Stocks continued their winning ways last week. The S&P 500 rose 0.3% and is now up 1.4% for the month. The MSCI ACWI rose 1.1% as global stocks rallied. The Bloomberg BarCap Aggregate Bond Index dropped 0.6% on concerns that tax reform would push interest rates higher.
Sector allocations are making a big difference in 2017. Information technology, the top performing sector, is almost 15% ahead of the number two sector, health care. On the other hand, energy and telecom services have both declined more than 5% this year. We encourage investors to be careful of extrapolating those trends into the New Year.
Key points for the week
- Consumer spending beat expectations in November and inflation remains low.
- Chile and South Africa are experiencing political changes, which have been viewed favorably by investors.
- Boeing is in talks with a Brazilian company as airline trends shift.
What are we reading?
Below are some areas of the market we paid particularly close attention to this week. For further information, we encourage our readers to follow the links.
U.S. consumer spending increased in November but is unlikely to grow at the same pace as savings dropped to their lowest levels in more than nine years. Core PCE (personal consumption expenditures), a measure of inflation that excludes food and energy, increased by 0.1% in November. This increased overall inflation to just 1.5 percent, short of the Federal Reserve target of 2%. The pairing of wage growth (0.4%) and low inflation explains the high consumer spending and low savings numbers.
Chile and South Africa are making political changes designed to improve business conditions. Chile elected a more market-friendly former president, while South Africa’s ruling party is attempting to replace its corruption-plagued president. We are particularly hopeful for improvements in South Africa, which has been on our list of top emerging market risks. The news from South Africa has been viewed favorably by investors as the Santiago Stock Exchange increased by 6.9% after the election and South Africa’s currency appreciated against the U.S. dollar.
A shift in the airline industry to focus on fuel-efficient aircrafts has pushed the executives at Boeing to rethink their business model. Boeing is now in talks with Embraer, a Brazilian company, on an outright buyout of the manufacturer’s small regional jets. This would restructure Boeing’s products to make them more competitive. The move reinforces our focus on international exposure as quality international stocks look attractive relative to their U.S. counterparts.
Fun story of the week
Cryptocurrencies have become a major craze among investors, with currencies such as Bitcoin and Bitcoin Cash exponentially appreciating in a short amount of time. This phenomenon is taking some strange turns as investors seek the next “Bitcoin.” In particular, a company formerly known as Long Island Iced Tea Corp. recently changed its name to Long Blockchain. Its stock price jumped from $2 to $16 in an hour, a 289% appreciation. Be wise.
This newsletter was written and produced by CWM, LLC. Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The views stated in this letter are not necessarily the opinion of CWM, LLC and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results.
S&P 500 INDEX
The Standard & Poor’s 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
MSCI ACWI INDEX
The MSCI ACWI captures large- and mid-cap representation across 23 developed markets (DM) and 23 emerging markets (EM) countries*. With 2,480 constituents, the index covers approximately 85% of the global investable equity opportunity set.
Bloomberg U.S. Aggregate Bond Index
The Bloomberg U.S. Aggregate Bond Index is an index of the U.S. investment-grade fixed-rate bond market, including both government and corporate bonds.