The Mystery of Lower Gas Prices

Summer driving season is still a long ways off, but there are already some interesting trends unfolding in the world of gasoline prices this year.  According to AAA, the national average price of a gallon of gas currently stands at $2.27, which is down about 3 percent from where prices were at the end of 2016. 

That's an unusual trend. Going back to 2005, on average, gas prices have risen by 1.3 percent by this point in the year. Since 2005, there have only been two other years (2007 and 2016) where the national average price saw a larger year-to-date decline by the first week of February.

In general, once February begins, we see a steady move higher until the start of the summer driving season around Memorial Day, when the price of gas typically reaches its peak for the year. If history is any guide, gas prices may well rebound in the weeks and months ahead.

The Widening Trade Deficit

According to figures out this week, the U.S. trade deficit rose slightly in 2016 to $502.3 billion, reaching its highest level in four years. The trade gap widened last year because exports fell faster than imports, the result of a weak global economy and a stronger dollar  that made American products more expensive to foreign buyers.

The gap with China is by far the largest among the major U.S. trading partners. Although the deficit dropped by 5.5 percent in 2016, it still totaled $347 billion. That’s more than 60 percent of the overall U.S. trade deficit.

Meanwhile, closer to home, the trade deficit with Mexico rose 4.2 percent, reaching $63.2 billion, in 2016. That marks a five-year high for that figure as well.

Slow and Steady

So far this year, the stock market has been going nowhere fast. The S&P 500 hasn’t experienced a daily trading range of 1 percent or greater for 34 consecutive trading sessions. That's the longest such streak since 1995, according to the Wall Street Journal’s Market Data Group.

The average daily range between a session’s intraday high and low over that stretch, dating back to December 14, is just 0.54 percent, according to FactSet. By comparison, the S&P 500′s average daily trading range in 2016 was 0.96 percent.

Still, all those little moves can add up, as long as there are many more up days than down days in there. On the year, the S&P has risen by a very solid 2.4 percent.

A Quiet January

With the first month of the year now in the books for the stock market, this past January was among the most stable Januarys we have seen in quite some time. The largest decline that the S&P 500 saw from a closing high during the month was just 0.85 percent, which is the smallest since last July.

The S&P 500’s average daily percent change in January was just  plus or minus 0.33 percent. In the 1,069 months since 1928, January of 2017 ranks as the 66th smallest average daily move for a given month in the S&P 500’s history. 

For the month of January specifically, there have only been five other Januarys where the S&P 500 saw an average daily percentage move that was smaller than this January.  Looking ahead to this month, quiet Januarys haven’t had any notable impact on market returns in February: The S&P 500 has been up following three of those five Januarys, with a median gain of 0.99 percent. 

January's Jobs Report

The American economy generated 227,000 new jobs in January, marking the biggest gain in four months. Because the workforce expanded as well, the unemployment rate rose a tick to 4.8 percent, the Bureau of Labor Statistics said this morning.

Retail trade added 46,000 jobs in January, the single-best gain for any sector, which seems a bit odd, given it happened in the post-holiday shopping season. Clothing and clothing accessories added 18,000, electronics and appliance stores added 8,000, and furniture and home-furnishings stores added 6,000.

One downside: The change in total nonfarm payroll employment for November was revised down from 204,000 jobs to 164,000. Over the past three months, job gains have averaged 183,000 per month.

Reading the Fed Announcement

At its first meeting of 2017 yesterday, the Federal Reserve left its benchmark rate unchanged in a range of 0.50  percent to 0.75 percent, as expected. But it also gave no indication when the next rate hike might come, meaning we could have rates this low for a while yet.

The Fed noted the improvement in both business and consumer sentiment since its December meeting, when it did raise rates. But household spending growth has been moderate, and business fixed investment remains soft.

Last December's dot plot forecast suggested that the Fed was considering raising rates three times in 2017. It would have made sense for the Fed to hike in March if that was still the expectation, but yesterday's announcement makes that less likely to happen.

Two Ways for Earnings

So far this earnings season, the average stock that has reported has gained 0.13 percent on its earnings reaction day, which is the first trading day following a stock’s earnings report.  But the reading has been quite different depending on what sector the stock has been in.

Stocks in the energy and materials sectors that have reported earnings this season have been getting positive reactions. The average energy stock has gained 0.86 percent on its earnings reaction day, while the average materials stock has gained 0.81 percent.

Meanwhile, consumer staples and health care stocks have had dreadful reactions to their earnings this season.  The average consumer staples stock that has reported has fallen 1.61 percent on its earnings reaction day, while the average health care stock has fallen 1.28 percent.