MARKETS END THE WEEK WITH BEST JANUARY SINCE 1987

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Weekly Market Update — February 4, 2019

The first month of 2019 ended on a very high note, as the markets continued to advance and the S&P 500 delivered its strongest January gain since 1987
The Dow Jones Industrial Average (+1.3%), NASDAQ (+1.4%), and the S&P 500 (+1.6%) delivered strong weekly gains, but it is the YTD numbers that are catching everyone's attention, with the DJIA, NASDAQ and S&P up 7.4%, 9.5% and 8.0%, respectively
The main drivers for this week seemed to be some much-better-than expected earnings reports from a few industry bell–weathers in addition to a softer stance from the Federal Reserve on its pace of rate increases for the remainder of the year
The Federal Reserve kept rates level, as was widely anticipated, but what caught the attention of Wall Street was that the Fed eliminated language from its statement about future rate increases because of the global economic slowdown and muted inflation
Volatility continued to trend down, despite the pickup in volume mid–week, and the CBOE Volatility Index reached a two–month low toward the end of the week
The Communication Services sector performed best within the S&P 500, buoyed by a big bounce in Facebook after reporting better–than–expected fourth–quarter earnings
The fantastic week was punctuated by the January jobs report, which continued to point to a strong labor market supported by robust wage growth and expected inflation numbers

Weekly Market Performance

January 2019 Best Since 1987

January 2019 will be remembered as the best January for the U.S. stock markets in over 30 years, with the DJIA jumping over 7% and, more importantly, leaping nearly 15% from the market low on Christmas Eve 2018.

Hard to believe that just a short month ago, bear market pundits were banging on their drums as most of the major indices were in their territory as the markets ended 2018 with a –6% return. Of course there is no single reason for the markets recent upward movements, although economists are quick to mention the “earnings drive stock prices” mantra and earnings, for the most part, have been very good so far.

The Fed Alters Its Stance

For much of 2018 and certainly toward the second half, one of the most talked–about stories was whether the Federal Reserve would increase rates too quickly throughout 2019 and risk upsetting the markets and pushing them further into the red – or possibly into recession territory. Well, this past week, those fears were put to rest – for the time being – as the Fed announced two significant changes in how the Fed thinks about monetary policy and the economy.

Mid–week, the Fed announced that it would pause rate hikes due to weakening inflation signals and tighter financial conditions. The Fed also indicated that it would retain more of its current bond portfolio, which would remove stimulus to the financial markets. Fed watchers and economists suggest that these two actions indicate a more–than–slight departure from the Fed's pace of gradually raising rates over the past three years.

And the markets rejoiced.

Job Numbers Solid

The January Jobs Report was released on Friday and it showed that the labor market continues to burn bright, with 300,000 jobs created in the month. This puts the average number of jobs created over the past 3 months at a healthy 240,000.

Further, the January Jobs Report showed that the labor force participation rate continues to rise, as it moved to its highest level in 13 years, as more workers decided to be counted as they searched for new opportunities. And if those two things weren’t enough, the January Jobs Report announced that wages grew in January as well.

Lots of Data This Week

The ISM Manufacturing Index for January increased to 56.6% in December
The final University of Michigan Index of Consumer Sentiment for January increased to 91.2
Total construction spending increased 0.8%
Wholesale inventories increased 0.3%
Wholesale sales were down 0.6%

Sources

sca.isr.umich.edu; cboe.com; instituteforsupplymanagement.org; factset.com; sec.gov; federalreserve.gov; dol.gov; msci.com; standardandpoors.com; nasdaq.com; dowjones.com; morningstar.com; edwardjones.com; bloomberg.com