed to strong consumer spending.

Employment: The employment report reflected healthy labor gains as nonfarm payrolls rose 235,000, while the unemployment rate ticked lower to 4.7 percent and workers’ earnings rose 0.2 percent.

Retail Sales: Retail sales posted their smallest increase since August, rising just 0.1 percent, though January’s sales growth was revised higher, from 0.4 percent to 0.6 percent.

Industrial Production: The output of factories, mines and utilities was unchanged from the prior month, even as manufacturing output jumped 0.5 percent, its highest level since July 2008.

Housing: Warm weather, a strengthening economy, and a rush to lock in current mortgage rates drove housing starts higher by 3 percent, touching levels not seen in nearly a decade.

Sales of existing homes fell 3.7 percent as limited inventory and rising prices restrained prospective home buyers.

New home sales enjoyed a second straight month of healthy gains, rising 6.1 percent from January.

CPI: The prices of consumer goods rose 0.1 percent in February, and 2.7 percent in the past 12 months—the biggest annual jump since March 2012.

Durable Goods Orders: Orders of durable goods rose 1.7 percent, driven by a surge in civilian aircraft and parts sales.

The Fed

In the clearest sign yet that the era of an accommodative monetary policy was ending, the Federal Reserve announced on March 15 that it would raise rates 0.25 percent, with two additional quarter-point increases possible later in the year.

The next big challenge for the Fed may be the timing of when to commence paring back its portfolio holdings, which rose in response to the 2008 credit crisis.

Kevin Theissen is principal and financial advisor at Skygate Financial Group, LLC., located on Main Street in Ludlow, Vt. He can be reached at kevin@skygatefinancial.com.

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