This past week the Dow Jones crossed 20,000 points for the first time ever! This historic event comes amid concerning data that could indicate we won’t be here long…
US Data
The data from last week reflected some softening factors for the economy. 4th Quarter GDP, released on Friday, came in at 1.9%, below the 2.2% expectation. This was especially disappointing following such a strong 3rd quarter. Existing home sales (which makes up 90% of the home sales market) were down 2.8% in December (or 160K homes). Much of this had to do with reduced inventories for that time of year. In addition, it is likely that increased rates over the past few months is a cause for pause for many buyers. New home sales fell 10.4% in December, but this market makes up only 10% of the home selling market. The 62,000 reduction in sales was meaningful, however, as it is a barometer for the construction job market. Durable goods orders were down 0.4% for December, but this was actually a positive. When you net out government aircraft spending, Core Durable Goods rose 0.5%, a good sign of corporate spending[1].
International
Much like the US, developed international markets rose last week. Japan Continues to benefit from a weaker ¥ as trade surpluses reached $36B. This was the first annual trade surplus for Japan in six years[2].
The UK showed strength as 4th quarter GDP came in at 2.2% annualized[3]. This news was also counter-balanced with a decision by British courts that parliament needs to vote to allow the triggering of Article 50 (initiation of Brexit). This hurdle causes concerns should the initiative not pass. Brexit was thought to be an economic nightmare for the UK, but their economy has actually performed well since the referendum. Should parliament cause a reversal, it could have a grave impact on the economic achievements over the last six months.
China reached its goal of 2016 GDP between 6.5% and 7%, but at what cost? Many are calling for a potential hard landing in China as a result of short term credit creation to keep their economy running at the level they deem necessary.
Conclusion
The Dow Jones crossing 20,000 is a wonderful thing… but it means nothing! The index of 30 companies has been around for 120 years and has had different companies in its make up over that time. 30 companies barely represents a diversified grouping, never mind the barometer that everyone holds it to be. The data this last week surely is concerning, but does not create a trend, nor does it indicate the future for the markets. In short, congratulations Dow Jones Index, but 20,000 doesn’t mean that much…
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[1] www.investing.com – economic calendar
[2] www.mfs.com – week in review
[3] www.investing.com – economic calendar