Week In Review 1.4.2019

The new year began where the old one left off, with significant volatility. U.S. markets ended the week higher despite significant intra-week volatility in which the S&P 500 fell -2.5%, on Thursday, only to rebound 3.4% on Friday. As was the case for most of the fourth quarter, investors remained focused on trade and its potential impact(s) upon the global and U.S. economy.

Concerns about global growth were exacerbated following the release of global manufacturing data which pointed to slowing conditions in China, Europe and the U.S.  A rare revenue downgrade by Apple, its first in 15 years, also fueled concerns. In a letter to shareholders announcing the news, Apple CEO Tim Cook pinned the decline on several factors including weaker demand in China and rising trade tensions. With respect to China, Cook stated, “While we anticipated some challenges in key emerging markets, we did not foresee the magnitude of the economic deceleration, particularly in Greater China. In fact, most of our revenue shortfall to our guidance, and over 100 percent of our year-over-year worldwide revenue decline occurred in Greater China across iPhone, Mac, and iPad.”

Friday’s rally was the result of several different factors. A strong employment report showed that nonfarm payrolls added 312k new jobs in December, the strongest pace since February 2018.  And while unemployment ticked up 0.2% to 3.9%, it was largely the result of over 400k individuals entering the workforce to look for work, a good thing. In addition, wage growth accelerated to 3.2% from a year ago. Markets were also heartened by comments from Fed Chair Jay Powell in which he stated that monetary policy is flexible and Fed official is “listening carefully” to the financial markets. Finally, markets welcomed news that the U.S. and China will hold trade talks next week aimed at defusing current trade tensions between the world’s two largest economies.