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2017 Done, 2018...
Here We Come

Learning Opportunities

It is time to bid farewell to 2017, a year that will be remembered as unstoppable optimism in the financial markets. The markets are ending the year on a high note, with both prices and yield. The three key U.S. stock indices are closing at or very near all-time highs, and shorter-term bond yields are at the highest levels in years. Even the 10-year Treasury note is finishing 2017 just shy of its highest yield in nine months. The economy had the strongest back-to-back quarters in three years. The outlook for 2018 is more of the same. The newly signed tax reform bill is expected to stimulate business spending and boost productivity, which hopefully will translate into higher wages. If all goes as planned, 2018 economic growth could be 0.3-0.5 percentage points higher, the stock market should continue to make new highs, and short-term yields could increase 50-75 basis points. As for the 10-year Treasury note, it’s anyone’s guess. It wouldn’t be fun if you had all the answers, would it? Here’s to another year that will keep us all guessing and hoping for the best.

Other Key Indicators this Week:

Housing – The last reported housing data of the year indicates the industry should be starting 2018 on a strong foundation. Home prices jumped the most in three years in October. The CoreLogic Case-Shiller national price gauge was up 6.2 percent. All 20 metropolitan cities in the sub-index posted year-over-year gains. Pending home sales increased 0.2 percent after surging the previous month. The continued rise in contract signings for existing homes is evidence there is still demand for home buying, despite declining inventory and higher prices. Pending sales are up 0.8 percent from a year ago.

Trade Balance – The trade deficit widened to $69.7 billion in November. This is the largest deficit since March 2015. Imports increased 2.7 percent to $203.4 billion, the largest amount on record.  Exports rose 3.0 percent to $133.7 billion. While exports still lag, the sector is gaining traction as U.S. demand for consumer goods and industrial supplies increases. The level of exports increased the most in three years.

Manufacturing – Two of the three regional economic reports this week posted the highest readings in over six years. The Chicago Purchasing Manager Index and the Dallas Fed Manufacturing Survey rose 5.6 and 9.7 points respectively, setting the stage for expansion in 2018. Managers in the Chicago area reported improvement in productivity, new orders and prices paid. The Dallas index gave a favorable six-month outlook. The Richmond Fed Manufacturing Survey fell to a more reasonable level after surging in November.

Strategically for Credit Unions:

Here's hoping for a prosperous year with a steeper yield curve, ability to increase loan yields as loan demand increases, increased loan-to-share ratios for ALL credit unions and continued member loyalty without having to raise deposit rates. It is better to wish for everything in hopes of getting something. I would like to thank everyone for your continued interest in these reports and wish you happiness and good health in 2018.

Sarina Freedland – Senior Investment Officer

Although this information has been obtained from sources we believe to be reliable, we do not guarantee its accuracy, and it may be incomplete or condensed. This is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. All herein listed securities are subject to availability and change in price. Past performance is not indicative of future results. Changes in any assumption may have a material effect on projected results.