Market Digest – Week Ending 1/27/2017

Stock prices continued their trend of remaining calm and mostly up since the election. Escalating tensions with Mexico did not seem to worry investors. Starting from two days after Trump’s victory, the S&P 500 has had only one daily move over 1% but is up about 8% in total, adding 1% this week. Google and Microsoft released earnings this week and results were mostly about as expected. Share prices were less volatile than most previous earnings releases. Amazon and Apple report next week.

Weekly Returns:
S&P 500: 2,295 (+1.0%)
FTSE All-World ex-US: (+1.3%)
US 10 Year Treasury Yield: 2.48% (+0.02%)
Gold: $1,191 (-1.3%)
USD/EUR: $1.069 (+0.0%)

Major Events:

• Monday – Yahoo (YHOO) said it now expects its acquisition by Verizon (VZ) to be completed in the second quarter as fallout from data breaches called the deal into question.
• Tuesday – US existing home sales fell 2.8% in December.
• Wednesday – The Dow closed above 20,000 for the first time.
• Thursday – Initial jobless claims rose to 259,000 in the previous week. While an increase the number still suggests a strong labor market.
• Friday – President Trump emphasized close ties with the UK in a joint conference with British Prime Minister May.

Our take:
It is natural to focus on Donald Trump and how his actions are impacting markets. And there is no question he will play a major role in where stock and bond prices go this year and in the coming years. But he is just one factor. Ultimately, corporate earnings are what matters and early indications from Q4 are reasonably good. So far, about a third of the S&P 500 has released earnings and of those, about two-thirds have beaten earnings estimates and about half have beaten sales targets. It is normal for most companies to exceed analyst expectations, so this isn’t unexpected, but it seems to be enough to satisfy investors for now.

Other focus this week has been on the deteriorating relationship between the United States and Mexico with a possible 20% tariff on Mexican imports floated by the Trump administration to pay for a border wall. If this comes to pass, it will result in higher prices for Americans and slower economic growth for both countries in the long-term. Right now, however, it’s just a negotiation tactic and not a policy. Markets seem to recognize this.

Like each play in the opening drive of the Super Bowl, everything that comes from the Trump administration in the first few weeks feels big and important – and much of it is. But it is a long game and we’ve only just started. Markets may thrive or wilt under Trump’s policies, but it is far too soon to tell. We’re urging investors not to get emotional and to use this time of uncertainty to make sure they have a good long-term investment plan they will feel good about for many years, many presidents, and at least a few full market cycles to come.