GYL Resnick is pleased to offer this service to help make sense of the financial markets. The GYL Resnick Weekly Update is available for clients and for those who have expressed an interest in our firm. We distribute this weekly update highlighting events of the prior week and the economy and current market activity in general.
We hope you find this material interesting and informative. If you know someone else who might benefit from this weekly update, please let us know.
Sales of existing homes dropped sharply in December after increasing each of the prior two months. Total existing-home sales fell 6.4% from November’s total and are now down 10.3% from a year ago. The median existing-home price in December was $253,600, up 2.9% from December 2017 ($246,500). December’s price increase marks the 82nd straight month of year-over-year gains. Rising interest rates and declining inventory are major factors in the decrease in existing home sales.
For the week ended January 19, there were 199,000 new claims for unemployment insurance, a decrease of 13,000 from the previous week’s level, which was revised down by 1,000. According to the Department of Labor, this is the lowest level for initial claims since November 15, 1969.
DJIA: 24,737.20, up 0.12%
Nasdaq: 7,164.86, up 0.11%
S&P 500: 2,664.76, down 0.22%
Russell 2000: 1,482.85, up 0.02%
Global Dow: 2,919.57, up 0.64%
Fed. Funds: 2.25% -2.50%, unchanged
10-year Treasuries: 2.76%, down 2 bps
After four consecutive weeks of solid gains, the major benchmarks ended flat for the holiday-shortened week. Technology shares performed best within the S&P 500 Index, while consumer staples and health care stocks lagged. Trading volumes were elevated as markets reopened Tuesday but fell back at midweek despite ongoing fourth-quarter earnings releases — Thomson Reuters expects 60 of the S&P 500 companies to have reported results during the week. Markets were closed Monday in observance of Martin Luther King Jr. Day.
The trading week got off to a poor start on Tuesday, as investors confronted new data suggesting a slowdown in the global economy. The International Monetary Fund lowered its forecast for global growth in the coming year from 3.7% to 3.5%. Investors also had the first chance to react to data released over the weekend showing a deceleration in China (see below).
Traders observed that markets took a further turn lower at midday Tuesday, following a report in the Financial Times that the U.S. had turned down a Chinese offer for preparatory trade talks. White House Chief Economic Advisor Larry Kudlow disputed the report late in the day, which helped stocks recover some of their losses. On Wednesday, however, Commerce Secretary Wilbur Ross seemed to dampen sentiment once again by stating on CNBC that the U.S. and China were “miles and miles” away from an agreement.
The policy environment brightened on a different front at the end of the week. Hopes that Republicans and Democrats were coming closer to an agreement to reopen the government appeared to be partly behind a rally Friday morning. Reports surfaced that Senate leaders in both parties had begun negotiating in earnest, and news broke in the afternoon that a deal to reopen the government for three weeks had been reached.
The week’s earnings reports continued to indicate strong gains in fourth-quarter profits but well below the pace of increases earlier in 2018. By the end of the week, analysts polled by FactSet were expecting overall earnings for the S&P 500 to have increased by 10.9% on a year-over-basis in the fourth quarter — versus gains of roughly 25% in the first three quarters of the year. Semiconductor shares surged on Thursday following earnings reports from Lam Research and Xilinx, and airline stocks rose following reports from Southwest and American Airlines, boosting industrials shares. A better-than-expected earnings and revenue report from Procter & Gamble helped lift consumer staples shares but declines in tobacco stocks weighed on the sector.
The week’s economic data were mixed. Gauges of manufacturing and service sector activity surprised on the upside, and weekly jobless claims hit a new five-decade low. On Monday, however, the National Association of Realtors reported that existing home sales had plunged in December. (Unfortunately, other key housing data, such as the new home sales report, was delayed because of the shutdown.) The Conference Board Leading Economic Index also declined slightly in December, as expected.
Treasury yields closed roughly unchanged for the week. (Bond prices and yields move in opposite directions.) The municipal sector struggled from a dearth of new issuance and investors’ seeming reluctance to trade in the secondary market, analysts observed, but improved yields relative to Treasuries led to sporadic bid activity. A large New Jersey Turnpike deal came to market on Thursday and was met with decent interest.
Investment-grade corporate bonds held up well, with buyers mostly favoring shorter-term bonds and sellers seeming to focus on intermediate- and long-term credits. New issuance was well below expectations for much of the week, but the deals that came to the market were met with strong interest.
The high yield market was mostly focused on new issuance, and investor sentiment was positive overall with buyers active in the market. A somewhat disappointing quarterly earnings report from Halliburton caused some weakness in more volatile energy sector issues. On the heels of a week with strong positive flows, below investment-grade bond and loan mutual funds reported outflows.
The pan-European STOXX Europe 600 Index rose despite lingering worries over the U.S.-China trade dispute and signs of a deeper economic slowdown across the region.
European Central Bank (ECB) President Mario Draghi acknowledged that the outlook for the eurozone economy had deteriorated since December and indicated that the ECB might have to keep its monetary policies loose enough to help the region’s economy out of its slump.
Germany’s manufacturing sector fell into contraction in January, further underscoring the extent of the eurozone’s economic slowing. The IHS Markit manufacturing purchasing managers index fell to a four-year low, dropping to 49.9 in January from 51.8 in December.
The Nikkei 225 Stock Average gained 0.5% for the week and closed on Friday at 20,773.56, ahead 3.8% in 2019. The large-cap TOPIX Index and the TOPIX Small Index also advanced for the week and ended with year-to-date gains of 4.8% and 3.3%, respectively. At the close of Japanese trading on Friday, little changed for the year to date.
At its two-day Policy Board meeting (January 22–23) the Bank of Japan (BoJ), as expected, made no changes to its current monetary policy targets — a 10-year government bond yield of 0.0% (plus or minus 20 basis points), short-term interest rates of -0.1%, and a continuation of its ¥80 trillion per year bond-buying program. The policymaking body also agreed to maintain its annual buying of exchange-traded funds at ¥6 trillion and real estate investment trust purchases at ¥90 billion per year. The committee members lowered their economic growth forecast for fiscal year 2018 (which ends on March 31, 2019) to 0.9% to 1.0% from the earlier forecast of 1.3% to 1.5% and set a new target range for fiscal 2019 of 0.7% to 1.0%. The central bankers cut their core inflation forecast for fiscal 2019 to 0.9% from 1.4% largely because of the recent decline in oil prices. It marked the fourth revision lower for the 2019 inflation forecast since the BoJ’s initial estimate in April 2017.
Chinese stocks edged higher amid hopes that the U.S. and China will broker a trade deal by March 1, when a temporary ceasefire in their months-long trade battle expires. For the week, the Shanghai Composite Index edged up 0.2%, and the large-cap CSI 300 Index, China’s blue chip benchmark, added 0.5%. A high-level delegation led by Chinese Vice Premier Liu He, the official in charge of Beijing’s trade talks with the U.S., is scheduled to arrive in Washington on January 28, Bloomberg reported Friday, citing unnamed sources. The Chinese team will reportedly meet with U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin later in the week.
Friday’s gains marked the fourth-straight weekly advance for China’s main benchmarks, as momentum builds toward a possible resolution in a trade war that has increasingly weighed on China’s economy and the U.S. multinationals that do business there. On Monday, China reported that its economy grew 6.4% year on year in the final quarter of 2018 and 6.6% for the whole year. The fourth-quarter pickup marked China’s slowest growth pace since the global financial crisis about a decade ago, while the full-year growth marked the country’s lowest annual expansion since 1990.
The likelihood of a trade deal remains far from certain, however, as the U.S. and China remain far apart on intellectual property issues. Should both sides fail to broker an agreement by March 1, the U.S. said it would hike tariffs to 25% from their current 10% on $200 billion of Chinese goods.
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.
GYL Resnick Weekly Update – January 22, 2019next >
GYL Resnick Weekly Update – February 4, 2019