Regulation review statement boosts markets
February 6, 2017
Despite the Federal Reserve's first meeting of 2017, it was a quiet week for the stock markets – until Friday, that is, when President Donald Trump announced his plans to review some of the regulations put in place by his predecessor after the 2008 crash.
That news sent the shares of financial firms soaring and helped the Dow Jones Industrial Average gain 186.55 points to finish the week back above 20,000. Goldman Sachs, up 4.6 percent on Friday, was single-handedly responsible for adding 72 points to the Dow, according to The Wall Street Journal. The impact of the new president on the market was also seen earlier last week when pharmaceutical company shares rose after he met with industry executives to discuss faster approval for new drugs.
The president had a cordial meeting with financial leaders on Friday, during which he sang their praises. Trump said he planned to review and perhaps restructure the Dodd-Frank Act, put in place in 2010 to avoid another financial collapse, calling the act a "disaster." He also said he would have the Labor Department review President Obama's fiduciary law which requires financial advisers who earn commissions to put the interests of their clients first when making investment decisions, a law that financial firms believe unfairly exposes them to lawsuits.
Wage gains remain elusive
The meeting was not the only news on Friday; the Labor Department released the jobs report for January which, while mixed, also contributed to the week-ending rally. The economy added 227,000 jobs in January compared to 157,000 in December – well above expectations – and the jobless rate rose from 4.7 percent to 4.8 percent because more Americans were looking for work. The labor force participation rate rose from 62.7 percent to 62.9 percent. However, wages ticked up just 0.1 percent from December and only 2.5 percent over the last 12 months, down from 2.8 percent in December. Weighing in on the report, the president called the numbers "big league." On the White House website, Trump has pledged to create 25 million jobs which, as The New York Times noted, would eclipse the total created during the 20 years of Ronald Reagan and the two George Bushes combined.
The Fed stands pat
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Earlier in the week, the Fed met and, despite a generally upbeat view of the economy, voted unanimously to not raise its benchmark rate. It is believed this is due mainly to the uncertainty surrounding Trump's plans for deregulation, cutting taxes and increased federal spending. Depending on the state of the economy, the Fed's Chairwoman Janet Yellen has said she expects the rate to go up "a few times" in 2017, but the odds of the Fed raising its rate at its next meeting in March fell from 18 percent before the meeting to 13 percent after it, according to the CME Group. The rate remains in the range of 0.5 percent to 0.75 percent, where it was after the hike in December, the only one in 2016.
Brexit moves forward
On Wednesday, Britain's House of Commons voted overwhelmingly to back Prime Minister Theresa May's Brexit plan by a vote of 498 to 114 – this in a chamber that was effectively split over leaving the European Union (EU) last June. The bill now goes to the House of Lords revising committee but is expected to pass a final vote in the House of Commons next week, clearing the way for negotiations to begin in late March as scheduled. There was also some good news when Wolfgang Schaeuble, Germany's hardline finance minister, said in an interview that the EU should negotiate a "reasonable" deal, adding, "We want to keep Britain close to us."
Around the eurozone
Eurozone manufacturing expanded at its strongest clip in nearly six years in January, IHS Markit reported, with its Purchasing Managers' Index climbing to 55.2 from 54.9 in December. And economic confidence also hit a six-year high of 108.2 in January compared to a reading of 107.9 in December, the European Commission said, perhaps fueling a debate about the European Central Bank's (ECB) stimulus program. However, Ewald Nowotny, a member of the ECB's Governing Council, said that the next discussion about financial policy won't come before June's meeting, adding, "but this is not a tapering discussion." The ECB next meets in March.
Strong start for U.S. manufacturing
The Institute for Supply Management said that its Purchasing Managers' Index (PMI) for January was 56 percent, up from December's 54.5 percent, while the Employment Index improved to 56.1 percent from November's 52.8 percent. The PMI and the indexes for new orders (60.4 percent) and production (61.4 percent) all hit their highest level since November 2014. The ISM's Non-Manufacturing Index ticked down to 56.5 percent in January from 56.6 percent (any reading above 50 percent indicates expansion). In other economic news, personal income rose 0.3 percent in December from the month before, while personal spending increased 0.5 percent; real personal spending was up 0.3 percent in December from November. Pending home sales rose 1.6 percent from November to December but were down 2 percent from a year earlier. The S&P CoreLogic Case-Shiller Home Price Index for 20 major metro areas climbed 5.27 percent in November from a year earlier. Construction spending fell 0.2 percent in December from the month before. WardsAuto reported that vehicle sales came in at 17.47 million in January, up 2 percent from a year earlier but down 4.5 percent from December. Factory orders improved 1.3 percent in December from the month before after having fallen 2.3 percent in November. And first-time jobless claims for the week ending Jan. 28 dropped 14,000 to 246,000, the four-week moving average for the week ending Jan. 21 rose 2,250 to 248,000.
A look ahead
This week stands to be far quieter than last week, when it comes to economic updates at least, with a far shorter list of releases including the latest on the trade balance, consumer credit, the Import Price Index, wholesale inventories and consumer comfort
Management's Manufacturing and Non-Manufacturing Indexes, construction spending, auto sales, factory orders and nonfarm productivity. In addition, the Federal Reserve will have its first meeting of 2017. The Fed has said it may raise its benchmark rate "a few" times this year, and on Friday the government will announce the jobless rate for January, forecast to remain unchanged at 4.7 percent.
This commentary was prepared specifically for local wealth management advisers by Northwestern Mutual Wealth Management Company.
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