Another week, another round of record highs. Despite concerns about how France’s upcoming presidential election could affect the European Union’s stability, U.S. stocks ended the week up yet again. The S&P 500 gained 1.51%, the Dow added 1.75%, and the NASDAQ increased 1.82%—growth that represents record highs for all three indexes. International equities in the MSCI EAFE also posted positive returns, with 0.78% growth for the week.
On a somewhat related note, I wanted to share the following quote I came across as it relates to tuning out the market’s noise. One of the big headlines last month was the Dow Jones Industrial Average crossing the 20,000 market for the first time. Laszlo Birinyi, the president of Birinyi Associates, made the following comment:
“Historically somebody would have said days like this and numbers like this are like crossing state lines with kids. They get so excited for five minutes and then they ask, where is the next McDonald’s? I would not consider it an indicator of any real substance or significance.”
It's nice to see the markets at new highs, but don't get too excited and assume they only move one way these days. Almost all of the media headlines you come across in the financial world are noise. Learning to distinguish real news from noise is one of the most important things an investor can do to protect against poor decisions. Focusing on the long term and developing a simple investment strategy aligned with your timeline, risk tolerance, and income goals can help you stay the course.
However, a number of data reports also came out last week, and they tell a mostly encouraging story about the economy right now.
JANUARY INCREASES
Consumer Price Index Up by 0.6%
The Consumer Price Index (CPI), which measures the average prices of specific consumer goods and services, beat expectations and experienced its largest month-over-month jump since 2013. The index is now 2.5% higher than a year ago, a sign that inflation could be picking up.
Producer Price Index Up by 0.6%
Whereas the CPI evaluates price changes from a consumer’s perspective, the Producer Price Index (PPI), measures changes from the seller’s perspective. For January, the PPI also beat expectations, with energy experiencing a 4.7% increase.
Retail Sales Up by 0.4%
The monthly Retail Sales report shows growth or contraction in consumer demand for goods and can help indicate whether the economy is expanding. In addition to January’s 0.4% growth, the latest report included upward revisions for November and December 2016. Overall, Retail Sales are up 5.6% over January 2016.
Small Business Optimism Index Up by 0.1 points
Each month, the National Federation of Independent Business (NFIB) releases the results of its Small Business Optimism Index, which shows results from its member surveys. This report measures the mood of small business owners—the largest employers in the U.S.—and January’s results are the highest reading since December 2004. Last month’s growth comes on the back of December’s 7.4 point jump, the survey’s largest ever increase. In other words, small business owners are interested in hiring and expanding, good news for American workers and the economy.
JANUARY DECREASES
Industrial Production Down by 0.3%
Last month, industrial firms, such as factories and mines, produced a lower volume of raw goods. If you dig deeper, however, the data is likely less concerning than what it may seem at first. For example, warmer-than-normal temperatures in the contiguous U.S.—a factor that does not have to do with the economy—contributed to utility output’s 5.7% decrease, the largest drop since 2006.
Housing Starts Down by 2.6%
The number of new houses beginning construction fell in January, but future construction permits increased by 4.6%—higher than any time since November 2015. Housing Starts are also up 10.5% over January 2016. While the most recent report shows a monthly dip, the data indicates that housing has grown over the past year and will continue to grow in the future.
As you can gather from the balance between data increases and decreases, the January reports we received last week indicate an economy that is growing. We will continue to monitor the pace of growth and stay on top of political developments as we strive to determine what changes or opportunities may be on the horizon.
Now, if the title of this update got the Jefferson's theme song playing in your head like it did mine and you want to hear the rest for nostalgic purposes, click here.
ECONOMIC CALENDAR
Monday: U.S. Markets Closed for Presidents Day Holiday
Wednesday: Existing Home Sales
Friday: New Home Sales, Consumer Sentiment
Notes: All index returns exclude reinvested dividends, and the 5-year and 10-year returns are annualized. Sources: Yahoo! Finance, S&P Dow Jones Indices and Treasury.gov. International performance is represented by the MSCI EAFE Index. Corporate bond performance is represented by the SPUSCIG. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly.
Quote of the week:
“You cannot escape the responsibility of tomorrow by evading it today.”
– Abraham Lincoln