Stocks advance for fifth week
The Northwestern Mutual Wealth Management Company – Vail Valley
With an assist from the Federal Reserve, stocks advanced for the fifth consecutive week and the Dow and S&P 500 both moved back into the black for 2016 after having shed as much as 10 percent by mid-February.
At the same time, the yield on the 10-year Treasury fell as investors shifted back into equities and the Fed slowed its timetable for raising its benchmark rate.
No one expected the Fed to raise its rate for the first time since December (and the second time since 2006) when it met last week, and it didn’t. However, as always, investors parsed every word in the committee’s statement and every utterance in Chairwoman Janet Yellen’s post-meeting press conference. The message was what the market wanted to hear: The Fed still thinks the American economy is relatively healthy, but it will err on the side of caution because of “global economic and financial developments in recent months.” Depending on upcoming data, the Fed may only raise its rate by half a percentage point in 2016 rather than a full point, as previously stated. “What you see here is a virtually unchanged path of economic projections and a slightly more accommodative path,” Yellen noted of the adjustment, and the Fed said its median forecast is for the rate to hit 3 percent by the end of 2018. Regarding stubbornly sluggish inflation, Yellen added, “I haven’t concluded that we have seen any significant uptick that will be lasting.” The latest projection put the rate of inflation for this year at 1.2 percent; the Fed’s target is 2 percent. In addition, the Fed cut its outlook for economic growth this year to 2.2 percent from 2.4 percent.
Central banks stay the course … for now
Central banks in Great Britain (0.5 percent), Japan (-0.1 percent) and Russia (11 percent) all followed the Fed’s lead by leaving their benchmark rates unchanged last week, though not without a caveat or two. The Bank of England (BOE) noted that risks to global growth “continued to lie to the downside,” while the Bank of Japan’s (BOJ) Governor Haruhiko Kuroda told parliament that the rate could theoretically go from the current -0.1 percent to as low as -0.5 percent. Both the BOE and BOJ left their asset purchase programs unchanged.
More on the “Brexit”
While unveiling his new budget last week, Britain’s Chancellor of the Exchequer George Osborne warned against the potential impact of his nation’s departure from the European Union, which will be the subject of a national referendum on June 23. Osborne said, “Britain will be stronger, safer and better off inside a reformed European Union.”
Premier Li speaks
At the close of the annual meeting of the National People’s Congress, China’s Premier Li Keqiang gave his only press conference of the year. Li said that policy makers will employ “innovative measures” to keep the economy on track as economic performance diverges across provinces and “sluggish” global growth weighs on prospects.
Oil continues its climb
Like stocks, oil has rebounded from its year-opening plummet and it’s now in the black for the year, with United States crude having gained more than 50 percent from its 2016 low. Oil prices continued their rise last week after a group of energy-producing countries said they would meet next month to talk about a freeze in output and Iran said it might participate. With sanctions recently removed, Iran’s oil production climbed last month by 187,800 barrels a day, the biggest monthly gain since 1997, according to Organization of the Petroleum Exporting Countries. On Friday, the International Energy Agency said that U.S. production would fall by 530,000 barrels a day this year, helping to reduce the global glut.
Around the eurozone
Boosted by energy and capital goods, the eurozone’s industrial production increased 2.1 percent in January from December, its strongest monthly performance in more than six years. Production increased 2.8 percent from a year earlier, the biggest annual jump since 2011.
Retail sales disappoint
The Commerce Department said that retail sales fell 0.1 percent in February, while January’s figure was revised from a 0.2 percent gain to -0.4 percent; sales were up 3.8 percent from last February. Core sales excluding automobiles, gas and building materials, rose 0.2 percent, but January’s core sales were revised from 0.6 percent to that same 0.2 percent. In other economic news, the Fed reported that industrial production dipped 0.5 percent after a gain of 0.8 percent in January, mainly because of utilities and mining, off 4 percent and 1.4 percent, respectively. Manufacturing increased 0.2 percent after 0.5 percent in January. The Labor Department said that the Producer Price Index (PPI) was off 0.2 percent in February from the month before and flat year over year. Core PPI, less energy and food, was unchanged from the month before but up 1.2 percent over the past 12 months. Meanwhile, the Consumer Price Index (CPI) fell 0.2 percent in February but gained 1 percent over the last year. Core CPI rose 0.3 percent and was up 2.3 percent from last February, the largest year-over-year gain since May 2012. First-time jobless claims rose 7,000 to 265,000 for the week ending March 12, the Labor Department reported, but claims have been below 300,000 for 54 weeks, the longest such stretch since 1973. For the week ending March 5, the four-week moving average rose 750 to 268,000. The Commerce Department said that housing starts climbed 5.2 percent in February to an annual rate of 1.18 million units, up 30.9 percent from February 2015, while building permits fell 3.1 percent to an annualized 1.17 million, up 6.3 percent from a year earlier. Lastly, the University of Michigan’s Consumer Confidence Index dipped to 90.0 in March, a five-month low, from 91.7 in February.
A look ahead
This week’s updates will include the latest on existing and new home sales, personal consumption, durable and capital goods orders. The government will also release its second revision to fourth-quarter gross domestic product, expected to remain at 1.0 percent after the initial estimate of 0.7 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.
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