Weekly Market Review - A Key Moment For The Economy

After some strong activity after the elections, the last few weeks the market has more or less tread water. The Dow ran into 20,000 and could go no further. I wouldn't be shocked to see some minor pullbacks over the next few weeks, but I am not anticipating anything too significant. This is a key moment for the economy. Next week, we’re going to get our first look at the fourth-quarter GDP report, and I think it will be a good one. The report for Q3 was 3.5%, but here’s the thing—the U.S. economy has had a difficult time stringing together two or three good quarters in a row. I think this is our best chance to break that. This week, for example, we learned that industrial production grew by 0.8% last month. That’s good and it beat expectations, and it was the biggest increase in more than two years. We also got another CPI report telling us that inflation is well contained. The news reports noted that inflation rose by 2.1% last year, which was the largest increase in five years. While that's all true, the report glosses over the fact that we came close to deflation over those five years. So this year, inflation has climbed all the way to “low.” This is another reason I doubt the Fed will raise interest rates three times this year. This week’s Fed’s Beige Book said that labor markets are getting “tight.” That’s econo-talk for “workers want more money.” They may get it. The initial claims report came very close to its lowest point since the Nixon administration. Plus, last Friday, the Census Bureau released a decent retail-sales report for December. On Wednesday, Janet Yellen said the economy is close to full employment. I’m pleased to see some pull back in the bond market. It shouldn’t be too easy for bond investors to outpace stock investors. The 10-year yield got up to 2.5% this week. That’s about double the yield from six months ago. This is part of an ongoing rotation as money leaves safe assets and is gradually finding a home in riskier ones. That could be a major theme this year and thus could re-introduce more volatile days ahead.Its all part of the market cycle and having a quality, diversified portfolio seeks to help weather the storms as they come our way.

The economic forecasts set forth in the presentation may not develop as predicted and there can be no guarantee that strategies promoted will be successful.