Equity Update – Domestic Stock Market Overview

Equity indices had their longest streak of record closes since January 1987 as positive sentiment swept the markets, propelling the major equity indices to new highs. The S&P 500’s market capitalization attained $20 trillion for the first time ever, a dramatic increase over the past few months.

The Dow Jones Industrial Average reached 21,000, its second milestone in less than 30 days after reaching 20,000. It took the Dow only 24 trading days to elevate from 20,000 to 21,000, tying a record set in 1999 for the shortest period between 1000 point milestones. Albeit, the Dow was at a much smaller level in 1999, making that move much larger on a percentage basis.

Market pundits believe that we have officially been in a bull market cycle for the past eight years, as major equity indices have continued to hit new highs since 2008. Many analysts and economists are linking the market’s eight-year run to the Fed’s monetary easing program, producing ultra low rates and yield seekers.

Bank sector stocks elevated as the expectation that Dodd-Frank regulations would be alleviated as well the Fed positioning for a rate hike fairly soon. Banks tend to perform better with less regulation and a higher interest rate environment.

Sources: Dow Jones, S&P, Reuters

Corporate After Tax Profits Jump – Corporate Finance

A measure released by the Commerce Department showed that after-tax corporate profits grew over 22% in the fourth quarter versus the same quarter in 2015. The jump in profits was the single largest increase in nearly five years, deemed optimistic by economists and analysts.

As the broader economy grew at an increased pace in the fourth quarter of 2016, various sectors and industries may see either a continuance or slowdown depending on any regulatory and economic shifts.

Overall, U.S. companies have plentiful cash, better credit, and lower expenses than they traditionally have had. In addition to existing financial conditions, companies are now operating under the expectation of lower corporate taxes and less regulations as proposed by President Trump.

Sources: U.S. Department of Commerce

Auto Sales May Have Peaked – Industry Overview

Low interest rates and aggressive leasing programs have made some fairly expensive cars affordable. Rather than struggling to get approved for a new home loan or refinance, Americans have instead financed cars, where getting a loan approval has been easier. The abundance of attractive loans has helped elevate auto sales throughout the country over the past few years. Recent auto sales have been slowing across the country as dealer incentives have become less effective.

The end of 2016 saw auto loans outstanding reach $1.1 trillion, propelled by continued low interest rates. Federal Reserve data revealed that the average rate on a typical 4 year auto loan was 4.45% in the 4th quarter of 2016. The same auto loan in February 1982 was 17.05%.

As expensive as some automobiles have become for consumers, an auto loan is the only method of actually affording the pricey cars of today. Over the years, several automobile companies have established their own financing thus allowing buyers to buy and borrow directly from them.

A growing concern among analysts are the number of auto loans that have been securitized over the past few years. The ultra low rate environment has created incredible affordability for consumers as well as attractive high yielding securities for risk seeking investors. An increase in rates may lead to an increase in auto loan defaults as payments become less affordable.

Source: Federal Reserve