Vorisek Financial Weekly Market Update for May 31, 2017

 

Good morning!

The S&P 500 closed at an all-time record high on the Friday before the Memorial Day weekend (5/26/17), the stock index’s 20th all-time best close achieved this year and its 146th record close during its bull market run that began in March 2009.  The index has a current streak of 7 consecutive “up” days, a stretch not bested since July 2013.  The index is up +8.8% YTD (total return) and has gained +325% during the ongoing bull market that will reach 99 months in length on 6/09/17 (source: BTN Research).          

The US economy grew by +1.2% in the first quarter 2017, i.e., quarter-over-quarter change expressed as an annualized result, well below the +3% target rate of the Trump administration.  However, the economy’s growth rate in the first quarter has been the lowest quarterly result recorded during a full calendar year in 6 of the last 10 years, including last year (source: Commerce Department).   

Even though the production cuts announced in November 2016 by OPEC’s 13 members and 11 other top oil producing countries have seemingly had little impact on prices, the coalition doubled-down on that earlier decision last week.  The original cuts, amounting to about 2% of global oil supply, have now been extended for 9 months to March 2018.  How long the 24 countries stick to that agreement may be driven by the price of oil, currently at $49.80 a barrel, down from $53.72 at the end of 2016 (source: OPEC).      

Notable Numbers for the Week:

  1. WAY TOO PESSIMISTIC - An annual survey of Americans at least age 65 gave the US stock market at least a 50% chance of rising in the upcoming year only 1 time over 12 annual surveys that were conducted from 2002-2013.  The US stock market (as measured by the S&P 500) was actually up 10 of the 12 years (down in 2002 and 2008), gaining +105% (total return), an average gain of +6.2% per year (source: University of Michigan). 

  2. VERY SENSITIVE - The “duration” of the current 3% coupon, 30-year Treasury bond was 19.764 “years” as of last Friday 5/26/17, i.e., if interest rates go up just 15 basis points on the 30-year bond, the resulting 3% bond price decline would completely offset the bond’s 3% coupon over a 1-year time horizon (source: Ryan ALM).     

  3. AFTER FIVE MONTHS - The number of operating oil rigs and operating natural gas rigs in the United States is up +38% YTD, reaching 908 operating rigs as of last Friday 5/26/17 (source: Baker Hughes).   

  4. EXPENDABLE - 26% of 1,100 adults surveyed in April 2017 fear that it is “very likely or somewhat likely” that their current job will be eliminated within 20 years, replaced by technology, automation or a robot (source: Gallup).

          

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