Market News – Week of May 22, 2017

VIX:

Last week, we reported to you that the “fear index”, or the VIX, had reached its lowest point ever, indicating little likelihood for big movements in the stock market anytime soon.  Due largely to U.S. political turmoil, last Wednesday saw U.S. stocks’ worst one-day performance in about 8 months.  Until Wednesday, the S&P 500 had not moved up or down more than a half of a percent for 15 straight sessions, the longest such streak since 1969.

It is always a good sign when we have a big sell-off and the next day sees a bounce.  That means that a significant amount of professional investors do not see a long-term trend and see the one-day carnage as a buying opportunity.  In  the two days after the 1.82% one day decline, the S&P 500 bounced back 1.05%.

EARNINGS TRUMP POLITICS:

92% of the S&P 500 companies have reported their first quarter earnings.  On average, earnings for these companies are up 15% from a year ago.  If you exclude energy companies, which are bouncing back from bigger lows, earnings are up 11%.

U.S. INDUSTRIAL PRODUCTION HUMMING:

The U.S. .Federal Reserve reported last week that American factories boosted output by about 1% in March, the biggest jump in over three years.

NOT MUCH MOVEMENT:

After all was said and done, it was another week in the stock market with very little movement in prices.  For the week, the S&P 500* decreased 0.35% (up 6.38% for the year).  The MSCI All Country X US* increased 0.88% (up 13.81% for the year).  The Barclays Global Aggregate Bond Index* jumped 1.36% (up 3.96% for the year).  The HFRX Global Hedge Fund Index* decreased 0.37% (up 1.88% for the year).

A PAUSE IN INFLATION GROWTH CAUSED BY….:

Most have been expecting an inexorable increase in inflation this year due to low unemployment and a tightening job market.  But in April the increase in consumer prices slowed for the second straight month.  The so called “core” inflation measure was only 1.9% (annualized) in April.  Why the slowdown despite expectations to the contrary?  A couple of factors are the glut of used cars hitting the market (lowering vehicle prices) and some deceleration of medical inflation.  But the biggest factor of late seems to be wireless telephone services.  A price war has broken out and unlimited data plans have returned.  Overall, cell-plan prices dropped 7% in March and an additional 1.7% in April.  From April of last year, wireless service prices are down 12.9%.

References:

VIX: https://www.wsj.com/articles/stocks-dollar-sink-on-washington-turmoil-1495066615
EARNINGS TRUMP POLITICS:  https://horsesmouth.com/a-teflon-stock-market-and-a-political-storm
U.S. INDUSTRIAL PRODUCTION HUMMING: https://www.bloomberg.com/news/articles/2017-05-16/u-s-industrial-production-rises-most-in-more-than-three-years
A PAUSE IN INFLATION GROWTH CAUSED BY….:  https://blogs.wsj.com/economics/2017/05/19/how-cell-phone-plans-with-unlimited-data-limited-inflation/