Regulation review statement boosts markets |

Regulation review statement boosts markets

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

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

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.

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.