MARKETS RECORD SECOND POSITIVE WEEK IN A ROW TO START 2019

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Weekly Market Update — January 4, 2019

It was another holiday–shortened trading week for stock markets and the year kicked off with more volatility, but ended positive for the second week in a row
The DJIA, S&P 500, NASDAQ, and the smaller-cap Russell 2000 all ended the week with very positive gains of 1.6%, 1.9%, 2.3%, and 3.2%, respectively
The gains this week left only the smaller–cap Russell 2000 Index in bear market territory, down more than 20% from its recent high
Before markets opened for the week, President Trump tweeted that he and President Xi Jinping had made “big progress” in trade talks
After markets closed on Wednesday, Apple warned about sales weakness in China and then lowered its quarterly revenue guidance – the first such cut in over 15 years
Then on Thursday, a softer–than–expected decline in the ISM manufacturing index worried investors
On Friday, a stronger–than–expected jobs report, some good news on the trade front and encouraging words from the Federal Reserve took over market sentiment and pushed markets markedly higher
The U.S. economy added 312,000 jobs in December, the most in 10 months
Markets were closed Tuesday for the New Year's Day holiday

Weekly Market Performance

December Jobs Report

The December jobs report released on Friday delivered a much–needed jolt to the markets and reminded the more bearish investors that economic fundamentals are still strong.

The U.S. economy added an unexpected and very strong 312,000 jobs last month – the seventh largest monthly increase over the nearly 10–year expansion and shattering the consensus–expected–gain of 184,000.

In addition, the previous two months were revised upward and wage growth jumped 0.4% by 11 cents per hour to $27.48 per hour. This brought wage growth year–over–year total to 3.2%, the largest pace in 10 years.

Further, labor market participation also moved up. And the slight rise in the unemployment rate from 3.7% to 3.9% was welcomed as good news as more workers who had sat on the sidelines were enticed to wade back into the labor market.

Together, all of this data was viewed as a sign that consumer spending would continue to be healthy – and consumer spending represents 2/3 of our GDP.

The Fed Weighs in and Boosts Markets

On Friday, Federal Reserve Chairman Jerome Powell said that the Fed would be patient as it weighs future interest rate hikes.

In a discussion with former Fed chairs Janet Yellen and Ben Bernanke at the American Economic Association and Allied Social Science Association's meeting, Powell said, “With muted inflation readings that we've seen coming in, we will be patient as we watch to see how the economy evolves.”

At the time of Powell's remarks, the DJIA was already up 400 points after the release of the Jobs Report. And after Powell's remarks reached the ears of Wall Street, the DJIA jumped another 400 points.

Not All Data Was Positive

While investors cheered the Jobs Report, there was some not so great economic data that weighed down investor sentiment. The Institute for Supply Management Purchasing Managers' Index, a gauge of manufacturing conditions, decreased in December and signaled a declining demand for U.S.–manufactured goods. Similar manufacturing data in China also suggested a slowdown in economic growth.

Sectors

Within the S&P 500 Index, 8 of the 11 sectors moved up more than 3% on Friday alone, with Information Technology and Communications Services jumping more than 4% each.

The Energy sector was strong, driven by a rebound in oil prices. For the week, Communication Services outperformed, but Technology underperformed, hurt by a huge drop in Apple's stock on Thursday.

Sources

instituteforsupplymanagement.org; factset.com; sec.gov; federalreserve.gov; dol.gov; msci.com; standardandpoors.com; nasdaq.com; dowjones.com; morningstar.com; edwardjones.com; bloomberg.com