Week in Review
Week Ending: December 28, 2018
Recap & Commentary
U.S. markets rebounded from their worst week since 2011, to finish up nearly 3%. However, the point-to-point increase belied a week of extreme volatility that witnessed a number of multi-year and record moves. On Monday, the S&P 500 fell -2.7%, its worst Christmas Eve trading day on record. On Wednesday, markets continued to move lower at the start, pushing the S&P 500 to within ten basis points of “correction” territory, before reversing course to rise nearly 5%. For the day, the Dow Jones Industrial Average gained over 1,050 points, marking the first-ever daily gain of 1,000+ points for the storied index. Finally, on Thursday, markets fell significantly at the opening bell only to reverse course to end the day up nearly 1.0%. For the S&P 500, it was the largest upward intra-day reversal since 2010.
So what accounted for the extreme volatility? For starters, due to the Christmas holiday, trading volume was very light, making markets more susceptible to outsized moves. Additionally, some reports suggested that year-end rebalancing by pension funds may have also been a factor. From a headline standpoint, trade, the ongoing government shutdown, and reports that the President was exploring the possibility of removing Fed Chair Jay Powell were all cited as causes for Monday’s decline. Conversely, Wednesday’s surge was attributed to preliminary data indicating that the 2018 holiday shopping season was the best in six years, a nearly 10% increase in oil prices, and assurances from the White House that Powell’s job is “100% safe.”
More broadly, markets remain confronted with a number of uncertainties including, trade, monetary policy, the government shutdown, and concerns about both economic and corporate earnings growth. Despite recent market-induced concerns of a recession, we continue to believe that what we are currently experiencing is a market recalibration, in anticipation of slower economic growth, as opposed to a potential recession. One benefit of the recent selloff is that valuations, which previously had been cause for concern for some investors, are now at much more attractive levels. That could prove to have a stabilizing effect on the markets, as investors re-enter, looking for post-selloff “bargains.”
Economic Bullet Points
Consumer Confidence finished the year at 128.1, a reading that reflects a downshift from the euphoria earlier this year, but one that is still high and likely supportive of consumer spending as the year winds down.
Jobless Claims—Initial claims edged 1K lower in the December 22 week to 216K with the 4-week average down for a third straight week, 4,750 lower to 218K. This average is roughly in line with November levels which hints at another month of solid payroll growth in the December Employment Situation Report out next week.
**Due to the ongoing government shutdown, New Home Sales and International Trade in Goods data were not available.
From all of us here at First Western Trust, we wish you a safe, happy, healthy, and prosperous new year. All the best in 2019!
Market Indices Week of 12/28
S&P 500 2.9%
Small Caps 3.5%
Intl. Developed -1.1%
Intl. Emerging -0.5%
U.S. Bond Market 0.2%
10-Year Treas. Yield 2.71%
US Dollar -0.6%
WTI Oil ($/bl) $45
Gold ($/oz) $1,285
The Week Ahead
- Employment Situation
- PMI/ISM Manufacturing Indexes
- PMI Services Index
- Construction Spending
- Jobless Claims
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