Weekly Update – October 31, 2016

At first glance, last week’s headlines may lead you to think that the markets are fluctuating more than they actually are. Yes, Hillary Clinton’s emails are in the news again (more on that below)—but despite that surprise, the major indexes stuck to the same range-bound performance we’ve seen for the past three months. The S&P 500 ended down 0.69%, the NASDAQ was off 1.28%, and MSCI EAFE lost 0.44%. The Dow Jones Industrial Index eked out a 0.09% increase.

Three Key Events Last Week

1. FBI Announces Renewed Look at Hillary Clinton’s Emails

What happened?

On Friday, October 28, FBI Director James Comey sent a letter to Congress alerting them that the agency would be reviewing new Hillary Clinton emails discovered during their investigation of former Congressman Anthony Weiner. When news of Comey’s letter broke, the major indexes responded quickly—and negatively. For example, the Dow, which had been up 75 points, reacted with a nearly 150-point swing before closing about 10 points lower.

What does this mean?

The announcement threw a wrench in an already contentious and exhausting presidential race. Recently, polls showed that Clinton held a solid lead over Trump, and the markets had priced in her win. But Friday’s news calls this assumption into question, creating greater uncertainty for the next two weeks.

If there’s one thing the markets hate, it’s uncertainty. And while big headlines rarely affect long-term performance, the markets may react to them in the short run. We expect this story to stay in the news through Election Day—a day we’re pretty sure every American is ready to move past.

2. Gross Domestic Product (GDP) Has Biggest Gain in Two Years

What happened?

On Friday, the government announced that GDP — essentially, the economy’s scorecard—had 2.9% growth, beating the expectations of 2.5%. Not only is this rate the best we’ve seen in two years, but it also shows far faster economic expansion than the first two quarters of 2016, when U.S. growth averaged just over 1%.

What does this mean?
The economy is growing faster than experts thought, which makes a December interest-rate increase more likely. On Friday, traders showed an 83% likelihood that the Federal Reserve would raise rates at their last meeting of the year.

Keep in mind that if the Fed raises rates, they wouldn’t be doing so to temper the economy’s growth. Instead, they would be using this positive GDP report as further evidence that the economy is strong enough to handle a move toward more normal interest rates.

3. Durable Goods Orders Decline

What happened?

After gaining 0.3% in August and 3.6% in July, durable goods orders dipped 0.1% in September. Broadly, durable goods are items that last for more than three years—from a toaster to a tractor — and orders for them help us measure business investment. September orders lowered in a number of categories, including an 8.6% drop in orders for computers.

What does this mean?
The drop in durable goods orders is less concerning than it may seem on first glance. Between a strong dollar making U.S. exports more expensive and low oil prices leading energy companies to cut spending, large manufacturing companies have often had to cut their budgets. However, many economists believe these factors should be lessening, which can allow durable goods spending to rebound.

ECONOMIC CALENDAR:
Monday: Personal Income and Outlays
Tuesday: Motor Vehicles Sales, FOMC Meeting Begins, PMI Manufacturing Index, ISM Mfg Index, Construction Index
Wednesday: ADP Employment Report
Thursday: Jobless Claims, Productivity and Costs, Factory Orders, PMI Services Index, ISM Non-Mfg Index
Friday:
Employment Situation, International Trade

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John P. Chladek, MBA, CFP® is the President of Chladek Wealth Management, LLC, a fee-only financial planning and investment management firm specializing in helping families and couples who are not yet retired realize their financial goals. For more information, visit http://www.chladekwealth.com.

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