See this week's numbersFriday, January 27, 2017

How high can we go?

If you listened closely, you may have heard a collective shout of excitement from avid stock investors. After weeks of waiting, the Dow Jones Industrial Average finally broke through the sought-after threshold of 20,000. The market came close to this magical number several times before the end of the year, but never was able to sustain enough power to reach it. Strong company earnings and optimism fueled by President Trump’s actions during his first week in the White House spurred the key stock indices to new highs. Along with the Dow closing at 20,068, the S&P 500 Index and the Nasdaq Composite also posted new all-time high prices this week. As the wave of optimism has ebbed and flowed since the presidential elections, confidence in an expanding economy is starting to show in the financial markets again.

Other Key Indicators this Week:

GDP – The U.S. economy grew 1.9 percent in the fourth quarter, much slower than the 3.5 percent growth in the third quarter. The slowdown came primarily from a drag on trade. Exports posted the largest decline in seven quarters, down 4.3 percent. The robust spending that drove economic growth in the third quarter moderated during the fourth quarter, increasing 2.5 percent versus 3.0 percent. The most promising news in the report was a 3.1 percent increase in business spending, the first gain in five quarters. After-tax incomes, adjusted for inflation, rose 1.5 percent, a three-year low. The savings rate fell two-tenths of a percent to 5.6 percent.

Housing – Existing home sales fell 2.8 percent in December, the first decline in three months. The supply of homes on the market fell 11 percent to the lowest level since 1999, when recordkeeping began. This was the first decline in three months. Despite the weakness in December, sales of previously owned homes increased 4.0 percent in 2016 to 5.45 million. First-time homebuyers accounted for 32 percent of all buyers, versus 30 percent in 2015. New home sales were down 10.4 percent, again the first decline in three months. Unlike existing homes, the supply of new homes increased to the highest level since 2009. In spite of a slow December, the housing market had its best year since the peak of the real estate boom in 2006.

Durable Goods Orders – Orders for goods meant to last over three years fell 0.4 percent compared to a revised decline of 4.8 percent in November. The decline was due to a sharp drop in military aircraft orders. Aircraft orders tend to be volatile. When you strip out aircraft orders, durable goods orders rose 0.5 percent. Business orders rose 0.8 percent. This was the third consecutive increase, a sign that the sluggishness we have seen from the business world is turning around.

Strategically for Credit Unions:

There has been much debate about how fast and how soon interest rates will climb higher. This week's dramatic move in the stock market should keep rates at the higher end of recent trading ranges as money flows out of bonds and into stocks. The next factor that may have an impact on interest rates is next week's Federal Open Market Committee meeting. Most economists do not expect the committee to increase the short-term lending rate at this meeting. The March meeting is a more likely candidate, depending on the economic data that is received.

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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