Stocks, job growth highlight financial news
Courtesy of Ken Armstrong, Shane Fleury and Steve Shanley of The Northwestern Mutual Wealth Managment Company — Vail Valley
Stock indexes soared to the cusp of new highs on Friday as job growth moved more or less back to where it had been before March’s jarring slowdown.
Stocks were given an extra boost because job creation wasn’t so robust that the Federal Reserve would think about advancing the timetable for raising its benchmark rate from September, especially given the weakness of first-quarter gross domestic product growth, which is now expected to be revised into the red when the government’s second estimate is released May 29.
Job growth rebounds
Employers added 223,000 jobs last month, which came as the already dismal total of 126,000 new jobs in March was lowered to a mere 85,000. At the same time, the household unemployment rate survey went down yet another notch, this time from 5.5 percent to 5.4 percent, its lowest level since March 2008. However, wage growth remains sluggish, up just 2.2 percent over the last year. Millions of Americans have given up looking for work, and the labor participation rate, at 62.8 percent, remains where it was in the 1970s.
Trade deficit widens
Support Local Journalism
On April 29, the government announced that GDP growth in the first quarter had all but stalled at 0.2 percent because of the harsh winter weather, the strong dollar and the shipping slowdown at West Coast ports. Last week, the news got worse when the trade gap for March swelled to $51.4 billion, its highest point in six and a half years and an outsized 43 percent increase from February. Imports were up 7.7 percent to $239.2 billion, while exports increased 0.9 percent to $187.8 billion. As a result, most analysts now think that GDP will fall into contraction when revised later this month.
English conservatives triumph
Pollsters and pundits had Great Britain’s election at a dead heat. They couldn’t have been more wrong as Prime Minister David Cameron’s Conservative Party strengthened its hold on Parliament and will now be able to operate without having to form a coalition. In addition, the Scottish Nationalist Party won 56 of the 59 seats being contested. As a result, two vexing issues are now very much in play: there will be an “in-out” referendum on Britain’s membership in the European Union in 2017, which Mr. Cameron had committed to if re-elected; and there is likely to be a revival of the Scottish independence movement.
Greek drama continues
Greece’s Finance Minister Yanis Varoufakis said his nation will be able to pay the €750 billion due on Tuesday to the International Monetary Fund, but after that Greece is expected to run out of money unless it can convince the troika to release the final bailout payment of €7.2 billion. Though no longer the lead negotiator, Varoufakis will be in Brussels today to meet with the eurozone’s finance ministers. Meanwhile, the Greeks again raised hackles by saying they were talking with Russia about a pipeline through Greece via Turkey that would deliver natural gas to Europe and possibly earn billions for the cash-strapped Greeks. The United States promptly sent an envoy to Athens to urge Greece to reject the deal in favor of an alternative pipeline backed by the West that would go through Azerbaijan. There was good news for the eurozone for a change when the European Commission upped its forecast for GDP growth in 2015 from 1.3 percent to 1.5 percent, largely because the impact of the weaker euro and monetary stimulus offset concerns about the standoff with Greece.
China’s central bank acts again
On Friday, China’s exports for April were down 6.4 percent from a year earlier. Plus, on Sunday China’s central bank once again took steps to spur economic growth, cutting the benchmark interest rates for both lending and deposits for the third time in the past five months.
Earlier last week, stock prices dipped after the Fed’s Chairwoman Janet Yellen opined they were “quite high,” stronger language than she has previously used; in March she’d said that valuations were “on the high side.” Yellen also noted that once the Fed begins to raise its rate, stock market volatility might increase and bond yields could jump.
Despite predictions that the price of oil would continue to tumble this year, it has roared back of late. Last week U.S. crude crossed the $60-a-barrel mark for the first time in 2015. In addition, the Energy Department said that U.S. stockpiles fell last week for the first time since December. According to The Wall Street Journal, the price of a gallon gas has now climbed 31 percent since its low point in January. Even so, the price of a gallon is still about $1 lower than it was a year ago, and it’s expected to remain below $3 for the rest of 2015.
Consumer borrowing soars
The Fed said that consumer borrowing jumped $20.5 billion in March to a record $3.36 trillion, the biggest increase since April 2014. In addition, credit card borrowing, which fell in January and February, rose $4.4 billion, its largest increase since last July. In other news, factory orders were up in March for the first time since July, the Commerce Department reported, rising 2.1 percent; orders excluding aircraft increased 0.1 percent, and wholesale inventories rose 0.1 percent. The Labor Department said that nonfarm productivity fell at an annual rate of 1.9 percent in the first quarter; it decreased a revised 2.1 percent in the fourth quarter, which adds up to the first back-to-back down quarters since 2006. The Labor Department also announced that first-time jobless claims were up 3,000 to 265,000, and the four-week average fell 4,250 to 279,500, its lowest level since May 2000.
A look ahead
This week’s releases will include the latest on small business optimism, retail sales, business inventories, the Producer Price Index, industrial production and capacity utilization, and consumer confidence.
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.