This Week’s…. 7 Things to Know About the Markets & the Economy (US Stocks at New Record, Global Stocks Join Rally, Interest Rates on the Rise, FANG Reshuffles & Machines Want Half Our Jobs)
- Market Stats: US Stocks Hit Record Levels as Global Stocks Rally. The Dow Jones Industrial Average and S&P 500 hit record highs on Friday and posted solid weekly gains as concerns about global trade dissipated. For the week, the Dow jumped 2.2 percent while the S&P 500 gained nearly 1 percent. The US stock market is strong because the US economy is strong and the economy is strong because corporate earnings are strong. And so it goes. Until just recently, foreign stocks have not enjoyed the same theme. However, last week foreign stocks outperformed as International Developed Equities (EAFE Index) posted a 2.7% return and Emerging Markets Equities rallied 2.27%. JPMorgan Chase & Co. strategists said the time has come to cut U.S. equity holdings and add money to emerging markets as the benefits of Trump’s tax cuts dissipate.
- This Is A Big Week For Interest Rates! The US Federal Reserve Bank is widely expected to raise interest rates when they meet Wednesday. In anticipation, the yield on the 10-year US Treasury note climbed roughly 8 basis points over the week to close above the key 3.0% level at 3.06%. Markets will be scrutinizing the direction the Fed will chart ahead. This week’s hike will push the funds target from 2 percent to 2.25 percent, where it last was more than 10 years ago. Members of the Fed are grappling over how much more monetary tightening is necessary to keep the economy (and inflation) healthy.
- Trade: It Coulda Been Worse: That’s the view that investors seem to have taken as global stocks rallied in the face of a new 10% tax on over 5,000 products from China that will come into effect this week. Those tariffs will rise to 25 percent on Jan. 1 2019. A full-blown global trade war may yet erupt and derail the global economic expansion, but the odds of such an outcome appear to be diminishing. Game theory suggests, and the market appears to believe, that President Trump will want a deal with China, or at least an easing of significant economic risks heading into 2020. To this end, Trump has shown that he is willing to do deals, provided he can claim it as a “win.”
- Super Sales: Chart of the Week: Today’s earnings are being driven by organic sales growth and not by financial tinkering or stock buybacks. The market loves organic growth…a key component for this rally.
- The S&P Index Reshuffle : This week Investors will brace for an S&P 500 sector reshuffling that will send Google parent- Alphabet , Netflix, Facebook, and Twitter to the Telecommunications Services sector. Disney and CBS will also be added to the revamped space. The new "Communication Services" sector will represent 9.8 percent of the S&P 500, up from the current telecom's size of 2 percent. The new sector will better reflect the rapidly changing way the world's population communicates. Analysts are not expecting a large move when the new sector starts trading on Monday, but some media stocks could garner buying interest as some of the large FANG stocks join the space.
- Unbelievable Unemployment: Initial unemployment claims just fell to 204,000, their lowest level since 11/15/69, yes, 1969! The four-week moving average declined to 205,750, its lowest level since 12/6/69. Moreover, claims have been below 300,000 since 3/7/15, the longest period since record keeping began on 1/1/67. Lastly, there has been continuous net job growth for 95 straight months, the longest streak since record keeping began in January 1939. Wow! (Elliot Eisenberg- PhD)
- What We’re Reading: