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A game of financial tug-of-war

This week felt like a game of tug-of-war. After watching the financial markets move in one direction last week, this week they pulled back and forth. The markets kept trying to regain ground each day, with stock prices and bond yields doing their best to move higher. Strong confidence data and comments by various Federal Reserve committee members tugged toward a stronger economic outlook, with interest rates moving higher this year. Yet, the political uncertainty over the failed health bill, upcoming tax reform and regulatory change tried to pull the markets lower. By the end of the week, yield and stock prices were modestly higher.

Other Key Indicators this Week:

Consumer Confidence – Consumers continue to feel upbeat about current and future economic conditions. The latest confidence index, measured by the New York-based Conference Board, surged nine points to 125.6, the highest level in more than 16 years. Consumers are most optimistic about job opportunities and higher wages in the coming months. The share of people expecting more jobs to become available is at the highest level since 1983. Confidence has been steadily rising since the election in November.

Housing – The number of contracts signed to buy existing homes increased 5.5 percent in February. This was the largest gain in over six years for pending home sales and a nice rebound from January’s 2.8 percent decline. Sales were strongest in the Midwest, rising 11.4 percent, where home affordability is the greatest. This compares to only a 3.1 percent rise in the West, where prices are rising by double digits. In a separate report by S&P CoreLogic Case-Shiller, national home prices increased 5.9 percent in the 12 months ending in January. This was the fastest pace of price gains in over two years. Housing analysts are also concerned that the unseasonably harsh weather in March may counteract the robust activity in February.

GDP – It always pays to check and recheck your numbers – 4th quarter GDP is a prime example. The final revision for economic growth during the last three months of 2016 measured 2.1 percent, up from 1.9 percent. The bulk of the improvement came from a higher level of consumer spending, 3.5 percent versus the original estimate of 3.0 percent. Corporate profits and inventories also added to stronger growth. Trade continues to be a drag on growth, as imports rose more than exports. GDP increased 2.0 percent for 2016, compared to 1.9 percent in 2015. Economists estimate growth in the first quarter of 2017 to be around 1.9 percent.

Strategically for Credit Unions:

This month is proof that it is more important for credit unions to maintain a strategy rather than shift actions at every interest move. The financial markets were driven the past four weeks by an assortment of factors that caused erratic price moves inconsistent with a rising rate environment. The stock and bond markets will put the economy to the test this year, but the Federal Reserve appears to be firmly interested in moving rates higher.

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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