Saturday, March 18, 2017

MAD Economic Review - 3/18/2017

May the Irish hills caress you. May her lakes and rivers bless you. May the luck of the Irish enfold you. May the blessings of Saint Patrick behold you

It may have been the luck of the Irish, or Yellen, that gave the indexes the strength to post a gain this week after notching losses the week prior.  While each major index posted a gain there were some major divergences across the board. For example the small-cap focused Russell 2000 posted a 1.9% gain far out-pacing the major indexes. I'll note the Russell's gain this week represents 76% of it's gain for the year as it's lagged the first few months. The tech heavy Nasdaq also had a strong showing with 0.7% under it's belt. 

Weekly Gain

Dow Jones - 0.1%
S&P 500 - 0.2%
Nasdaq - 0.7%
Russell 2000 - 1.9%

The Nasdaq currently leads all indexes for the year with a 9.6% gain which is very impressive considering the big run it had to end 2016. In the first 11 weeks this year we've seen around the average gain an investor could expect for a whole year. Since the election the index is up close to 900 points.

Visit to see more great charts.

Enough about the indexes and let's get to the big news. Janet Yellen and her Federal Reserve raised the Fed Funds Rate another 0.25% to a range of 0.75%-1.00%.  The move was widely expected, but it wasn't always that way.  It wasn't until about mid-February when the Fed started to telegraph it's intentions that a hike in March was coming. At that time most participants figured June was the earliest. Their attitudes changed quickly.

What's more important was the Fed Dot Plot which I highlighted here.  It's interesting to see the Fed expects rates to hit 3% by 2019. It seems we should expect rates to rise about 1% a year based on that information. But with rates at 1% now and 2 more hikes seemingly in the cards for 2017 that would put us right at 1.50%-1.75%.  Then in 2018 we should expect just 2 hikes to reach their target 2.0%-2.25% range. 

On the news most major commodities actually rallied as Oil, Copper, and Gold all saw a bump up in prices this week.

However Bonds weren't getting any of the luck this week. All Treasury yields fell on the news and drifted sideways the remainder of the week.  It was my expectations at the beginning of the year that bond yields would take a breather in 2017.  Maybe we are finally starting to see that move materialize.  That won't change the longer term trend which is back up.

Weekly Ending Yield 
  • 2-yr: 1.32%
  • 5-yr: 2.02% 
  • 10-yr: 2.50%
  • 30-yr: 3.11%
On the economic front we received a strong manufacturing number within the Industrial Production report. Manufacturing activity was up 0.5%, but overall IP came in flat with a 0% change.  The blame was mostly focused on warm weather and utility spending taking a hit.

My favorite JOLTS report came in with 5.6 million jobs still out there for the taking. On top of that it was shown 3.2 million people quit their jobs in search of new work, and some for good. That's the most people have quit their jobs since February 2001!!!  Why I'm not 100% sure yet. I think some of it has to do with people wanting to start their own business. The rest of it is likely Baby Boomers leaving the workforce.

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