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Goldilocks Returns

March 12, 2018 at 12:52 PM

 

Domestic stocks leapt ahead last week as the latest jobs report inspired renewed confidence in our economic standing. The S&P 500 added 3.54%, and the Dow gained 3.25%.[i] The NASDAQ erased its losses from February’s market correction to hit a new record close while growing 4.17% for the week.[ii] International stocks in the MSCI EAFE increased by 1.79%.[iii]

 

In addition to solid stock growth, Friday, March 9, also brought a significant milestone in the markets: the 9th anniversary of our current bull market. The Dow is now in the midst of its longest-ever bull run, and the S&P 500’s bull market is its 2nd-longest and -largest ever.[iv]

 

To put the recovery in perspective, 9 years ago, the S&P 500 closed at only 676.53. By market’s close last Friday, the index was at 2,786.57—more than 4 times its value at the bull market’s start.[v]

 

What drove last week’s market performance? 

While talk of tariffs on aluminum and steel imports affected stocks last week, a major jobs report was arguably the biggest market mover.[vi] The Bureau of Labor Statistics released its latest jobs report on Friday, and the numbers relieved many investors’ inflation concerns. The data showed that the economy added 313,000 jobs in February—far more than what analysts expected.

 

At the same time, wages only grew by 2.6% from this time last year, below the prediction.[vii]

 

What does this data mean?

Bloomberg called the labor report a “‘Goldilocks’ scenario,” because it indicates that the economy is neither too hot nor too cold. The data reveals that many people are returning to the workforce, but wages are not increasing fast enough to trigger significant inflation.[viii]

 

This jobs report also contrasts with last month’s data, which showed wages rising faster than expected. That report contributed to February’s market correction.[ix]

 

Ultimately, some analysts believe the latest data implies that inflation is less of a concern, and the Fed may only increase interest rates 3 times this year.[x]

 

Later this month, Federal Reserve leaders will meet to determine whether to raise interest rates and will also provide their latest economic projections.[xi] Looking ahead, we will continue to analyze the interplay between labor, inflation, and interest rates—and how these forces may affect your financial life.

 

ECONOMIC CALENDAR

Tuesday: Consumer Price Index

Wednesday: Retail Sales

Thursday: Jobless Claims, Housing Market Index

Friday: Housing Starts, Industrial Production, Consumer Sentiment

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Diversification does not guarantee profit nor is it guaranteed to protect assets.

International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors.

The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.

The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ. The DJIA was invented by Charles Dow back in 1896.

The Nasdaq Composite is an index of the common stocks and similar securities listed on the NASDAQ stock market and is considered a broad indicator of the performance of stocks of technology companies and growth companies.

The MSCI EAFE Index was created by Morgan Stanley Capital International (MSCI) that serves as a benchmark of the performance in major international equity markets as represented by 21 major MSCI indices from Europe, Australia and Southeast Asia.

The S&P/Case-Shiller Home Price Indices are the leading measures of U.S. residential real estate prices, tracking changes in the value of residential real estate. The index is made up of measures of real estate prices in 20 cities and weighted to produce the index.

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