Market Commentary, 04/12/17

US Stock indices closed last week slightly down, with the Dow losing 0.03% and the S&P posting a 0.30% loss. (finance.yahoo.com)

Economic data weighed on markets early last week as Monday’s auto sales badly missed estimates. That caused the S&P 500 to dip slightly, down 0.16% while stocks traded flat on Tuesday in a very quiet session.

Wednesday turned out to be the most important day of the week (in our opinion) as we saw a somewhat ugly reversal in stocks. Markets were higher all day thanks to a blowout ADP jobs report, but stocks dropped late Wednesday following the release of the Federal Reserve’s Meeting Minutes revealing that most members of the committee believe they should start shrinking the Fed’s $4.5 trillion balance sheet.

Beginning in late 2008, the Fed began large-scale purchases of assets, such as US treasuries and government-supported mortgage-backed securities, to stave off a complete collapse of the financial system. For six years, the Fed embarked on this asset purchase program, known as quantitative easing, to keep interest rates at record low levels. In October 2014, when Fed Chair Janet Yellen ended the bond buying program, the balance sheet had reached $4.48 trillion (www.federalreserve.gov).

When combined with increasing the fed funds rate, reducing the balance sheet will contribute towards normalizing monetary policy. This reduction can be done in two ways: the more controlled approach would be to allow the bonds to mature and not reinvest the proceeds, while the quicker option would be to sell the securities, which could cause interest rates to increase rapidly.

Like Wednesday, stocks spent most of the day in positive territory on Thursday before dipping again during the final hour thanks to the foreshadowing of the Syrian strike by US officials. The S&P 500 still closed positive, but well off the highs.

Friday there were a lot of headline influences on the markets including rising geopolitical risks (Syrian missile strikes) and the disappointing jobs report. But, it all netted out to little volatility, and stocks never strayed too far from flat (the Masters being on helped dampen volatility). Stocks closed with fractional losses on the day and slight losses for the week.

The flat to slightly downward movement has continued this week with the Dow closing today at 20,591, down 0.32% for the week and the S&P 500 closing at 2,344, down 0.45% for the week.

In addition to concerns in Syria, Healthcare reform also appears to be weighing on the market. This could be nearing a resolution as Rep. Mark Meadows, Chairperson of the House Freedom Caucus, said yesterday that Republicans are “close” to an agreement on a plan to repeal Obamacare. The expectation remains that the passing of this bill could spur the market to continue the upward “Trump Effect.”

Regards,

Jeremiah Patterson, CFP®
Copelin Financial Advisors
514 Brooks Street
Sugar Land, TX 77478
Phone: 281 240-2902
Fax: 281 240-2856
jeremiah@copelinfinancial.com

Securities offered through ProEquities, Inc., a Registered Broker-Dealer and Member FINRA & SIPC Advisory Services offered through Harvest Investment Services, LLC., a Registered Investment Advisor Copelin Financial Advisors, Inc and Harvest Investment Services, LLC are independent of ProEquities, Inc.