Market Update for the Week Ended December 24, 2016

Merry Christmas and Happy Hanukkah:

Both U.S. stocks and bonds gave investors a nice present during the week just ended. As the attached chart shows, all major domestic indices reversed the previous week’s losses and are again just shy of all-time highs, with the closely watched Dow Jones Industrial Average poised to make another run at 20,000. Equity volatility stayed low, with the VIX indicator settling at 11.44. The equity option put/call ratio is extremely bullish at 0.66, with the total ratio (including indexes, VIX, and exchange-traded positions) not far behind at 0.86. The New York Stock Exchange’s closing tick Friday afternoon was also bullish at +340. As of this writing, Standard & Poor’s 500 overnight stock index futures are flat, while overseas markets are off 0.2% on average.

U.S. Treasury securities also posted their first winning week in a while, with the bellwether 10-year note closing at a 2.54% yield. The yield on the two-year note wound up at 1.2%, and the 30-year bond 3.11% (bond prices and yields move inversely). 10-year maturity, inflation-adjusted “TIPS” notes ended up at 0.55%, indicating annualized inflation expectations of 1.99% over the coming decade. AAA-rated, 10-year maturity municipal bonds also gained at 2.41%; ditto for investment-grade corporate bonds (3.44%) and high-yield bonds (6.57%). Interbank lending rates, as measured by three-month LIBOR, rose to the psychologically significant 1% level, while 30-year mortgages, after reaching 4.41% mid-week, recovered to 4.16%. 15-year loans now average 3.32%.

The U.S. dollar took a brief pause last week, easing slightly versus both the euro at $1.0456, and yen at ¥117.33. West Texas crude oil advanced to $53.02 per barrel, while gold bullion continued its recent weakness at $1,133.30 per ounce. Economic news of note included an impressive upward and final revision to third-quarter economic growth at 3.5% (annualized; Gross Domestic Product, or GDP), better-than-expected existing and new home sales and consumer sentiment numbers, and disappointing durable goods orders, personal incomes and spending statistics, along with flat leading economic indicators data. New weekly unemployment claims spiked to 275,000. Corporate quarterly earnings winners included Nike, Carnival, Winnebago, and Accenture, while Navistar and Bed, Bath & Beyond disappointed.

Looking ahead to this holiday-shortened week, economic news on tap includes consumer confidence statistics on Tuesday and trade balance data on Thursday. The bond market will close at 1 p.m. Friday in advance of the New Year holiday.

Over the past several months our stellar interns, Tristan Garrett and Alexis Jakubowski, have brought our secured website, www.garrettconsulting.org, into the 21st century. Take a look and let us know your thoughts.

Finally, yours truly has once again qualified for Commonwealth’s prestigious President’s Club conference*. Sincere thanks to all of our friends, clients and yeoman staff for helping us accomplish this honor for the ninth time in the past 10 years.

Did you know that the stock market rallied 8% in the fourth quarter of 1980, as Ronald Reagan captured the Presidency? Or that the Dow topped out at 19,987 last week?

Have a great week!

Paul J. Garrett
(630) 576-5182
paul.garrett@garrettconsulting.org

*A distinction based on annual prodcution attained this year by just 17 percent of advisors affiliated with Commonwealth Financial Network