U.S. and foreign stocks rose this past week. The 10-year Treasury bond yield rose and is now up 35% over the past three months but at 2.486% is below the peak of 2.6%. Commodity prices were generally down.
Many changes have come to pass this week with the new president. Our preference in this newsletter is to be as neutral as possible politically but to address things which are economic or investment related. So, looking at the executive actions that may affect the economy or investments this week here is our take:
- The executive order regarding dismantling the Affordable Healthcare Act is merely a formality notifying the affected agencies of the intent to dismantle the law. We believe the order itself does not necessarily change much until Congress passes a law. Republicans have already missed the January 27 deadline to have more time to work on the replacement. More likely we are looking for something to emerge by March. At this point, the outcome is unknown but Mr. Trump and many republicans say they don’t want to repeal without a replacement in place. Never the less, this could have a big impact on individuals covered under the ACA as well as drug companies and healthcare providers.
- The executive order to build a wall on the Mexican border requires funding from Congress. As much of the land on the border is privately owned it will need to be purchased or seized by eminent domain. The construction will add jobs and greatly increase demand for steel and concrete over a period of years. Also, included in the order is the intent to add 5,000 more border patrol agents.
- A memorandum to impose a hiring freeze on civilian employees could impact employment in the government sector. This has been done before by presidents Carter and Reagan and were deemed ineffective. The memorandum exempts military and positions needed for national security or public safety responsibilities.
- A memorandum directed the U.S Trade Representative to pull out of the Trans Pacific Partnership (TPP): This was a foregone conclusion since there was never enough support in Congress to approve this and both candidates expressed opposition during the campaign. Going forward, the president has expressed an interest in pursuing bi-lateral trade agreements. It remains to be seen exactly where trade is going and whether further actions will ignite a trade war. Abandoning the TPP will reduce U.S. influence with the countries other than China (who was not a party to TPP). This will weaken the U.S. influence in dealing with China’s territorial conflicts with other countries of the Pacific Rim. There were U.S. industries and consumers that would have benefited from TPP. It remains to be seen if the new policies will in-fact create more U.S. jobs without creating inflation. I think people will get upset if they go to the store and find the cost of everything we import has gone up due to tariffs.
- A memorandum to attempt to renew the process for the construction of the Keystone XL and the Dakota Access pipelines: These will be positive for the U.S. and Canadian economies. There will be added jobs in the construction and increased demand for U.S. steel.
- An executive order was issued to expand the military which could give a boost to the economy. It is unknown what portions of the military will expand and this requires congressional budgeting.
At this point much remains to be known about infrastructure spending, taxes and deficits.
In the numbers this week:
- The National Association of Realtors reported that existing home sales fell a seasonally adjusted 2.8% in December. Rising mortgage rates and lack of supply were attributed for the decline. The year 2016 was the best since the financial crisis. The median sale price in December was $232,200 a 4% increase from the previous December.
- The Commerce Department reported:
- U.S. New Home Sales fell a seasonally adjusted 10.4% in December. Monthly data on new home sales can have large monthly swings. For the calendar year, new home sales were up 12.2%. Sales have increased for five consecutive years. Economists are predicting an increase in 2017 as builders step-up production. Price increases for land, construction and regulatory costs have kept a damper on demand.
- 4th quarter GDP grew at a 1.9% annual rate in the 4th quarter, down from the 3rd quarter’s 3.5% annual growth rate. Consumer spending, home building, business spending and inventories expanded in the 4th quarter. However, an increased trade deficit reduced the growth rate by an annualized 1.7%. For the entire year, the U.S. GDP grew only 1.6% down from 2.6% in 2015.
- Durable goods order fell 0.4% in December. Economists had forecast a 2.3% increase. The decline was largely due to a 33.4% decline in defense capital goods which can be very volatile from month to month. Orders for non-defense capital goods rose 0.8% in December. Still for the year, durable goods orders fell 0.3% in 2016.
- The Energy Information Administration weekly report is attached.
- Baker Hughes reported that oil drilling rigs jumped 15 to 566. Gas drilling rigs rose 3 to 145.
- The Labor Department reported Initial claims for unemployment rose 22,000 to a seasonally adjusted 259,000. The four-week moving average of claims, designed to smooth out weekly fluctuations, fell 2,000 to 245,500 the lowest level since November 1973 when the workforce was much smaller.
- Factset reported that with 34% of S&P 500 companies reporting, 4th quarter earnings have increased 4.2%.
Please call us if you have any questions.
Loren C. Rex, CFP®, AIF®, MA Erik Smith
Generations Financial Planning & Wealth Management 269-441-4143
77 E. Michigan Ave, Suite 140
Battle Creek, MI 49017
Carrie Fuce, Assistant 269-441-4091
Toll Free: 800-513-8180
Visit our Website: www.genfinplan.com
Registered Representative of and securities offered through Cambridge Investment Research, Inc., a Broker/Dealer, Member FINRA/SIPC. Investment Advisor Representative, Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Cambridge and Generations Financial Planning & Wealth Management are separate companies and are not affiliated.
These are the opinions of Loren Rex and Erik Smith and are not necessarily those of Cambridge, are for informational purposes only, and should not be construed or acted upon as individualized investment advice. Indices mentioned are unmanaged and cannot be invested into directly. Past performance is not a guarantee of future results