See this week's numbersFriday, November 18, 2016

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What no one expected

What a wild few weeks it has been. The long-awaited presidential elections sent a resounding wake-up call to the financial markets. To everyone’s surprise, the stock market and bond yields shot up like fireworks. The Dow continually reached new highs in the days after the election, rising 3.6 percent in a week. The 10-year Treasury note yield rose over 40 basis points in less than a week after November 8. The sudden change was the market’s interpretation of what a Trump regime may bring – tax cuts that could boost corporate earnings and infrastructure spending that will stimulate inflation. A slew of important economic data was reported this week that normally would have an impact on the markets. However, this time the data was overshadowed by the uncertainty of what the impact of the next four years and potentially higher interest rates will have on the overall economy.

Other Key Indicators this Week:

Inflation – Consumer and wholesale price indicators moved in opposite directions in October, but with the same underlying trends. Energy prices were higher on both the consumer and producer sides (3.5 percent and 2.5 percent, respectively) whereas food prices were unchanged to lower (unchanged and -0.8 percent). Overall, wholesale prices were unchanged in October. Core prices were up 1.2 percent from a year ago, a decline from 1.6 percent the prior month. On the consumer side, the full index of prices increased 0.4 percent in October. Shelter costs continue to rise, increasing 0.4 percent for the second month in a row. Core prices rose 2.1 from October 2015, down from 2.2 percent in October.

Housing – Construction on new homes exploded in October, due to a 69 percent increase in multi-family housing. Total housing starts rose 25.5 percent to a 1.32 million annualized rate, the fastest pace since mid-2007. Single-family starts increased 10.7 percent. Activity increased across the country. Housing permits for future construction rose 0.3 percent. Permits for single-family housing were up 2.7 percent, while those for multi-family homes fell 3.3 percent.

Retail Sales –
If October is a precursor to the holiday season, retailers should be happy. Retail sales rose 0.8 percent in October, following an upwardly revised 1.0 percent gain in September. This was the best two-month performance in over two years. Eleven of the 13 major categories posted gains for the second month in a row. Furniture outlets and restaurants were the only two sectors with negative sales in October. The National Retail Federation estimates holiday sales will rise 3.6 percent, slightly better than 3.4 percent growth in 2014.

Between the Numbers:

The bond market has already priced in a December rate increase. The yield on the two-year Treasury note is about 20 basis points higher than before the election (and from a year ago). While the trend is for rates to move higher in 2017, many analysts believe the move will be slower than what we saw this week. Estimates are surfacing for at least two rate moves in 2017. The yield curve is 20 basis points steeper from a month ago.

Note: Due to the Thanksgiving holiday weekend, there will be no Behind the Numbers next week. The next Behind the Numbers will be on December 2. I want to wish everyone a very happy and healthy Thanksgiving Day.

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.

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