The week in review

The Dow Jones rose 0.21% on Friday but ended the week down 0.49%. The S&P 500 rallied 0.33% on Friday but also posted a weekly loss, losing 0.44%. The stock market is close to where it was a month ago after hitting a new high at the beginning of March. It has attempted to move higher, but has failed. As we all know, it can move aggressively up or down from here. The rally seen since the election has been largely riding on the expectation of tax cuts and infrastructure spending–both viewed as stimulative to the economy. See my post from November on Trump-o-nomics.

On Friday, the official February jobs report from the Labor Department showed that non-farm payrolls rose by 235,000 last month from January. The consensus was looking for 200,000, so this was interpreted as a positive and gives added impetus to the Fed to raise rates next week. The unemployment rate ticked down to 4.7%, on both increased employment and an increase in the workforce participation rate. Oil had another bad day on Friday, with crude oil futures dropping 1.6% to below $49/barrel. OIL (the ETN) has been very volatile for the past year.

Real estate, as marked by the REIT ETFs (VNQ and IYR), have fallen this month to levels that give concern, but we have been here before, as recently as the end of January. The dividend rates (4.94% and 4.43% respectively on these ETFs) help investors to maintain interest in real estate.

The week ahead

This week is chocked full of economic reports. Inflation for February will be reported by the producer’s price index on Tuesday and the consumer price index and retail sales on Wednesday. Crude oil inventories are also due out on Wednesday.  Undoubtedly, much of the news this week will focus on the Federal Reserve meeting and whether they will raise interest rates.  Fed-funds futures now peg the chance of a rate increase at the FOMC meeting next week at 93%.  The announcement is scheduled for 2:00 PM on Wednesday. A small increase (probably 0.25%) has likely been priced into the market already. They could raise rates even more which would upset the markets, but that is not likely. It is helpful to remember that the Fed only controls short term rates. The bond market controls longer bond rates.  (In fact, I have recently remarked that someday President Trump will learn that the bond market is truly the one in charge, not him.)  I expect that we will find out more about Trump’s budget proposals later this week. He is expected to cut many government programs; except military spending, which could see a substantial increase. Other programs are likely to be cut to keep the proposal revenue-neutral. Expect an increase in activity from special interests that want to protect their favorite program, but their efforts might fall on deaf ears. We will also likely hear more turmoil as Congress continues its attack on the Affordable Care Act.

As noted above, the market is riding on the expectation of infrastructure spending and tax cuts. Since clarity on either is not likely to be forthcoming, markets could be disappointed on many fronts. This week could be pivotal. Alert levels should have been moved up in the recent rally. Close scrutiny is a must in this market. This is not a place or time for complacency.

I make an effort to be clear, but our industry is full of jargon. Be sure to let me know if I use terms with which you are unfamiliar. Let me know if there are financial planning or investment topics that you would like to see covered in this blog.  Scroll down and leave a comment.