Stocks headed lower last week, with the S&P 500 losing 1.21 percent. Even after this decline the benchmark index is still up 0.18 percent 2016-to-date and just 3.91 percent below the record high hit in May of last year. The price action has become a bit more volatile recently, not surprising following a multi-week rally in equities which likely has some traders taking profits and assessing whether the market will continue to push higher or roll back over. Regardless of what stocks do in the near-term, it is important for retirement investors to avoid overreacting to short-term fluctuations in the market given the historic long-term resiliency of equities. For example, even with average intra-year declines of 14.2 percent, the S&P 500's annual return was positive 27 of the past 36 years. Moreover, persistent participation in the stock market combined with a dollar-cost averaging approach to retirement investing can actually turn large drawdowns into opportunities. We are of course here to help with any questions you may have.
Last week's stock market selloff might have been worse if not for the continued rebound in the price of crude oil which helped buoy equities in the energy sector and other related arenas. Further, the recent rally in the price of oil has also raised the cost consumers have to pay at the pump. Since higher gasoline prices can have a negative impact on household financial conditions, many market participants believe that any such spillover may discourage officials at the Federal Reserve (Fed) from raising interest rates in the near-future. Speaking of the Fed, monetary policymakers have been more dovish than expected in recent weeks, with officials appearing to be focused more on global risks than domestic strengths at the moment. Moreover, the minutes from the March Federal Open Market Committee (FOMC) meeting released last week showed that a "number" of officials expect current headwinds to "subside only slowly," which again supports the case for a more gradual pace of policy tightening (more on this tomorrow).
To recap what we learned about the U.S. economy last week, the positives included that mortgage and refinance applications lifted, consumer spending rose, revolving credit usage increased, small business borrowing demand and loan availability both improved, labor markets continued to tighten, job creation climbed to a new recovery high, the number of Americans making first-time claims for unemployment benefits declined, and services sector activity rebounded. As for the negatives, factory orders contracted, wholesalers' stock-to-sales ratios remained alarmingly high, and the nation's trade deficit widened (although this could be a signal of rising cross-border demand). This week the pace of economic data remains slow but there are still several important reports on manufacturing, international trade, retail, employment, and inflation scheduled to be released, along with the latest update on small business owner optimism from the National Federation of Independent Business (NFIB) due out tomorrow morning.