Market Update: Friday, January 5, 2018

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Market Recap

  • Domestic indexes finished higher again as the Dow crossed the 25K mark for the first time. S&P 500 Index +0.4%, Dow +0.6%, Nasdaq +0.2%.
  • Financials and materials topped sector performances; utilities sole decliner for the day.
  • Positive breadth on NYSE (1.5:1), Nasdaq (1.5:1); volume on NYSE picked up to ~106% of 30-day avg.
  • Treasury yields held near flat, 10-yr. note yield closed at 2.45%; dollar resumed slide vs. euro.
  • Commodities: WTI crude oil strength continued (+0.5% to $61.92/bbl.), COMEX gold (+0.4% to $1323/oz.), industrial metals continued to retrace recent gains.
  • Economic data: The EIA petroleum status report showed a larger than anticipated drawdown of crude inventories (-7.4mm barrels vs. -4.6mm), jobless claims came in above expectations (250K vs. 240K).

Overnight & This Morning

  • U.S. equities opened higher, continuing strong start to 2018. Positive market fundamentals narrative seen as driving tailwind.
  • European stocks follow U.S. higher, positive German retail sales and French consumer confidence figures reinforce move. STOXX Europe 600 +0.6% Germany DAX +1.0%, CAC 40 +0.8%.
  • Asia soundly up again. Global optimism cited as driver as Asian markets close out strong week. Nikkei +0.9%, Shanghai Composite +0.2%, Hang Seng +0.6%.
  • Treasuries strengthen slightly; 10-year yield -1 basis point (0.01%) to 2.44%.
  • Commodities: Oil pulling back (-1.1%) after recent run-up to ~$61.32/bbl. Gold slightly lower (-0.2% to ~$1319/oz.), industrial metals mostly higher.
  • Economic releases: Nonfarm payroll figures for December came in below expectations (148K vs. 191K), unemployment and participation rate numbers fell in-line with consensus; 4.1% and 62.7% respectively.

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Macro Notes

  • Dow 25,000. The Dow closed above the 25,000 level for the first time in history yesterday. What was special about this move is it took only 23 trading days to go from 24,000 to 25,000–the fasted 1,000 point move ever. Of course, as you go higher the percentage needed to reach the next milestone is smaller, but this is still an impressive feat. Be aware though, this move came in at a 56.4% annualized basis, which is the fourth largest during a 1,000 point move ever. Click here for a chart of all the 1,000 point intervals.
  • Market and economic impacts of tax reform. We expect the new tax law to boost personal consumption and business investment, and have raised our projections for annual U.S. economic growth and S&P 500 earnings. Today on the LPL Research blog, we’ll review the numbers.
  • Employment report misses on headline, but wage growth in line with expectations. Fewer jobs were created than expected in December, with 148,000 nonfarm positions added versus expectations of 190,000. Even though job growth was weaker than expected, the unemployment rate and labor participation rate were the same as last month, at 4.1% and 62.7%, respectively, indicating that job growth may not have been strong enough to significantly tighten the labor market, but also wasn’t weak enough to harm it. Wage growth at 0.3% month over month (2.5% year over year) was stronger than last month’s revised 0.1%, but doesn’t represent a significant acceleration and isn’t likely to have much impact on inflation. Stocks were higher and bonds were stable following the report, as markets took it as a dovish indicator for the path of Fed rate hikes in 2018.

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Click Here for our detailed Weekly Economic Calendar

Friday

  • Change in Nonfarm, Private & Manufacturing Payrolls (Dec)
  • Unemployment Rate (Dec)
  • Average Hourly Earnings (Dec)
  • Average Weekly Hours (Dec)
  • Labor Force Participation & Underemployment Rates (Dec)
  • Trade Balance
  • Factory Orders (Nov)
  • ISM Non-Manufacturing (Dec)
  • Durable Goods Orders
  • Cap Goods Shipments & Orders

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