The Dow finally did it: it topped 20,000 for the first time. What does this development mean for the equity market and your portfolio?
Ultimately, it may not mean very much.
Does it signal that 2017 will be a great year for equities? Maybe. On the other hand, the Dow Jones Industrial Average includes only 30 companies, and the ones whose shares are worth the most exert the most influence on the performance of the index. Some investors consider this a flaw. The S&P 500 is seen as a better barometer of the market – it is about 17 times larger in terms of breadth, and as a market-weighted index, it is most influenced by the performance of its largest firms rather than its most valued ones.1
Does it indicate that equities are overvalued? Some analysts believe that it does. Then again, if the Dow climbs 400-500 points this quarter, that argument will seem premature. The Dow has averaged a 7% annual gain during its long history, so if it ends 2017 above 21,000, that would not be extraordinary.1a
Feel free to celebrate this Dow milestone along with Wall Street; just remember that the real numbers to keep your eye on are your personal investment returns and the amount of your retirement savings. Marvel at the market's recent climb, while realizing that this landmark event need not prompt change in your long-term investment and wealth accumulation strategy.
|HOUSEHOLD SENTIMENT GAUGE RISES AGAIN
The University of Michigan’s Index of Consumer Sentiment gained 0.4 points from its preliminary reading this month to reach a final January mark of 98.5. That represents a 12-year peak for the index, which stood at 92.0 in January 2016.1,2
HOME SALES FELL IN DECEMBER
Given costlier mortgages, rising prices, and tight inventory, the December retreat for resales was not surprising. The National Association of Realtors said that existing home sales slipped by 2.8% last month. New home sales dropped 10.4%, but the Census Bureau stated that they increased 12.2% for 2016, marking the best year for new home buying since 2007.3
FIRST ESTIMATE OF Q4 GDP: 1.9%
If that Department of Commerce appraisal holds, it will mean that the economy grew just 1.9% for all of 2016, contrasting with 2.6% expansion in 2015. Hard goods orders fell 0.4% in December, but rose 1.7% minus defense orders.2
DOW TOPS 20,000, STOCKS REGAIN MOMENTUM
Leaving some mid-January doldrums behind, the major indices rallied nicely last week. The Dow advanced 1.34% to 20,093.78; the Nasdaq Composite, 1.90% to 5,660.78; and the S&P 500, 1.03% to 2,294.69. The CBOE VIX “fear index” finished the week down at 10.53.4
THIS WEEK: Monday offers reports on December personal spending and pending home sales. The Conference Board’s monthly consumer confidence index and a new Case-Shiller home price index appear Tuesday, along with earnings from Aetna, Aflac, Ally Financial, Anadarko Petroleum, Apple, Chubb, Coach, Eli Lilly, ExxonMobil, Harley-Davidson, MasterCard, Nucor, Pfizer, Sprint, Under Armour, UPS, U.S. Steel, Valero Energy, and Xerox. Wednesday, the Federal Reserve wraps up a policy meeting, ADP’s January payrolls report and ISM’s January manufacturing PMI arrive, and Allstate, Altria, AmeriGas, Ameriprise Financial, Anthem, Avery Dennison, Celanese, Energizer Holdings, Exelon, Facebook, Ingersoll-Rand, MetLife, Pitney Bowes, and Symantec all announce earnings. Thursday’s earnings parade includes results from Amazon, Amgen, Callaway Golf, Chipotle, Cigna, ConocoPhillips, Coty, Estee Lauder, GoPro, Hanesbrands, International Paper, Motorola Solutions, Parker, Philip Morris, Merck, Ralph Lauren, Ryder, Sirius XM, SkyWest, Snap-On, and Visa; also, Challenger issues January job-cut data, and new initial claims figures are released. Investors consider the January ISM services PMI and January hiring figures Friday, plus earnings from AutoNation, Clorox, Hershey, Phillips 66, Regis, and Weyerhaeuser.
Sources: wsj.com, bigcharts.com, treasury.gov - 1/27/174,5,6,7
Indices are unmanaged, do not incur fees or expenses, and cannot be invested into directly. These returns do not include dividends. 10-year TIPS real yield = projected return at maturity given expected inflation.
1a - fool.com/retirement/2017/01/03/dow-20000-what-it-means-and-what-to-do-next.aspx [1/3/17]
This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. The information herein has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. Investments will fluctuate and when redeemed may be worth more or less than when originally invested. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All market indices discussed are unmanaged and are not illustrative of any particular investment. Indices do not incur management fees, costs and expenses, and cannot be invested into directly. All economic and performance data is historical and not indicative of future results. The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. The NASDAQ Composite Index is a market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System. The Standard & Poor's 500 (S&P 500) is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. NYSE Group, Inc. (NYSE:NYX) operates two securities exchanges: the New York Stock Exchange (the “NYSE”) and NYSE Arca (formerly known as the Archipelago Exchange, or ArcaEx®, and the Pacific Exchange). NYSE Group is a leading provider of securities listing, trading and market data products and services. The New York Mercantile Exchange, Inc. (NYMEX) is the world's largest physical commodity futures exchange and the preeminent trading forum for energy and precious metals, with trading conducted through two divisions – the NYMEX Division, home to the energy, platinum, and palladium markets, and the COMEX Division, on which all other metals trade. Additional risks are associated with international investing, such as currency fluctuations, political and economic instability and differences in accounting standards. This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. MarketingPro, Inc. is not affiliated with any person or firm that may be providing this information to you. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional.
1 - sca.isr.umich.edu/ [1/27/17]
2 - thestreet.com/story/13969585/1/stocks-mixed-after-u-s-gdp-shows-mediocre-end-to-2016.html [1/27/17]
3 - usatoday.com/story/money/2017/01/26/new-home-sales-prices-mortgage-rates/97081430/ [1/26/17]
4 - markets.wsj.com/us [1/27/17]
5 - bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=1%2F27%2F16&x=0&y=0 [1/27/17]
5 - bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=1%2F27%2F16&x=0&y=0 [1/27/17]
5 - bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=1%2F27%2F16&x=0&y=0 [1/27/17]
5 - bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=1%2F27%2F12&x=0&y=0 [1/27/17]
5 - bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=1%2F27%2F12&x=0&y=0 [1/27/17]
5 - bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=1%2F27%2F12&x=0&y=0 [1/27/17]
5 - bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=1%2F26%2F07&x=0&y=0 [1/27/17]
5 - bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=1%2F26%2F07&x=0&y=0 [1/27/17]
5 - bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=1%2F26%2F07&x=0&y=0 [1/27/17]
6 - treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyield [1/27/17]
7 - treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyieldAll [1/27/17]