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News for the Week of January 22 – January 26, 2018
by David Abuaf, CFA
Investment Manager, RJFS
General Markets / Economic
1. The IMF forecast strong growth in the global economy in 2018
2. A US truck shortage is forcing thousands of companies to make tough choices about their shipments
3. Existing home sales fell in December, but 2017 was still the best year for the housing market in over a decade
4. The EPA is withdrawing a decades old air policy aimed at reining in some of the largest sources of hazardous pollutants
5. New home sales in the US lost steam in December, but turned in a year of solid growth
6. New tax rules are hastening automation and modernizing in US factories (i.e., US jobs are reducing)
7. China’s central bank is looking to rein in the yuan, which has risen 3% against the dollar this month
1. An FDA advisory panel said there wasn’t enough evidence to support Philip Morris’ claim that its IQOS device (e-cigarettes) reduces the risk of tobacco related disease
2. Dell is considering going public (after their LBO years ago when the mobile revolution took force)
Commentary for the Week of January 22 – January 26, 2018
by David Abuaf, CFA
Investment Manager, RJFS
The US equity markets had another strong week, with the S&P 500 rising 2.2%. This was the 14th record high of the year, and we’re not even done with January. So, the market is feeling good, party on, right?
Maybe, Thomas Lee of Fundstrat Global notes the S&P500’s rise has gone parabolic. It’s 6% plus gain this month trounces the 2% average monthly advance from September to December 2017. Rather than being worrisome, these accelerations into the new year have historically led to even more upside. Only eight other times has the market played out like this, and of those 6 times the average gain was over 20% over the remainder of the year! If that scenario plays out, Lee says the S&P 500 could close the year near 3350.
But there’s also a point where feeling good leads to bad behavior. The US GDP rose at an annual rate of 2.6% during the fourth quarter; while high, this missed economists’ forecasts of 2.9%. But dig into the numbers and you see one area of major strength – consumer spending, which grew at a 3.8% clip. But not everyone is celebrating. Gluskin Sheff’s chief economist, David Rosenberg notes that rising market have made Americans feel wealthier, so they’ve been spending more and saving less, “this is a classic late-cycle development.”
Consumers aren’t just spending money on clothes, cars, and whatever else catches their eye – they’re also buying stocks. Investors have put $24B into equities during each of the two most recent weeks, notes Bernstein strategist Inigo Fraser-Jenkins – a big change from 2017 when they withdrew $9B during the last six months of the year.
While that is not worrisome – yet – but if investors buy stocks at just half that rate in the next four weeks, it could be. “We are not saying that will happen, but it quantifies how sentiment can change,” notes Jenkins.
All opinions presented are those of David Abuaf, and not of Raymond James or Forman Investment Services. All opinions are as of this date and are subject to change without notice.
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