On Wednesday, March 1, the three major domestic indexes all had their best performance in 2017 and reached record highs yet again.[i] In fact, the S&P 500 hit 2,400 for the first time ever on the same day the Dow went above 21,000 for the first time.[ii] While the markets cooled slightly on Thursday and Friday, all three indexes were up for the week. The S&P 500 added 0.67%, the Dow increased by 0.88%, and the NASDAQ was up 0.44%.[iii] International equities in the MSCI EAFE also grew, adding 0.39% for the week.[iv]
In the midst of more record performance, we received a number of data updates that help improve our understanding of the true economic environment and potential for the Fed to increase interest rates next week.
What We Learned Last Week
Fourth Quarter 2016 GDP Readings Stayed the Same
On February 28, we received the second reading of Gross Domestic Product (GDP) for the fourth quarter of 2016. The consensus expectation was for the reading to increase to 2.1% from the 1.9% growth in January’s Advance report.[v] However, the newest data did not show any change in Q4 GDP. [vi]
Manufacturing Activity Increased
The ISM manufacturing survey beat expectations to come in at 57.7 for February—the highest reading in 2.5 years and the best yearly start since 2011.[vii] Levels over 50 indicate expansion, so this data provides a positive signal for our manufacturing sector.[viii]
Service Sector Activity Increased
In February, the service sector grew for the 86th straight month, with the ISM non-manufacturing survey coming in at 57.6.[ix] Both new orders and business activity had a faster expansion, and the employment index also increased.[x]
Consumer Confidence Hit a More Than 15-Year High
The latest consumer confidence numbers from the Conference Board have not been this high since July 2001.[xi] Fewer people think that jobs are “hard to get,” and many “consumers expect the economy to continue expanding in the months ahead.”[xii] Of course, consumer confidence is no guarantee for future circumstances; instead, it measures sentiment and currently indicates that many people feel more positively about the economy.
Personal Income Went Up
The latest personal income data indicated a 0.4% increase in January—for a 4.0% yearly increase.[xiii] In addition, the Personal Consumption Expenditure (PCE) deflator, which measures consumer inflation, grew by 0.4% in January, the largest monthly increase since 2011.[xiv] The Federal Reserve follows the PCE deflator very closely, so this recent jump could be another sign that a March interest-rate increase could be more likely to occur.[xv]
These data updates are only a few of the economic details we learned last week, but together, they may help explain why the Fed could increase rates in the March 14 – 15 meeting. As recently as Tuesday morning, the odds of a rate hike were only 35%.[xvi] By Friday, they had increased to 81%, due to strong economic data and remarks from Fed representatives.[xvii] On Friday, Fed Chairwoman Janet Yellen said that if employment and inflation continue to change as they expect, then a change to the “federal funds rate would likely be appropriate.”[xviii]
Combined with the recent PCE deflator increases, this Friday’s employment data should help provide more context for the Fed’s decision. However, as we have seen before, no one truly knows what the Fed will decide until they make their announcement after the meeting. For now, we will monitor the data and wait to hear the Fed’s announcement on March 15.
Monday: Factory Orders
Tuesday: International Trade
Wednesday: Productivity and Costs
Thursday: Import and Export Prices
Friday: Employment Situation
|Data as of 3/3/2017||1-Week||Since 1/1/17||1-Year||5-Year||10-Year|
|Standard & Poor’s 500||0.67%||6.44%||19.55%||14.80%||7.18%|
|Data as of 3/3/2017||1 mo.||6 mo.||1 yr.||5 yr.||10 yr.|
|Treasury Yields (CMT)||0.56%||0.84%||0.98%||2.02%||2.49%|
Notes: All index returns exclude reinvested dividends, and the 5-year and 10-year returns are annualized. Sources: Yahoo! Finance, S&P Dow Jones Indices and Treasury.gov. International performance is represented by the MSCI EAFE Index. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly.
No-Churn Vanilla Ice Cream
A no-fuss recipe for a classic dessert
- 1 can (14 ounces) sweetened condensed milk
- 2 tablespoons pure vanilla extract
- 2 tablespoons bourbon (optional)
- 2 cups cold heavy cream
- Combine the condensed milk, vanilla, and bourbon in a medium bowl.
- Stir together until thoroughly mixed and put aside.
- Pour heavy cream into a large bowl.
- Beat thoroughly (on high for 3 minutes if using an electric mixer) until you form stiff peaks.
- Fold the cream gently into the condensed milk mixture using a rubber spatula.
- Pour combined mixture into a 4.5” x 8.5” loaf pan.
- Freeze ingredients until firm, usually for 6 hours.
Recipe adapted from Martha Stewart[i]
Claim the Non-Business Energy Property Credit
Good news for those making their home energy efficient: The IRS lets you claim tax credits for the upgrades. If you made these types of improvements on your home in 2016 and haven’t already maximized your lifetime credit claims, you have two credits available to you—one of which is the Non-Business Energy Property Credit. Here are the guidelines for claiming that credit.
Non-Business Energy Property Credit
- Good For: Existing homes located in the U.S.
- Maximum Credit: A lifetime limit of $500
- Credit Exceptions: Only $200 of your claim can go toward windows
- Two Credit Subsections: Based on 1) item cost and 2) installation costs
- Item Costs
Part of this credit covers 10% of what you paid to upgrade your home with qualified energy-saving items, not including labor. Qualified items include:
- Adding insulation
- Installing energy-efficient exterior windows and doors
- Installing certain roofs
- Installation Costs
The other part of this credit covers a portion of your installation costs for certain high-efficiency household items, including:
- Heating and air-conditioning systems
- Water heaters and stoves that burn biomass fuel
To claim this credit, you will need to make sure you save within your tax records the manufacturer’s written certification that their product qualifies for energy-efficiency home credits. To file your credit, use IRS tax Form 5695.
* This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor
Tip courtesy of IRS.gov[i