Vorisek Financial Weekly Market Update for April 4, 2018

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Good morning!

It has been a spectacular run for stocks.  Leading up to 2018, the S&P 500 has posted a positive total return gain in 19 of the last 20 quarters, gaining +108% for the 5-years, equal to an annual increase of +15.8%.  The stock index backed off slightly in the first quarter 2018, losing 0.8%, the 9th time since 1990 that the stock market was negative during the first 3 months of the year.  The S&P 500 went on to record a positive return for the entire year in 5 of the previous 8 years that started with a loss (1992, 1994, 2003, 2005 and 2009) and suffered full-year losses in the other 3 years (1990, 2001 and 2008).  The short-term movement of stocks this year may be driven by first quarter earnings results and the direction of trade tensions with China (source: BTN Research).          

First-time claims for unemployment benefits were just 215,000 last week, the lowest number reported in the United States since 1/27/73 or more than 45 years ago.  At its peak, initial unemployment claims reached 655,000 in late February 2009.  155.2 million Americans have full-time jobs today, 47% of our 327.4 million citizens (source: DOL).

The yield spread is the difference between the yields on the 10-year Treasury note and the 2-year Treasury note.  That spread fell to just 0.47 percentage points last Thursday 3/29/18, i.e., 2.74% less 2.27%.  The yield spread hasn’t been that low since 10/15/07.  The current spread indicates that the yield advantage of 10-year paper vs. 2-year paper is less than ½ of 1%, a key factor when bond buyers are evaluating the added risk of investing in longer-term Treasury debt (source: BTN Research). 

Notable Numbers for the Week:

  1. DOWN THEN UP - The last time that the S&P 500 was down on a total return basis for the 1st quarter yet finished up for the full calendar year was in 2009 when the index lost 11.0% during the first 3 months of the year but was up +26.5% for the entire year (source: BTN Research). 

  2. MORE WITH LESS - After adjusting for inflation, manufacturing output in the United States is up +62% over the last 30 years, i.e., 12/31/87 to 12/31/17.  However, the number of manufacturing jobs in the United States have declined 29% over the same 30 years, falling from 17.8 million to 12.6 million (source: DOL). 

  3. EXPENSIVE - Healthcare spending makes up 18% of the $20 trillion US economy, equal to $11,000 per year for each of our nation’s 327 million citizens (source: Centers for Medicare & Medicaid Services). 

  4. NEW HOMES - The average profit earned by builders of new single-family homes constructed in the USA in 2017 was 10.7% of the home’s total sales price.  The average single-family home built last year had a total cost of $428,000, resulting in an average profit of $46,000 (source: National Assoc. of Home Builders).  

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