Recently, talking heads have spent way too much time discussing about whether or not the Dow will pierce 20,000 and what that means for the future of the stock market. First, for some background, the Dow Jones Industrial Index is made up of 30 stocks, weighted by the price of a single share of each stock. Through times, shares have split (i.e. one share worth $100 becomes 2 shares worth $50 each), companies have been acquired, and the make up of the Index has changed. In order to facilitate the calculation, a divisor is utilized so that the impact of the above mentioned events appear to have no impact on the Index. The current divisor is 0.14602128057775 so a $1 change in the share price of a single stock has an impact of $6.87 on the index.
We have been fixated on benchmarks with zeros on the end. Each achievement of 1,000 or 10,000 points on the Dow stirs up the media. There is really no significant difference between 19,999 and 20,001 and the fact that the Dow might cross than milestone has no significance in future values of the index. Technical analysts will look at measures of momentum, moving averages, and stochastics to analyze the markets. Fundamental analysts will look at the overall economy, earnings, P/E ratios, and dividends to value equities. Neither should be depending on a statistic measure like 20,000 on the Dow even as the Index closed this week 36 points from that demarcation.
Economic Releases: US Employment
Nonfarm Payrolls (blue in the chart below) gained 156,000 in December, on the low end of the range of expectations, but revisions to prior months added 19,000. Private Payrolls (red in the chart below) similarly gained 144,000. The Participation rate remained at 62.7%. As a sign of strength in the labor market, Average Hourly Earnings rose +0.4%, the second such gain in the last three months; the annual increase of +2.9% was the best since 2009. The Unemployment Rate ticked up to 4.7% and the Average Workweek ticked town to 34.3 hours. The December report affirmed wage improvement, but subdued growth in employment. In other employment news, the weekly Initial Claims for Unemployment Benefits fell -28,000 to 235,000; the 4-week average of Claims fell to 256,750 the week of December 31st; Continuous Claims, reported on a 1-week lag, rose 16,000 to 2,112 million.
For a longer term view of the last 8 years, the Wall Street Journal reported that Nonfarm Payrolls gained 1.0% per year, which matched the record under President Ford, but exceeded the records under Eisenhower, and under both Bushes; the records under Kennedy, Johnson, Nixon, Carter, Reagan, and Clinton exceeded 1.0%. The Unemployment Rate fell -0.4% per year in the last 8 years, exceeded only by the Johnson years -0.5%. The Labor Participation rate fell -0.4% per year in the last 8 years, the most negative average change of any of the above administrations. Inflation-adjusted hourly earnings increased +0.5%, exceeded only by the Clinton, and GW Bush years at +0.8%. The overall growth in the economy of 2.1% (through the 3rd quarter) is the slowest growth in any of the expansions since 1949.
Source: St Louis Federal Reserve, FRED, Econoday via WSJ.com
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Other US Releases:
Purchasing Managers' Indices
|
|
|
|
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for December
|
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Manufacturing
|
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Services
|
US ISM
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↑
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54.7
|
|
57.2
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US Markit
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↑
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54.3
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↑
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53.9
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The Purchasing Managers' Indices (PMIs) rose and remained well in the expansion zone in December. Factory Orders fell -2.4% in November.
You will note that the format of the table has changed. The + and - sign in front of the number has been replaced by an up or down arrow to reflect the change from the previous month.
Source: Econoday and the Wall Street Journal
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Economic Releases outside the U.S.
Purchasing Managers' Indices
|
|
|
|
|
|
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for December
|
|
Manufacturing
|
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Composite
|
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Services
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European Union
|
↑
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54.9
|
↑
|
54.4
|
↑
|
53.7
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Germany
|
↑
|
55.6
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↑
|
55.2
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↓
|
54.3
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France
|
↑
|
53.5
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↑
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53.1
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↑
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52.9
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UK CIPS
|
↑
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56.1
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|
|
↑
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56.2
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China CFLP
|
↓
|
51.4
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|
|
|
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China
|
↑
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51.9
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↑
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53.5
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↑
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53.4
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Japan
|
↓
|
51.3
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↑
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52.8
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↑
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52.3
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Around the globe, most PMIs rose and all remained well into the expansion zone, above 50. In the Eurozone Retail Sales slipped -0.4% in November, but October's Sales were revised 3 ticks higher to 1.4%. In December, EU Economic, Industrial, and Consumer Sentiment improved. In November, Germany's Manufactures' Orders fell -2.5% and Retail Sales fell -1.8%.
Source: Econoday and the Wall Street Journal
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Equity and Bond Index Returns:
In the first week of the year equity markets rose across the globe, a continuation of the post election rally that now included the Asian markets. Valuations remain high at 17.1 times S&P 500 earnings; that ratio is close to the average over the past 20 years, but well above the 10-year average of 14.4. Falling interest rates gave the US fixed income indices a positive start to the year as well.
In the tables below I have kept the Election to Date (ETD) data because Quarter to Date (QTD) would be a repetition of another column.
Equity Indices % Change
|
Price
|
% Chg since:
|
ETD
|
Calendar
|
'08-'16
|
|
01 /06/ 17
|
12 /30/ 16
|
11 /04/ 16
|
2016
|
12/31/08
|
Dow Jones Industrials
|
19,964
|
1.0%
|
11.6%
|
13.4%
|
125.2%
|
S&P 500 Index
|
2,277
|
1.7%
|
9.2%
|
9.5%
|
147.9%
|
Nasdaq
|
5,521
|
2.6%
|
9.4%
|
7.5%
|
241.3%
|
S&P/TSX Composite
|
15,496
|
1.4%
|
6.8%
|
17.5%
|
70.1%
|
FTSE 100 Index
|
7,210
|
0.9%
|
7.7%
|
14.4%
|
61.1%
|
CAC 40 Index
|
4,910
|
1.0%
|
12.2%
|
4.9%
|
51.1%
|
DAX Index
|
11,599
|
1.0%
|
13.1%
|
6.9%
|
138.7%
|
Swiss Market Index
|
8,417
|
2.4%
|
10.9%
|
-6.8%
|
48.5%
|
Nikkei 225 Index
|
19,454
|
1.8%
|
15.1%
|
0.4%
|
115.7%
|
HK Hang Seng Index
|
22,503
|
2.3%
|
-0.6%
|
0.4%
|
52.9%
|
Shanghai CSI 300
|
3348
|
1.1%
|
-0.2%
|
-11.3%
|
82.1%
|
Bond Indices % Total Return
|
|
|
|
|
|
Bloomberg Treasury Index 6.0
|
124.4
|
0.2%
|
-3.2%
|
1.0%
|
19.5%
|
Bloomberg Corporate Index 7.0
|
144.1
|
0.3%
|
-1.8%
|
5.9%
|
72.1%
|
Bloomberg High Yield Index 4.2
|
171.5
|
1.0%
|
3.0%
|
17.4%
|
167.4%
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Valuation
|
|
|
|
|
20-Year Ave
|
Factset forward S&P 500 Earnings
|
$132.89
|
|
$130.69
|
$132.79
|
17.2
|
% Change in Earnings
|
|
|
1.7%
|
4.5%
|
10-Year Ave
|
Price/Earnings Ratio
|
17.1
|
|
16.9
|
16.9
|
14.4
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Data Source: Bloomberg app for the Iphone; Earning Estimates from Factset
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Bond Yields and Spreads:
In the first week of the new year, US yields were mostly lower, but European yields were mostly higher. The TIPS spread held showing that higher inflation expectations remain since the election. Credit spreads for the high yield sector have narrowed further in the first week of the new year.
Government Bonds
|
Bond Yields (%)
|
bp chg since
|
ETD
|
Calendar
|
'08-'16
|
|
01 /06/ 17
|
12 /30/ 16
|
11 /04/ 16
|
2016
|
12/31/08
|
UST 2-Year
|
1.21
|
2
|
43
|
14
|
42
|
UST 10-Year
|
2.42
|
-2
|
64
|
17
|
23
|
US TIP 10-Year
|
0.42
|
-4
|
34
|
-23
|
-163
|
UST 30-Year
|
3.01
|
-6
|
45
|
5
|
39
|
Canadian 10-Year
|
1.72
|
1
|
57
|
32
|
-97
|
UK 10-Year
|
1.38
|
15
|
25
|
-73
|
-179
|
French 10-Year
|
0.82
|
14
|
36
|
-30
|
-273
|
German 10-Year
|
0.29
|
9
|
16
|
-43
|
-275
|
Swiss 10-Year
|
-0.16
|
10
|
25
|
-14
|
-236
|
Japan 10-Year
|
0.05
|
1
|
12
|
-22
|
-113
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Credit Spreads
|
|
bp chg
|
bp chg
|
bp chg
|
bp chg
|
Bloomberg Corp OAS BUSC
|
129
|
1
|
-15
|
-43
|
-445
|
Bloomberg HY OAS BUHY
|
401
|
-28
|
-111
|
-304
|
-1374
|
Rates
|
|
bp chg
|
bp chg
|
bp chg
|
bp chg
|
US Mort 30-yr %
|
3.99
|
1
|
50
|
16
|
-117
|
10-Year TIPS Spread
|
2.00
|
2
|
31
|
40
|
185
|
Data Source: Bloomberg app for the Iphone
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Currency and Commodity Markets:
The Loonie was the strongest currency in the first week of the new year; the US dollar was mixed against the other currencies in the table. Metals and Corn commodity prices gained in the first week of the year. Natural Gas dropped, but Oil prices were little changed in the first week of the year.
Currencies vs $
|
Closing
|
% Chg since
|
ETD
|
Calendar
|
'08-'16
|
|
01 /06/ 17
|
12 /30/ 16
|
11 /04/ 16
|
2016
|
12 /31/ 08
|
Yen
|
85.48
|
-0.0%
|
-11.9%
|
2.8%
|
-22.5%
|
British Pound
|
1.23
|
-0.3%
|
-1.9%
|
-16.4%
|
-15.5%
|
Euro
|
1.05
|
0.1%
|
-5.5%
|
-3.2%
|
-24.7%
|
Canadian Dollar
|
75.62
|
1.6%
|
1.4%
|
2.9%
|
-9.5%
|
China Renminbi
|
14.44
|
0.3%
|
-2.4%
|
-6.5%
|
-1.6%
|
Commodities
|
|
|
|
|
|
West Texas Intermediate
|
$53.71
|
-0.2%
|
21.9%
|
45.4%
|
20.7%
|
Brent Crude
|
$56.84
|
0.0%
|
24.7%
|
52.4%
|
58.6%
|
Natural Gas
|
$3.27
|
-12.6%
|
18.0%
|
60.5%
|
-35.6%
|
Spot Gold
|
$1173
|
1.8%
|
-10.2%
|
8.5%
|
32.4%
|
Spot Silver
|
$16.48
|
3.4%
|
-10.6%
|
15.2%
|
40.7%
|
CBOT Corn
|
$358.00
|
1.7%
|
2.7%
|
-1.9%
|
-2.1%
|
Spreads
|
|
|
|
|
|
Brent-WTI
|
$3.13
|
5.0%
|
107.3%
|
$0.24
|
-$8.78
|
Data Source: Bloomberg app for the Iphone
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Equity Index Gains in US dollar terms:
The equity table above shows the percent change of different stock indices in terms of its local currency. To calculate the return to the US dollar investor one must combine the change of each index with the change in the applicable currency. The following table shows the 5-day, quarter-to-date and year-to-date results of investments made in each index in US dollar terms:
Return to USD Investor
|
|
% Chg
|
ETD
|
Calendar
|
|
|
since:
|
12 /30/ 16
|
11 /04/ 16
|
2016
|
'08-'16
|
S&P 500 Index:
|
USD
|
1.7%
|
9.2%
|
9.5%
|
147.9%
|
Nikkei 225 Index:
|
Yen
|
1.8%
|
1.4%
|
3.2%
|
67.3%
|
FTSE 100 Index:
|
Pound
|
0.6%
|
5.7%
|
-4.4%
|
36.0%
|
DAX Index:
|
Euro
|
1.2%
|
6.9%
|
3.4%
|
79.7%
|
CAC 40 Index:
|
Euro
|
1.1%
|
6.0%
|
1.5%
|
13.7%
|
S&P/TSX Composite:
|
CAD
|
3.0%
|
8.3%
|
21.0%
|
54.0%
|
Shanghai CSI 300:
|
Yuan
|
1.4%
|
-2.6%
|
-17.0%
|
82.1%
|
The strength of the Loonie put the TSX as the best place for US dollar investors to have been in the first week of the year.
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