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Market Recap – International Stocks Recover From U.S. Election

Market Digest – Week Ending 12/2/2016

US stocks declined for the week and, more specifically the S&P 500 fell about 1%. For the first time since the election, international stocks fared better, finishing flat for the week. Friday’s jobs report was strong and unemployment fell to 4.6%, the lowest since August 2007. Corporate earnings are also coming in strong, posting a 5.2% increase from a year ago. Q3 GDP growth was revised upward to 3.2%. As a result, it is now almost assured the Fed will raise interest rates in December. OPEC surprised skeptics by reaching a deal to cut production, sending oil prices higher.

Weekly Returns:

S&P 500: 2,192 (-1.0%)
FTSE All-World ex-US: (-0.0%)
US 10 Year Treasury Yield: 2.38% (+0.03%)
Gold: $1,177 (-0.5%)
USD/EUR: $1.066 (+0.7%)

Major Events:

• Tuesday – The US Q3 GDP growth estimate was revised up to 3.2%.
• Tuesday – Case Shiller reported that home prices hit an all-time high in September, though they remain 16% below the 2006 peak on an inflation adjusted basis. Seattle, Portland and Denver reported the highest gains.
• Wednesday – OPEC members reached an agreement to cut oil production by 1.2 million barrels a day by January.
• Wednesday – Royal Bank of Scotland must add $2.5 billion in capital after failing a BOE stress test.
• Friday – US employers added 178,000 jobs in November, reducing unemployment to 4.6%.
• Friday – Pandora Media said it was open to engaging in talks to be acquired by SiriusXM. Shares rose 16%.

Our take:

Donald Trump rode a wave of voter discontent to win the presidency. Indeed, there are big chunks of the economy facing very long lasting wage stagnation and there are depressed regional areas, but the headline numbers on the economy are good. Official unemployment dropped to 4.6%, the lowest in almost a decade. Q3 GDP growth was over 3%, corporate earnings are growing again, and the stock market is near all-time highs.

How long can the good times last? Nobody knows. The Fed will raise rates, but small and incremental changes shouldn’t have a big impact on economic activity. Ironically, the fate of the US economy is likely to be decided abroad. China is facing a massive debt crisis but recent numbers suggest the Chinese economy is stabilizing. Europe has their own banking problems and if a Euro-member decides to leave the EU or the common currency it would cause severe economic disruption. But for now, all is quiet.

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