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Due to the government shutdown, the report on new home sales, released on January 31, is for the month of November. Sales of new homes climbed sharply in November, up 16.9% over October’s figures. New home sales are still off 7.7% from November 2017. The median sales price of new houses sold in November was $302,400. The average sales price was $362,400. The estimate of new houses for sale at the end of November was 330,000, which represents an inventory of 6.0 months.
Manufacturing picked up the pace in January, according to the Manufacturing ISM® Report On Business®. New orders, production, and inventories each moved higher in January over their December figures. Employment, deliveries, and prices all fell, however.
The IHS, Markit US Manufacturing PMI™ also saw manufacturing improve in January. Domestic demand drove new business growth, as new export orders rose only marginally and at the weakest rate since last October. Business confidence about the year ahead also picked up markedly to reach a three-month high.
For the week ended January 26, there were 253,000 new claims for unemployment insurance, an increase of 53,000 from the previous week’s level, which was revised up by 1,000. This is the highest level for initial claims since September 30, 2017, when it was 254,000. According to the Department of Labor, the advance rate for insured unemployment claims remained at 1.2% for the week ended January 19. The advance number of those receiving unemployment insurance benefits during the week ended January 19 was 1,782,000, an increase of 69,000 from the prior week’s level.
DJIA: 25,063.89, up 1.32%
Nasdaq: 7,263.87, up 1.38%
S&P 500: 2,706.53, up 1.57%
Russell 2000: 1,502.05, up 1.29%
Global Dow: 2,947.87, up 0.97%
Fed. Funds: 2.25% -2.50%, unchanged
10-year Treasuries: 2.68%, down 8 bps
Stocks rose for the week, lifted by gains on Wednesday and Thursday. Trading volumes picked up later in the week with the release of important economic and earnings reports and in reaction to the Federal Reserve’s two-day monetary policy meeting, which concluded on Wednesday. Volatility continued its recent downward trend, with the Cboe Volatility Index (VIX) touching a nearly two-month low on Thursday.
Communication services shares fared best within the S&P 500 Index, helped by a sharp rise in Facebook after the company reported better-than-expected fourth-quarter earnings. Stability in reported user engagement despite recent social media controversies also encouraged investors. A revenues beat by broadband provider Charter Communications provided a further lift to the sector. Energy and industrials shares also performed well, with the latter helped by better-than-expected revenues from General Electric. A drop in longer-term bond yields weighed on the financial services sector by threatening bank lending margins.
Fourth-quarter earnings releases drove much of the market’s trading, with 117 companies within the S&P 500 reporting results, according to traders. Stocks fell Monday after disappointing results from NVIDIA, a maker of graphics chips used in gaming and artificial intelligence, and Caterpillar, the heavy equipment exporter whose fortunes are tied closely to global economic conditions. Stocks regained momentum at midweek, however, after Apple reported a slight gain in earnings and a smaller drop in revenue than many had feared given recent press over falling iPhone sales. Facebook’s gains also helped lift the major indexes, but results were mixed for Amazon.com and Microsoft.
The biggest boost to overall sentiment during the week seemed to come following the end of the Fed’s meeting on Wednesday. The central bank decided to keep rates steady, as widely expected, but investors were cheered by an unexpectedly dovish post-meeting statement.
The Fed’s dovish stance helped encourage a decline in longer-term bond yields, with the yield on the benchmark 10-year Treasury note falling to its lowest level in nearly a month on Thursday before rising somewhat following the strong jobs report on Friday. (Bond prices and yields move in opposite directions.) Municipal bonds continued to see light trading as new supply remained underwhelming. Trading activity picked up slightly as the week progressed, as positive cash flows and attractive yields relative to Treasuries helped spur some positive performance.
The investment-grade corporate bond market was mostly focused on issuance, and new supply volume was in line with expectations. Traders observed that risk-on sentiment had faded somewhat compared with the previous week, but month-end buying led to healthy demand that bolstered the performance of many new deals. Credit spreads, or the extra yield offered by bonds with credit risk over Treasuries with comparable maturities, narrowed across most sectors.
The Fed’s patient stance buoyed high yield market sentiment, in particular. Energy issues, which are heavily represented in the asset class, also benefited from reports of OPEC production declines in January and the announcement of U.S. sanctions on Venezuela’s oil industry, which sparked a two-day oil price rally. After weeks of speculation, California utility company PG&E officially filed for Chapter 11 bankruptcy protection due to lawsuits and liabilities related to the recent wildfires.
The pan-European STOXX Europe 600 Index gained slightly, but its advance was tempered by ongoing Brexit and U.S.-China trade uncertainty, weak regional data, and news that Italy’s economy fell into recession.
The British pound lost ground against the U.S. dollar as British Prime Minister Theresa May said she would seek to reopen Brexit negotiations with the European Union (EU). However, the EU said it would not reopen the legally binding text of the Brexit withdrawal agreement, which was completed in November and lays out the terms of the UK’s exit from the eurozone.
The Nikkei 225 Stock Average gained 15 points (0.1%) for the week and closed on Friday at 20,788.39, ahead 3.9% in 2019. The large-cap TOPIX Index and the TOPIX Small Index modestly declined for the week and have recorded year-to-date gains of 4.7% and 2.8%, respectively. At the close of Japanese trading on Friday, the yen stood at ¥109.11 per U.S. dollar, little changed for the week and since the end of 2018.
Chinese stocks gained as hopes for a possible trade deal with the U.S. offset concerns over an influential private manufacturing gauge that fell to its worst reading since 2016, the latest evidence of the country’s deepening growth slowdown. For the week, the Shanghai Composite Index edged up 0.6% and the large-cap CSI 300 Index, China’s blue chip benchmark, climbed almost 2.0%. Both gauges rallied more than 1.0% on Friday, the last day of trading before mainland markets close for a week-long holiday for the Chinese New Year.
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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GYL Resnick Weekly Update – February 11, 2019