5 Minute Market Update – February 7, 2017

Trust Dale CFGMarket Update

Equities: Broad equity markets finished mostly positive for the week with small-cap US stocks experiencing the largest gains. S&P 500 sectors finished the week mixed as defensive sectors generally outperformed cyclical sectors.

So far in 2017 technology, materials, and consumer discretionary are the strongest performers while telecommunications and energy are the only sectors with negative performance year-to-date.

Commodities: Commodities were positive for the week as oil prices increased 1.24%. Speculation regarding OPEC production cuts has pushed oil prices up since late November, but an increase in US production has given investors pause so far in 2017. Gold prices increased 2.56% as gold has reached its highest level since the beginning of November.

Bonds: The 10-year treasury yield remained flat at 2.49% as treasury and aggregate bonds finished the week slightly positive.

High yield bonds were positive as riskier assets performed well and credit spreads continued to fall.

Most indices are currently positive for 2017, with international stocks leading the way.

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Lesson to be learned: Fred Schwed Jr. once said “Speculation is an effort, probably unsuccessful, to turn a little money into a lot. Investment is an effort, which should be successful, to prevent a lot of money from becoming a little.” It can be difficult to avoid the urge of speculating about “hot” stock tips which can allegedly make you rich overnight. The truth, however, is markets often act in ways that are unforeseen. This is why it is important to maintain a smart and disciplined investment strategy while avoiding knee-jerk reactions based on daily market noise.

FFI Indicators

FormulaFolios has two simple indicators we share that help you see how the economy is doing (we call this the Recession Probability Index, or RPI), as well as if the US Stock Market is strong (bull) or weak (bear).

In a nutshell, we want the RPI to be low on the scale of 1 to 100.  For the US Equity Bull/Bear indicator, we want it to read least 67% bullish.  When those two things occur, our research shows market performance is strongest and least volatile.

The Recession Probability Index (RPI) has a current reading of 25.44, forecasting further economic growth and not warning of a recession at this time. The Bull/Bear indicator is currently 100% bullish. This means our models believe there is a slightly higher than average likelihood of stock market increases in the near term (within the next 18 months).

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Weekly Comments & Charts

The S&P 500 finished the week positive and remains well above the support level that was set following the breakout in July last year. The most recent positive price movement snapped a narrow trading range experienced by the S&P 500, in which the Index had closed within a 1.75% range for 31 consecutive trading days. It appears that US equity markets are currently in an intermediate-term upward trend as many indices have reached new all time highs multiple times in recent weeks. The coming weeks should continue to give valuable insight about the near-term direction of the S&P 500, but it seems the sideways/downward pattern experienced from 2015 through mid-2016 has shifted to a more bullish pattern for now.

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US stock markets began the week on a slightly negative note, but rallied on Friday to finish mostly positive for the second consecutive week.

Most US stock indices were negative through Thursday, but a strong jobs report helped push prices higher on Friday. January’s employment report showed payrolls increasing by 227,000, beating the expected figure of 171,000. This was the strongest jobs report since last September, suggesting the labor market may not be running out of steam yet, though many experts believe the economy seems to be at a mature stage of expansion.

While job growth was stronger than expected, the unemployment rate inched up from 4.7% to 4.8%. An increase in unemployment is generally a negative signal, but this can actually be taken as a positive sign for the US economy. The unemployment rate rose due to an increase in the labor force participation rate – signaling more people are searching for a job as they see the labor market strengthening. A healthy labor market is expected to continue through 2017, giving support to further US economic growth.

While market trends and history are useful for study, there’s always more to investing than just the charts and trends.

As investors, we need to stay committed to our long-term financial goals. All the short-term news and market movements can be the most debilitating of all when it comes to making sound investment decisions; especially if we allow them to influence knee-jerk decisions.

More to come soon.  Stay tuned.


Phil Calandra

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Source: Phil Calandara