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Economic activity in the services sector slowed in January. According to the Non-Manufacturing ISM® Report On Business®, the non-manufacturing index fell 1.3% from its December reading. Business activity and new orders also regressed, while employment and prices increased. Survey respondents expressed concern about the impacts of the government shutdown, but remained generally optimistic about overall business conditions.
For the week ended February 2, there were 234,000 new claims for unemployment insurance, a decrease of 19,000 from the previous week’s level. According to the Department of Labor, the advance rate for insured unemployment claims remained at 1.2% for the week ended January 26. The advance number of those receiving unemployment insurance benefits during the week ended January 26 was 1,736,000, a decrease of 42,000 from the prior week’s level, which was revised down by 4,000.
DJIA: 25,106.33, up 0.17%
Nasdaq: 7,298.20, up 0.47%
S&P 500: 2,707.88, up 0.05%
Russell 2000: 1,506.39, up 0.29%
Global Dow: 2,920.60, down 0.93%
Fed. Funds: 2.25% -2.50%, unchanged
10-year Treasuries: 2.63%, down 5 bps
Stocks moved modestly higher, helping most of the major indexes record their seventh consecutive weekly gain. Within the S&P 500 Index, utilities shares performed best, followed by the larger industrials and information technology sectors. Energy stocks fared worst as oil prices drifted lower. Traders noted that market volumes were muted for much of the week despite 100 of the S&P 500 companies releasing quarterly earnings reports. The Cboe Volatility Index (VIX) hit a five-month low on Wednesday before rising a bit at the end of the week.
After a few quiet weeks, the U.S.-China trade dispute moved back into the headlines and seemed to play a large role in driving sentiment. The firm’s traders noted that stocks reversed an early rally Thursday and headed lower following remarks from National Economic Council Director Larry Kudlow, who told Fox News that negotiators had “miles to go before we sleep” — paraphrasing not only poet Robert Frost but also Commerce Secretary Wilbur Ross, whose remarks about being “miles and miles” from an agreement sent markets lower in late January.
Later on Thursday, CNBC reported that President Donald Trump and Chinese President Xi Jinping were unlikely to meet before March 1, the 90-day tariff truce deadline the U.S. has established prior to raising the tariff rate on Chinese goods to 25% (see below). CNBC also reported that the U.S. was likely to keep the current 10% tariff rate steady in the absence of a meeting, but confidence in a delay seemed to diminish Friday, sending stocks lower again. Weak economic data from overseas, particularly from Europe, also seemed to weigh on Wall Street (see below).
Longer-term Treasury yields ended lower for the week after late-week declines. (Bond prices and yields move in opposite directions.) Analysts noted that the municipal market saw decent activity through the week, marked by a persistent demand for short-term issues. While the availability of bonds in the primary new issuance market continued to be underwhelming, the muni market managed to post gains as investors became more comfortable with the rate environment.
The risk-on sentiment that bolstered the investment-grade corporate bond market’s performance in January was still evident as the week began. However, the firm’s traders observed that some investors harvested recent gains, making for a less robust market as the week progressed. Total new issuance was well below expectations as the market closed on Thursday.
Encouraging U.S. economic indicators, the Fed’s dovish commentary on future rate increases, and better-than-expected corporate earnings reports continued to support the high yield market. Citing data from Lipper, Bloomberg reported that high yield funds had seen their highest level of inflows (for the week ended Wednesday) since July 2016.
Stocks pressured by trade worries and signs of eurozone slowing. The pan-European STOXX Europe 600 Index was slightly lower on the week amid fresh trade worries sparked by President Trump’s remarks that he had no intention to meet with Chinese leader Xi Jinping before the March 1 trade deal deadline. Weak data also underscored the extent of the growth slowdown in the eurozone and its largest economy, Germany.
Germany’s DAX was off more than 2.4% as reports of economic slowing piled up. In its quarterly report, the EU cut its German gross domestic product (GDP) forecast this year to 1.1% from 1.8%.
The Nikkei 225 Stock Average fell 2.2% for the week and closed on Friday at 20,333.17, ahead 1.6% in 2019. At the close on Friday, the yen stood at ¥109.79 per U.S. dollar, little changed since the end of 2018.
Hopes for a breakthrough in the U.S.-China trade battle fizzled out after U.S. President Trump said he would not meet his Chinese counterpart Xi Jinping before March, when the U.S. is set to ratchet up tariffs on Chinese imports. After dangling the possibility of an upcoming summit with Xi in recent weeks, Trump said Thursday that such a meeting was “highly unlikely” to occur by March 1. That day marks the end of a 90-day trade war truce agreed upon by both leaders at the G20 summit last December. Should the U.S. and China fail to broker an agreement by that date, the Trump administration said it will hike tariffs on $200 billion in Chinese-made goods to 25% from their current 10% level.
Portions of the preceding information are reprinted with permission from Broadridge Investor Communication Solutions, Inc. Copyright 2019. Portions of the preceding information are shared from T. Rowe Price Weekly Market Wrap-Up.
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