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Weekly Market Update January 2, 2018

Weekly Market Update January 2, 2018

Weekly Market Update January 2, 2018

General market news

 

  • Early Monday morning, the yield on the 10-year Treasury opened at 2.41 percent and the 30-year opened at 2.79 percent. The yield curve started 2018 significantly flatter than it did one year ago. The spread between the 3-month and 30-year Treasury rates fell from 2.52 percent to 1.46 percent over the course of 2017.
  • In last week’s holiday-shortened week, U.S. markets finished modestly lower in lighter trading. The Nasdaq Composite posted the largest decline with a loss of 0.79 percent, as lower-than-expected iPhone sales weighed on Apple and the technology-focused index. The news also affected the S&P 500, as it posted a loss of 0.33 percent and was range-bound for much of the week. The Dow Jones posted the top performance of the three major U.S. indices, but it still declined 0.14 percent.
  • On a sector basis, real estate, utilities, and industrials were among the top performers on the week, while telecom, financials, and technology were the notable detractors.
  • International markets finished their year of strong performance last week with the MSCI EAFE Index up 0.95 percent and the MSCI Emerging Markets Index up 1.56 percent.
  • There was only one major data point released last week. On Wednesday, the Consumer Confidence Survey surprised by declining by more than expected. This confidence measure was expected to decline to 128 points but fell to 122.1 points. The drop was largely due to differing opinions between Republicans and Democrats regarding their expectations for the economy in 2018.

 

Equity Index Week-to-Date Month-to-Date Year-to-Date 12-Month
S&P 500 –0.33% 1.10% 21.82% 21.82%
Nasdaq Composite –0.79% 0.50% 29.73% 29.73%
DJIA –0.14% 1.92% 28.11% 28.11%
MSCI EAFE 0.95% 1.63% 25.69% 25.69%
MSCI Emerging Markets 1.56% 3.49% 37.51% 37.51%
Russell 2000 –0.42% –0.41% 14.63% 14.63%

Source: Bloomberg

 

Fixed Income Index Month-to-Date Year-to-Date 12-Month
U.S. Broad Market 0.46 3.54 3.09
U.S. Treasury 0.31 2.31 1.67
U.S. Mortgages 0.33 2.47 2.07
Municipal Bond 1.05 5.45 2.81

Source: Morningstar Direct

 

What to look forward to

The week ahead will be very busy for data releases and will give us a wide-ranging look at the economy.

 

On Wednesday, the Institute for Supply Management (ISM) will release its manufacturing survey, which is expected to tick down slightly from 58.2 to 58.0. This is a diffusion index where values above 50 signal expansion. So, even with the expected minor pullback, this would still be a very positive signal, indicating continued manufacturing strength driven by a weak dollar and strong global growth.

 

Also on Wednesday, the minutes from the Federal Open Market Committee (the Fed) meeting on December 13 will be released. Markets will be watching closely to see what they can learn about the recent tax reform legislation and what it might mean for interest rates in 2018. Markets will also watch how the Fed is looking at inflation, which continues to run below expectations.

 

On Friday, three reports will be released. First up—and most important—is the employment report. It’s expected to tick down from 228,000 in November, which included a rebound from the hurricanes, to a more normalized 185,000, which would remain robust. This should take the unemployment rate down from 4.1 percent to 4 percent, while average hours worked should remain at a healthy 34.5 hours per week. Wage growth is expected to accelerate a bit, from 0.2 percent to 0.3 percent. If the numbers come in as expected, this would be a very positive data point indicating continued growth.

 

Next up will be the U.S. international trade gap report, where the trade deficit is expected to improve slightly from $48.7 billion to $47.4 billion. This would still indicate that trade was a drag on growth in the fourth quarter, however, and the risk appears to be to the downside.

 

Finally, the ISM’s Nonmanufacturing index is expected to tick down from 57.4 in November to 57.3 for December. Similar to the ISM Manufacturing survey, this small decline would keep business confidence at high levels, and it would be a signal of continued expansion.

Presented by Masso Torrence

Disclosures: Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. All indices are unmanaged and are not available for direct investment by the public. Past performance is not indicative of future results. The S&P 500 is based on the average performance of the 500 industrial stocks monitored by Standard & Poor’s. The Nasdaq Composite Index measures the performance of all issues listed in the Nasdaq Stock Market, except for rights, warrants, units, and convertible debentures. The Dow Jones Industrial Average is computed by summing the prices of the stocks of 30 large companies and then dividing that total by an adjusted value, one which has been adjusted over the years to account for the effects of stock splits on the prices of the 30 companies. Dividends are reinvested to reflect the actual performance of the underlying securities. The MSCI EAFE Index is a float-adjusted market capitalization index designed to measure developed market equity performance, excluding the U.S. and Canada. The MSCI Emerging Markets Index is a market capitalization-weighted index composed of companies representative of the market structure of 26 emerging market countries in Europe, Latin America, and the Pacific Basin. The Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000® Index. The Bloomberg Barclays US Aggregate Bond Index is an unmanaged market value-weighted performance benchmark for investment-grade fixed-rate debt issues, including government, corporate, asset-backed, and mortgage-backed securities with maturities of at least one year. The U.S. Treasury Index is based on the auctions of U.S. Treasury bills, or on the U.S. Treasury’s daily yield curve. The Bloomberg Barclays US Mortgage Backed Securities (MBS) Index is an unmanaged market value-weighted index of 15- and 30-year fixed-rate securities backed by mortgage pools of the Government National Mortgage Association (GNMA), Federal National Mortgage Association (Fannie Mae), and the Federal Home Loan Mortgage Corporation (FHLMC), and balloon mortgages with fixed-rate coupons. The Bloomberg Barclays US Municipal Index includes investment-grade, tax-exempt, and fixed-rate bonds with long-term maturities (greater than 2 years) selected from issues larger than $50 million.