Do you remember where we were this time last year? In January 2016, the markets were in a slide and filled with volatility. In fact, fears about China’s economy contributed to the S&P 500 and Dow experiencing their worst ever five-day beginning of a year.
However, 2017 is off to a different start. This January, we saw the three major domestic indexes reach record highs — and the Dow surpassed 20,000 for the first time ever.
We also learned in January that personal income increased by 0.3% in December, slightly below expectations, but enough to push income up 3.5% for 2016. And retail sales increased by 0.6% for December — ending up 4.1% for the past year.
Right now, we are also well into corporate earnings season, and many reports are beating expectations. As of January 31, blended earnings were up 7.1% in the fourth quarter and revenue increased approximately 4.2%.
Despite this positive data, the economy still has opportunities to improve. In January, we learned that Gross Domestic Product (or GDP) lagged in the fourth quarter of 2016 — showing 1.9% growth compared to the third quarter’s 3.5% measure. As of this first estimate, real GDP increased by a total of 1.6% throughout 2016.
If you look more deeply at the numbers, however, you will see that many aspects of our economy grew in the fourth quarter, including household purchases, business-equipment spending, and inventory accumulation. Instead of the lagging numbers showing a widespread slowdown, one area is largely responsible for decreasing growth: net exports. In the fourth quarter, we saw a jump in imports and a decline in exports, which combined to pull growth down by 1.7% — the biggest drag since 2010.
Trade is an incredibly important part of our economy. As the most recent GDP report shows, any change in the balance between imports and exports can affect growth. In fact, without the decline in net exports, fourth quarter GDP could have beaten third quarter measures.
As you are surely aware, we are currently in the middle of a hotly debated, headline-grabbing political environment. And some of the key conversations impact trade. From taxing Mexican imports to restricting visitors from certain countries, these new policies — and the reactions from the nations they affect — could change the balance between American imports and exports, and thus our economy.
Of course, we are not political prognosticators; we are financial professionals. So, while we will continue to closely watch new policy developments, our focus remains on market fundamentals.
Throughout 2017, we will analyze the economy’s underlying health and strive to find new ways to pursue your goals in a changing environment. As always, we are here to help you understand what’s happening — no matter the headlines.
That’s it for this month’s educational economic update.
Disclosure: While we believe the information in this report is reliable, we cannot guarantee its accuracy. Opinions expressed are subject to change without notice and are not intended as investment advice or a solicitation for the purchase or sale of any security. Please consult your financial professional before making any investment decision. The S&P 500 Index is an unmanaged index generally representative of the U.S. stock market. The Dow Jones Industrial Average is an index of 30 widely held securities. Keep in mind that an investor cannot invest directly in an index. Past performance is not a guarantee of future results, and index performance does not include transaction costs, other fees or tax considerations that will affect actual investment performance. Investment involves risk, and you may incur a profit or loss.