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Consumer prices fell slightly in December, dropping 0.1%, after being unchanged in November. Over the last 12 months ended in December, the index has increased 1.9% — the first time the 12-month change has been under 2.0% since August 2017.
According to the December 2018 Non-Manufacturing ISM® Report On Business®, the services sector slowed last month. The non-manufacturing index dropped 3.1 percentage points lower in December from November.
For the week ended January 5, 2019, there were 216,000 new claims for unemployment insurance, a decrease of 17,000 from the previous week’s level, which was revised up by 2,000. According to the Department of Labor, the advance rate for insured unemployment claims remained at 1.2% for the week ended December 29, 2018. The advance number of those receiving unemployment insurance benefits during the week ended December 29 was 1,722,000, a decrease of 28,000 from the prior week’s level, which was revised up by 10,000.
DJIA: 23,995.95, up 2.40%
Nasdaq: 6,971.48, up 3.45%
S&P 500: 2,596.26, up 2.54%
Russell 2000: 1,447.38, up 4.83%
Global Dow: 2,847.60, up 2.71%
Fed. Funds: 2.25% -2.50%, unchanged
10-year Treasuries: 2.69%, up 3 bps
Stocks rose for the third consecutive week. Small-caps outperformed, and the gains helped make the Russell 2000 Index the last major benchmark to emerge from bear market territory (a decline of over 20% from recent highs). Within the S&P 500 Index, industrials shares performed best, helped by strength in railroads and a sharp rise in Boeing. Energy shares were also especially strong for much of the week as oil prices rallied, although they gave back a portion of their gains on Friday. Financials lagged, and health care stocks also underperformed despite the news of another large merger in the sector — Eli Lilly’s proposed $8 billion acquisition of Loxo Oncology. Volatility continued to moderate, with the Cboe Volatility Index (VIX) hitting its lowest level in over a month, while higher-valued growth stocks outperformed slower-growing value shares.
Hopes that China and the U.S. might finally be making progress in resolving their trade dispute seemed to drive much of the week’s gains. Three days of mid-level trade talks began on Monday, and traders report that investors appeared particularly encouraged by the surprise attendance of China’s vice premier, Liu He. President Trump also lifted sentiment Tuesday morning after tweeting that talks were “going very well.” Speculation has grown that the recent market downturn has increased pressure on the White House to conclude some sort of trade deal, while slowing growth is motivating Chinese officials.
The yield on the benchmark 10-year Treasury note ended the week slightly higher as the safe-haven bid moderated a bit. Municipal investors were eager for the first significant new issuance of 2019, which features a $7 billion calendar. The return of supply to the market, coupled with the downward movement in Treasury bond prices, led to weaker performance through the week. Traders noted that the front-end of the yield curve seemed to be the focus of most of the week’s trading activity.
Investment-grade corporate bond issuance significantly exceeded expectations, and most deals received strong interest. The firm’s traders observed that buyers mostly focused on short- and intermediate-term credits, although investors in Asia were more active in long-term issues. Credit spreads — the additional yield offered over Treasuries with similar maturities — tightened throughout most of the week, retracing some of the year-end widening.
The high yield market benefited from positive sentiment, with buyers seemingly outnumbering sellers. The recent lack of new issuance had many investors eager to put money to work, and a new deal came to the market on Thursday, ending a six-week drought. Energy sector bonds outperformed as U.S. oil prices rose above $50 per barrel. The market saw positive flows and meaningful spread compression throughout the week.
The pan-European STOXX Europe 600 Index gained as optimism about U.S.-China trade talks outweighed signs of economic slowing in Germany and France and the announcement of layoffs in the region’s auto sector.
The British pound rose 1% as the likelihood increased that the UK’s departure from the European Union (EU) would be delayed past its March 29 deadline. The UK parliament is scheduled to vote on Prime Minister Theresa May’s proposed settlement with the EU on January 15. However, the vote is expected to fail. The FTSE 100 Index also gained more than 1%.
The Nikkei 225 Stock Average gained 4.1% for the week and closed on Friday at 20,359.70, ahead 1.7% in 2019. The large-cap TOPIX Index and the TOPIX Small Index also rallied and have year-to-date gains of 2.3% and 1.1%, respectively. At the close of trading on Friday, the yen stood at ¥108.32 per U.S. dollar versus ¥109.69 at the end of 2018.
China’s stock markets and currency advanced as momentum picked up toward a possible trade deal with the U.S., raising hopes for resolving a trade standoff that has dimmed the global growth outlook. For the week, the Shanghai Composite Index added 1.5% and the large-cap CSI 300 Index, China’s blue chip benchmark, rose 1.9%. The yuan rose to a five-month high versus the U.S. dollar and gained 1.9% for the week, its best five-day performance since July 2005.
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 – January 22, 2019