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  • January 4, 2019

Week in Review

Week Ending: January 4, 2019

Recap & Commentary

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.

Economic Bullet Points

Employment—Nonfarm payrolls added 312k new jobs in December, easily exceeding the consensus estimate of 185K. November’s figures were also revised higher by 58K. Over the past three months, payrolls have added an average of 254K/month, noticeably higher than the 12-month average of 220K. Wage growth also exceeded expectations, with average hourly earnings rising 0.4% from the prior month, and 3.2% over the past year. Another positive in the report, despite its optics, was the 0.2% increase in the unemployment rate to 3.9%, which reflected a welcome rise in labor force participation as wages and sentiment have strengthened. Overall, the labor market remains strong and supportive of the Fed raising rates further in 2019.

Manufacturing—December ISM data experienced its largest monthly decline since 2008, driven primarily by a significant slowing in new orders. Employment and production also slowed during the month.

Services—the services PMI ended December at a stronger-than-expected 54.4. However, the reading came in 3 tenths lower than November’s print with new orders at a 14-month low and expectations for future output at a 12-month low.

Of Note

2018 marked the first time since 1948 that the S&P 500 finished in negative territory after being in positive territory for the first three quarters of the year.

Market Indices Week of 1/04

S&P 500                         1.9%

Small Caps                     3.1%

Intl. Developed             -0.1%

Intl. Emerging              -1.4%

Commodities                 1.0%

U.S. Bond Market            0.9%

10-Year Treas. Yield         2.66%

US Dollar                          -0.2%

WTI Oil ($/bl)                      $48

Gold ($/oz)                     $1,286

The Week Ahead

  • CPI Inflation
  • Consumer Credit
  • ISM Non-Manufacturing
  • International Trade
  • NFIB Small Business Optimism Index
  • Jobless Claims

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