Weekly Market Drivers | LPL Financial Research

Fed Fails to Appease Markets

US: S&P 500 Index -7.05%, Dow -5.15%, Nasdaq -8.36%
Europe: STOXX Europe 600 -3.04%, German DAX -2.13% France CAC 40 -3.28%, U.K. FTSE 100 -1.95%
Asia: Japan Nikkei -5.65%, China Shanghai Composite -2.99%, Korea KOSPI  -0.38%
Rates/Commodities: 10-Year Treasury yield -11 basis points to 2.78%, WTI crude oil -10.46%, COMEX gold: +1.36%

It was another tough week for stocks as early-week selling accelerated after the Federal Reserve’s monetary policy meeting concluded Wednesday afternoon. The selling pressure came not from the increase in the fed funds target rate, which was expected, but rather from Chairman Jerome Powell’s post-meeting comments (discussed here). Adding to investor angst was a ~13% drop in oil prices as data showed a smaller-than-expected drop in U.S. inventories, while analysts continue to forecast rising production and remain skeptical regarding the extent to which OPEC and Russia will cut output following the deal announced earlier this month (previewed here). By week’s end the Nasdaq fell into bear market territory, finishing down more than 20% from its most recent high. On the persistent market weakness, LPL chief investment strategist John Lynch said, “We are mindful that market weakness can be alarming and cause investors to question their strategy. However, the U.S. economy remains solid, and we expect continued economic growth to potentially support solid stock gains in 2019.”

Overseas, stocks fared better but still suffered significant losses. Europe’s STOXX 600 Index was down 3% as investors continued to digest last week’s decision by the European Central Bank to end its quantitative easing program in the face of weakening economic data that continued this week. Geopolitics also remained in focus with UK headlines dominated by increased traction for a second Brexit referendum despite government pushback, and French business sentiment hitting a two-year low as consumer spending fell 2% in November on the heels of violent anti-government protests. Meanwhile, Italy reached an accord with the European Union over its 2019 budget but fears that the Eurozone’s third-largest economy could tip back into recession muted optimism. Elsewhere, Japan’s Nikkei was the biggest laggard in Asia, tumbling 5.7% as the yen’s ~1.8% advance versus the U.S. dollar—its largest since mid-February—created a headwind for the export-oriented country. Emerging markets, on the other hand, were buoyed by dollar weakness, though Chinese equities dragged on regional benchmarks despite government officials’ pledges to support growth in 2019 by way of tax cuts and easier monetary policy.

Looking ahead to next week, the U.S. economic calendar is light due to the Christmas holiday, though consumer confidence and several sets of housing data are noteworthy. The European docket has inflation data out of Germany, while Japan will release Leading Index and industrial production figures. Track these and other important events on our Weekly Global Economic & Policy Calendar.

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