US and foreign stocks saw substantial gains this week as corporate earnings came in above expectations. The Trump administration approved tariffs on large washing machines and solar cells citing unfair foreign competition. Treasury yields saw little change and commodity indexes were mostly higher.
Both the European Central Bank and the Bank of Japan announced this week that there was no change in their asset purchases noting that inflation is still running below their 2% target. The ECB had said bond purchases will run through September but stressed that this will go longer if necessary. With the Euro and the Yen increasing in value, achieving a 2% inflation rate will become much harder.
Ironically, despite increased interest rates in the U.S., the dollar has lost value since the beginning of 2017. At the beginning of 2017 the dollar was at 100.89 against a basket of foreign currencies and ended Friday at 89.02. This will tend to help U.S. companies that export by making their goods less expensive in foreign currencies. It will also help multinational U.S. companies whose foreign earnings are measured in U.S. dollars. Consumers, however, will see higher prices for imported goods and this will drive up inflation. We are watching these numbers very carefully as it could cause the FED at some point to hike rates more quickly.
In the numbers this week:
- The National Association of Realtors reported that sales of previously owned homes fell 3.6% in December. For the year of 2017 sales were up 1.1% for the best year since 2006.
- The Commerce Department reported
- Sales of newly built single-family homes fell 9.3% in December. For the calendar year 2017 new home sales rose 8.3%.
- The median sales price of a new home was $335,400. The drop in sales and increase in price was due largely due to low inventory of new homes.
- The first reading of U.S. gross domestic product came in at 2.6% in the fourth quarter, below expectations of a 2.9% rise. Keep in mind that there will be two major revisions to this number and is likely to change. Calendar year 2017 had the highest growth since 2014, having grown above 3% in the second and third quarters.
- Orders for durable goods rose 2.9% in December, beating expectations. December say a 55.3% increase in orders for military aircraft and a 15.9% increase in civilian aircraft orders. New orders for non-defense capital goods excluding aircraft (which are quite volatile) fell 0.3%.
- The European Central Bank left its stimulus efforts unchanged with bond purchases scheduled to run through September and longer if necessary. The growth was attributed to increases in both consumer and business spending.
- The Labor Department reported first time claims for unemployment rose 17,000 to a seasonally adjusted 233,000 in the prior week. The increase had largely to do with seasonal factors following last week’s larger drop. The four seek moving average of claims fell 3,500 to 240,000.
- The Energy Information Administration weekly report is attached. Also the EIA reported:
- Weekly field production of crude oil increased 128 thousand barrels per day.
- Storage of Natural Gas fell 288 BN cubic feet.
- According to Baker Hughes, In the past week the number of active oil rigs rose 12 to 759 and the number of active gas rigs fell 1 to 189.
- According to Factset, with 24% of the S&P 500 companies reporting, the blended Q4 earnings growth rate is 12%.
Please call us if you have any questions.
Loren C. Rex, CFP®, AIF®, MA Erik A Smith
President Managing Partner
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.