April 2017
Market Update
(all values as of 09.30.2020)

Stock Indices:

Dow Jones 27,781
S&P 500 3,363
Nasdaq 11,167

Bond Sector Yields:

2 Yr Treasury 0.13%
10 Yr Treasury 0.69%
10 Yr Municipal 0.84%
High Yield 5.77%

YTD Market Returns:

Dow Jones -2.65%
S&P 500 4.09%
Nasdaq 24.46%
MSCI-EAFE -8.92%
MSCI-Europe -10.53%
MSCI-Pacific -6.19%
MSCI-Emg Mkt -2.93%
 
US Agg Bond 6.79%
US Corp Bond 6.64%
US Gov’t Bond 8.04%

Commodity Prices:

Gold 1,892
Silver 23.37
Oil (WTI) 39.88

Currencies:

Dollar / Euro 1.17
Dollar / Pound 1.28
Yen / Dollar 105.60
Dollar / Canadian 0.74

Macro Overview – April 2017

Equity markets advanced during the first quarter as improving economic data supported gradually rising earnings. A steady and predictable path of anticipated rate increases this year by the Federal Reserve was well received by financial markets.

Domestic equity indices ended positive for the first quarter of 2017. The Dow Jones Industrial Index was up 4.6%, the S&P 500 Index returned 5.5%, and the technology heavy Nasdaq ended the quarter with a 9.8% gain. Many believe that an underlying global recovery may be underway, leading to domestic equity demand here in the U.S.

The Fed hiked short-term rates as expected in March, on track with two additional hikes in 2017 with improving economic data validating the Fed’s continuance of rate increases. The Fed has so far increased rates only three times in the past 16 months, one of its slowest paces ever. Fixed income analysts view the Fed’s decision to set two additional rate hikes in 2017 as a normalization of the interest rate environment, away from further accommodative policy producing low rates.

President Trump’s political capabilities are being tested as he needs to substantiate that he can formalize legislative arrangements rather than business transactions. The inability to initiate a bill to repeal the Affordable Care Act (ACA) created uncertainty as to whether or not future legislative ambitions would prove more challenging. In addition to resuscitating a health care bill, tax reform is expected to be President Trump’s next objective, which many expect easier to tackle since lower taxes are a common theme among the divided Republican party.

Two well respected measures of how consumers feel and how they perceive the economic environment showed dramatic increases in their most recent data. The Consumer Confidence Index, compiled by the Conference Board, and the Consumer Sentiment Index, prepared by the University of Michigan, both elevated to record levels. Since consumer expenditures make up nearly 70% of Gross Domestic Production (GDP), growing confidence among consumers is deemed optimistic by economists.

With tax season underway, estimates from the IRS show that over 140 million tax returns will be filed for the 2016 tax year with over $3.3 trillion in federal tax revenue.

Sources: Federal Reserve, Dept. of Commerce, Dow Jones, S&P

 
Equity Update & Corporate Finance

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

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

 
Tax Freedom Day

Tax Freedom Day – Market Fact

Every year, the nation celebrates Tax Freedom Day, the day that the nation as a whole has earned enough to pay for all taxes due throughout the year. This year, Tax Freedom Day is April 24th.

The Tax Foundation calculates Tax Freedom Day by using the total amount of taxes paid the previous year then considers historical trends and recent economic data.

For 2016, the Foundation projected $3.3 trillion in federal taxes and $1.6 trillion in state and local taxes. The total of $5 trillion is then divided by the total personal income earned by Americans each year, deriving a ratio of 31. This number means that Americans work a third of their lives just to pay taxes. Once the ratio of 31 is multiplied by 365 days, then that’s how we arrive at April 24th.

From a calendar perspective, January income is for federal income taxes, February is for Social Security, Medicare, and payroll taxes. March income is for state, excise and property taxes, while April is for the incidental corporate, estate tax and motor vehicle fees.

Taxes due from state to state vary considerably, since some states carry higher taxes than others. Residents from certain states such as Connecticut, New York, and New New Jersey may not celebrate Tax Freedom Day until May, while Louisiana celebrates it in late March.

Sources: IRS, The Tax Foundation