Weekly Advisor Analysis: February 1, 2016

Last week was a busy week in terms of data releases and news. Estimated U.S. gross domestic product (GDP), unemployment data, and the Federal Reserve were just a few headlines that grabbed investors’ attention. U.S. indexes enjoyed another week in the black as domestic indexes surged on Friday. The S&P 500 was up 3.2 percent while the Dow Jones Industrial Average and the NASDAQ were up 3 percent and 2.8 percent, respectively. Internationally, the picture was quite different. The Euro Stoxx 600 index was up 3.77 percent but Chinese equities, as measured by the Shanghai Composite Index, were down 5.63 percent.

Unemployment Figures

The job market continues to look strong here in the United States. The most recent release by the Labor Department indicated initial jobless claims fell 16,000 to 278,000. Economists surveyed by The Wall Street Journal were expecting 280,000 claims. Economists pay close attention to the initial jobless claims because, if they are falling, it frequently means less companies are laying employees off and more are hiring. This is typically good for wages which can lead to more consumer spending and domestic growth. More generally, unemployment numbers usually fall during the fourth quarter of the year as temporary hiring picks up for the holidays. The number then tends to rise in the first quarter of the following year as those temporary jobs are no longer needed.

WAAAAA

U.S. GDP

GDP slowed in the last quarter of 2015. Economists were expecting 0.8 percent growth but the first estimate of fourth quarter GDP was 0.7 percent. GDP results typically go through a number of revisions as the preliminary estimate includes incomplete data. The final figure can be meaningfully different than the first estimate. According to the results, business inventory investment, personal consumption, and trade were the main detractors. The drop-in trade is likely due to the stronger U.S. dollar and uninspiring global growth while the lagging inventory investment and slowing personal consumption could indicate a decelerating domestic economy. On the positive side, residential investment jumped 8.1 percent in the fourth quarter and, by some measures, the housing market in 2015 was the most robust since the recession.

Fun Story of the Week

A team of physicists appear to have cracked a significant roadblock in quantum computing, paving the way for quantum computers that can solve “insolvable” problems. If the physicists are correct, then they have solved the causality problem by using quantum particles that are moving along “open timelike curves.” Theoretically, quantum computers using “closed timelike curves” create causality problems. A more practical (or relatable) example of a causality problem takes place in the Back to the Future movie. Since Michael J. Fox’s Marty McFly went back in time and tampered with the past, he almost caused a new future in which he didn’t exist. The same type of problem happens at the particle level, too. With the “open timelike curves,” the physicists hypothesize, as long as they entangle the time-traveling particles with one in the present, they won’t interact with anything in the past, thus preventing causality problems. Think of this as Marty McFly going back in time, still tied to his present-day “self,” and being able to use that information, but not being allowed to speak with his teenage mother and father or interact with anyone else during his trip. According to their report, while these particles never interact, the nature of quantum mechanics and computing still allows for the solving of impossible calculations. Confused? So am I.

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