Market News – Week of January 15th, 2018

CONTINUED OPTIMISM FUELS STOCK MARKETS:

Stocks rose again last week as most major indices rose well above another 1%. Optimism around a steadily expanding U.S. economy and expectations that corporations are going to post strong fourth quarter earnings reports is fueling the markets.

RETAIL SALES INCREASING:

Retail sales in December were 5.4% better than December of 2016.

OIL PRICES ARE RISING:

Oil prices collapsed at the end of 2014, rebounded a bit, and then collapsed again at the end of 2015 and in early 2016. Now, with a stronger global economy, less domestic production, and production caps at OPEC, prices are rising. Currently, prices are about 19% higher than a year ago with a barrel of oil now costing somewhere between $65-69.

CONSUMER DEBT IS STARTING TO RISE AGAIN:

The Fed tracks a Household Debt Service ratio which is the ratio of disposable personal income that is dedicated to servicing debt. This overall ratio hit record lows in a long slow trend after the Great Recession. However, the overall Debt Service Ratio increased in the third quarter of last year and has been moving up slowly from the recent record low. As you can see below, mortgage debt payments (due to very low interest rates and lots of foreclosures) have continued to draw down while consumer debt (credit cards, student loans, car loans, etc.) has been rising for about five years.

U.S. CREDIT CARD DEBT SETS NEW RECORD:

In our opinion, an unfortunate occurrence when optimism returns is credit card debt. Revolving credit card debt is bad debt. According to the Federal Reserve Bank, U.S. credit card debt just hit $1.02 trillion, a disturbing new record. In 2017, revolving credit card debt increased by 5.7%. Times are good right now. This debt should be attacked. The U.S. savings rate has also been declining. It is not good that our collective impulse when things are good is to forget about tomorrow, borrow money, and stop saving.

References:

RETAIL SALES INCREASING: http://www.calculatedriskblog.com/
OIL PRICES ARE RISING: http://www.calculatedriskblog.com/2018/01/oil-prices-higher-up-19-year-over-year.html
CONSUMER DEBT IS STARTING TO RISE AGAIN: http://www.calculatedriskblog.com/2018/01/fed-q3-2017-household-debt-service.html
U.S. CREDIT CARD DEBT SETS NEW RECORD: https://personalfinancenews.com/credit-card-debt-hits-new-record/