I am in an investments and portfolio management class this semester and a part of the class is to write a journal about the past week’s moves in the markets and why they happened. After doing this a couple weeks I realized that this is something I could easily and happily share with you all. I am not trying to be an expert by sharing this with you, it is mostly just to share some of my work with a larger community and use it as a learning tool. If you are curious to know more, you are more than welcome to email me directly (see contact form). Otherwise, enjoy and come back next week for the next one!
Hope you have all been well recently. All is good on my end. Closing in on the end of school and then it is into the “real-world” soon enough. Kinda crazy. Anyways, I know you have not come here to here about my life, so without delay, here is the the week in review:
Weekly Returns (close on Friday Feb. 3rd to close on Friday Feb. 10):
S&P 500 (Large Cap U.S. Stocks): .81%
Russell 2000 (Smallcap U.S. Stocks): .83%
MSCI EAFE (Developed International Stocks): UNCH
MSCI Emerging Markets Index (Emerging Market Stocks): 1.25%
Yield on the 10 year Treasury: 2.409% (.06% down over 5 days)
Reasons for Market Moves in Past Week:
Investors are continuing to bank on the proposed pro-growth and economic expansion that Trump has expressed he will implement. Along with this, investors have recently received the help of the international communities economies seeing an uptick in economic numbers. In particular, the PMI in Europe and Japan are seeing multiple months of growth and the Eurozone PMI reaching multi year highs.
The PMI is not the only number that has seen growth recently though, credit demand and inflation are two numbers that investors are finding convincing in terms of evidence for continued growth in the markets. Specifically, credit demand in Europe has risen at a steady pace since mid-2016 and inflation globally has begun to pick up pace, even in Japan which has seen some of the worst inflation numbers globally as of recent.
Finally, on the note of Japan, Japan has seen its unemployment rate drop to 3.1%, the lowest level since 1995.
In terms of domestic reasons behind the recent uptrend in the U.S. Stock Market and the potential of continued growth are a couple main threads of reasons investors are still putting money to work:
- Policy Stimulus from the fed: the expected withdrawal of stimulus and the expected rate hikes to come later this year.
- Stronger Dollar will favor GDP numbers in the U.S.
Politically, Trump spoke with Asian Leaders this past week, and expressed his desire for the One China policy to remain in effect. Along with this, on Thursday the U.S. Appeals court ruled against Trump’s travel ban on the seven countries, this is big news. Likely not the end of the battle, but just the beginning. Lastly, on Thursday Trump reminded investors that tax reform is a priority of his and he will announce his plans in the coming weeks.
This week was full of good news across the board for the most part and there is a lot of hope that the investors are hanging their hats on for the future. The question that is still lingering however is how long with this international growth continue and how much of what Trump promises will actually become a reality? We will see.
Comments on Sectors:
The industrials were the major movers this past week in terms of major sectors, in particular the airlines companies saw the biggest rise (almost 3% this industry). This was likely due to Trump expressing that he plans on cutting the “burdensome regulations” within their industry. Secondly, the oil prices are continuing to drop or at least remain flat, which favors airline companies.
The sector that lagged the market the most this past week was energy, specifically oil and gas companies (dragging down about .67% across the sector this past week). This is not a huge down draft and likely due to the decline in oil prices and earnings numbers coming from the sector. Mostly a good thing for any company outside this sector (like airlines).
Another overall quiet week in the markets, there is not a lot of new or exciting data that came out this week, a lot of the same rhetoric from last week we saw again this week. Trump still has to deliver on his promises and if he does not, then the market will likely decline and it has now priced in a lot of his promises. Secondly, as long as the international economies continue to see good economic numbers we will likely still see a continued uptrend here in the U.S. markets.