Investment Commentary –January 17th, 2017

Market Indices as of Market Close January 17th, 2017
Dow 19,826 (0.32% YTD)
S&P 2,267 (1.26% YTD)
NASDAQ 5,538 (2.89% YTD)
Gold $1,215 (52 Week Low $1,087 High $1,387
OIL $52.49 52 Week Low $35.10 High $55.44
US 10Y Treasury 2.32 52 Week Low 1.32 High 2.64

Stock market sags as Trump’s dollar talk rattles investors
U.S. stocks slumped on Tuesday as investors remained cautious in the wake of President-elect Donald Trump’s comments on the dollar. U.S. markets were closed on Monday for Martin Luther King Jr. Day holiday.

The Dow Jones Industrial Average DJIA, -0.30% was off 97 points, or 0.5%, to 19,787. The S&P 500 index SPX, -0.30% declined 10 points, or 0.5%, to 2,264, with financials and health-care stocks leading the losses.

“There is a lot going on this week, making investors slightly cautious. For example, the Davos meeting is where a confrontation between globalization and populism is on full display,” said Jack Ablin, chief investment officer at BMO Private Bank.

The Nasdaq Composite Index COMP, -0.63% shed 43 points, or 0.8%, to 5,531, retreating from its all-time high set on Friday. Biotechnology stocks were hit the most, with the iShares Nasdaq Biotechnology ETF IBB, -0.30% down 1.8%.

Trump’s comments on the dollar over the weekend sent the currency sharply lower. He told The Wall Street Journal in an interview that published Friday the U.S. currency was “too strong” because China was keeping its own yuan weaker. “Our companies can’t compete with them now because our currency is too strong, and it’s killing us,” the president-elect said in the interview.

The dollar, which appreciated about 5% in the fourth quarter of 2016, has been drifting sideways since the start of the year. A reversal in bond yields also points to worries among investors. The 10-year Treasury prices have been rising over the past few weeks, with the yield dropping to 2.3%, its lowest level in seven weeks.

Thought of the week
Amidst the headlines from US political speeches last week, one data release made waves from across the globe. China’s producer price index (PPI) rose at the fastest pace in more than five years for the month of December, much stronger than expected at 5.5% y/y compared to consensus of 4.6%, mainly due to a pick-up in mining and materials. These rising production costs for the “world’s manufacturer” should start swinging global inflation higher as we start the New Year. China’s consumer price index (CPI) was steady at 2.3%, but still below the 3% target, so the expectation is for monetary policy to still remain on hold in the meantime.

On Tap for the rest of the week
Wednesday: Consumer Price Index, U.S. Bureau of Labor Statistics; industrial production and capacity utilization, U.S. Federal Reserve; Housing Market Index, National Association of Home Builders
Thursday: Housing starts, U.S. Census Bureau
Friday: No major reports scheduled; U.S. presidential Inauguration Day

THIS DAY IN FINANCIAL HISTORY: War Pumps Life into the Market
The beginning of the first Gulf War results in a 114.60 point jump in the DOW, one of the best one-day gains in market history to this point.

The views presented are not intended to be relied on as a forecast, research or investment advice and are the opinions of the sources cited and are subject to change based on subsequent developments. They are not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investments.