Dow on a small winning streak |

Dow on a small winning streak

Ken Armstrong, Shane Fleury and Steve Shanley
The Northwestern Mutual Wealth Management Company — Vail Valley

A sharp rebound in the price of oil — United States crude jumped 9.2 percent last week and Brent crude is now up 3.9 percent for the year — coupled with some solid economic reports, drove the major indexes up for the third week in a row and pushed the Dow Jones Industrial Average back past the 17,000-point barrier for the first time since early January.

While still below the 2 percent mark, the yield on the 10-year Treasury has risen as well, closing the week at 1.88 percent. The rising price of oil has been partly driven by a pledge by oil producers such as Russia and Venezuela to not increase production, as opposed to actually reducing it, a plan that was flatly rejected by Saudi Arabia. As a result, the price of U.S. and Brent crude, which have dipped below $30 in 2016, rebounded to finish the week at $35.92 and $38.72 a barrel, respectively.

Strong jobs growth

Last week closed with another strong jobs report as the Labor Department announced that 242,000 new positions were added in February, while also upwardly revising the total for December and January by 30,000. The separately calculated household unemployment rate remained unchanged at 4.9 percent. The report also indicated that more Americans are looking for, and finding, work, with the labor force participation rate improving 0.2 percent to 62.9 percent. In addition, according to The New York Times, private-sector job creation has now increased for 72 consecutive months, a record. The good news about jobs was somewhat qualified by wages having fallen 0.1 percent in February from the month before after an encouraging gain of 0.5 percent in January; year-over-year, wages were up 2.2 percent.

The Fed

What this means for the Federal Reserve and its benchmark rate remains to be seen, though the market doesn’t expect the Fed to act when it meets next week. The Fed’s Beige Book report on its 12 districts, the data the committee will use when it convenes, concluded that the economy was expanding in most of the U.S. in late January and early February, driven in part by consumer spending and home sales, but manufacturers reported “significant headwinds” in eight districts. At midweek William Dudley, president of the New York Federal Reserve and a voting committee member, said, “I have marked down my growth outlook very modestly.”

China’s latest moves

At the annual meeting of China’s ruling party, Premier Li Keqiang said gross domestic product (GDP) would come in somewhere between 6.5 percent and 7 percent in 2016 and expand by at least 6.5 percent annually through 2019 (it was 6.9 percent in 2015). At a time when China faces the prospect of finding jobs for millions of workers in state-subsidized industries whose positions are expected to be eliminated, he said, “Domestically, problems and risks that have been building up over the years are becoming more evident,” but added, “There is no difficulty we cannot get beyond.” Li also said China was “hugely resilient and has enormous potential and ample room for growth.”

Earlier in the week, in an effort to spur borrowing and spending, China reduced the amount of money that banks have to hold in reserve by 0.5 percent, the fifth time that the reserve ratio has been cut since the beginning of 2015. It’s estimated that the step could free up to $96 billion in liquidity. Also last week, Moody’s downgraded the debt outlook for China from “stable” to “negative,” citing uncertainty over the government’s capacity to implement economic reforms as well as rising government debt and falling foreign exchange reserves; China’s debt rating remained unchanged at Aa3.

A mixed bag for the eurozone

The European Central Bank will meet this Thursday and will have two very different reports to weigh as it ponders its next steps to boost growth. On the plus side, the eurozone’s unemployment rate fell to 10.3 percent in January, its lowest level in more than four years. However, inflation dipped to -0.2 percent in February from a year earlier (and January’s 0.3 percent), raising the specter of deflation once again. Core inflation, less food and energy, was 0.7 percent.

Cheap gas = strong car sales

Cheap gas and easy credit drove U.S. auto sales, up 6.9 percent in February to 1.34 million vehicles compared to a year earlier (and helped by the extra Leap Day). Autodata said the annualized rate was 17.5 million vehicles versus last year’s 16.4 million. In other news, the Institute for Supply Management (ISM) reported that its Manufacturing Index increased 1.3 percentage points to 49.5 in February, though it remained in contraction territory. The ISM’s Non-Manufacturing Index came in at 53.4 compared to 53.5 in January. The Commerce Department said that the trade gap widened for the fourth month straight in January because of weaker exports and the stronger dollar. The gap was $45.7 billion with exports falling 2.1 percent to $176.5 billion, their lowest level since June 2011. The Commerce Department also reported that construction spending rose 1.5 percent to $1.14 trillion in January from the month before, the highest total since October 2007. The National Association of Realtors said its Pending Home Index fell to 106 in January, a drop of 2.5 percent from December, with sales slowed in part by lower inventories. First-time jobless claims were up 6,000 to 278,000 for the week ending Feb. 27, according to the Labor Department, but the four-week moving average for the week ending Feb. 20 dropped 1,750 to 270,250. In addition, the government said that new orders for manufactured goods rose 1.6 percent to $463.9 billion in January after a 2.9 percent drop in December, the largest month-over-month gain since June. Orders for durable goods were up 4.7 percent in January from the month before.

A look ahead

Most investors are already looking ahead to the Fed’s meeting on March 15 and 16. This week there are only a few releases to attract investors’ attention, including reports on consumer credit, small business optimism, wholesale inventories and household net worth.


This commentary was prepared specifically for your wealth management advisor by Northwestern Mutual Wealth Management Company®.

The opinions expressed are as of the date stated on this material and are subject to change. There is no guarantee that the forecasts made will come to pass. This material does not constitute investment advice and is not intended as an endorsement of any specific investment or security. Information and opinions are derived from proprietary and non-proprietary sources. Sources may include Bloomberg, Morningstar, FactSet and Standard & Poors.

All investments carry some level of risk including the potential loss of principal invested. Indexes and/or benchmarks are unmanaged and cannot be invested in directly. Returns represent past performance, are not a guarantee of future performance and are not indicative of any specific investment. No investment strategy can guarantee a profit or protect against loss. Although stocks have historically outperformed bonds, they also have historically been more volatile. Investors should carefully consider their ability to invest during volatile periods in the market. The securities of small capitalization companies are subject to higher volatility than larger, more established companies and may be less liquid. With fixed income securities, such as bonds, interest rates and bond prices tend to move in opposite directions. When interest rates fall, bond prices typically rise and conversely when interest rates rise, bond prices typically fall. This also holds true for bond mutual funds. High yield bonds and bond funds that invest in high yield bonds present greater credit risk than investment grade bonds. Bond and bond fund investors should carefully consider risks such as: interest rate risk, credit risk, liquidity risk and inflation risk before investing in a particular bond or bond fund.

The Dow Jones Industrial Average Index® is a price-weighted average of 30 blue-chip stocks that are generally the leaders in their industry. It has been a widely followed indicator of the stock market since October 1, 1928.

Standard and Poor’s 500 Index® (S&P 500®) is a capitalization-weighted index of 500 stocks. The index is designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

Standard & Poor’s offers sector indices on the S&P 500 based upon the Global Industry Classification Standard (GICS®). This standard is jointly maintained by Standard & Poor’s and MSCI. Each stock is classified into one of 10 sectors, 24 industry groups, 67 industries and 147 sub-industries according to their largest source of revenue. Standard & Poor’s and MSCI jointly determine all classifications. The 10 sectors are Consumer Discretionary, Consumer Staples, Energy, Financials, Health Care, Industrials, Information Technology, Materials, Telecommunication Services and Utilities.

The NASDAQ Composite Index® Stocks traded on the NASDAQ stock market are usually the smaller, more volatile corporations and include many start-up companies.

NASDAQ – National Association of Security Dealers Automated Quotations. The NASDAQ is a computer-operated system owned by the NASD that provides dealers with price quotations for over-the-counter stocks.

The 10-year Treasury Note Rate is the yield on U.S. Government-issued 10-year debt.

Support Local Journalism