Weekly Market Drivers | LPL Financial Research

Santa Makes Brief Appearance on Wall Street

US: S&P 500 Index +2.9%, Dow +2.8%, Nasdaq +4.0%
Europe: STOXX Europe 600 -0.1%, German DAX -0.7% France CAC 40 -0.3%, U.K. FTSE 100 +0.2%
Asia: Japan Nikkei -1.4%, China Shanghai Composite -0.5%, Korea KOSPI  -0.3%
Rates/Commodities: 10-Year Treasury yield -6 basis points to 2.72%, WTI crude oil -2.4%, COMEX gold: +1.6%

It was another wild ride for Wall Street this week after a 2.7% slide in the S&P 500 Index on Monday, which followed a statement from the Treasury Department that indicated Secretary Steve Mnuchin called the CEOs of the nation’s six largest banks to confirm “they have ample liquidity available for lending to consumers, business markets, and all other market operations” even though no one had previously thought otherwise. That was followed by a visit from Santa on the day after Christmas, which saw the S&P 500 Index spike 5% as it posted its largest ever one-day point gain. The rebound was enough to snap a three-week losing streak and bring it back from the brink of bear market territory (20%+ decline from most recent closing high). With the index down roughly 7% year to date and only one trading session left, however, we’ll likely see it post a negative annual return for the first time since 2008.

On a positive note, announcements out of the White House, which were confirmed by Chinese officials, indicated the two sides will hold in-person meetings next month as they seek common ground in the their trade dispute ahead of the March deadline. Elsewhere, House Democrats—who take control of the House on Wednesday—are weighing three funding options to potentially end the standoff over the government budget, with a vote likely to take place next Thursday. As we’ve noted previously, markets tend to ignore shutdowns, and we see next summer’s debt ceiling debate, should it be necessary, to be a more important issue when interest payments on Treasury securities are at stake. On the persistent selling, Chief Investment Strategist John Lynch said, “Investors are understandably nervous, and risks are present, but our expectations for the economy, corporate profit growth, and fiscal policy tailwinds all suggest markets are ignoring the fundamentals and pricing in a worst-case scenario.”

Overseas, major indexes in Europe had a three-day week that ended with stocks near flat, though the U.K.’s FTSE 100 lagged the region as Brexit worries continue to weigh on sentiment and the pound continues to strengthen, creating a headwind for the export-oriented index. Equities in Asia also struggled to advance. Japan’s Nikkei ended 2018 with its first yearly loss since 2011 (closed on Monday), while Chinese stocks failed to stay above water despite several reports highlighting steps the government is taking (and will take) to support the country’s growth efforts and enhance foreign access to its markets, including the approval of more than 500 billion yuan in new infrastructure projects and accelerating the approval process for foreign-owned firms.

Moving along to next week’s releases, the December nonfarm payrolls report highlights an otherwise light schedule for the U.S. Also, a plethora of Markit Purchasing Managers Index data is due out, including the U.S., France, Germany, Italy, composite Eurozone, China, and Japan. Track these and other important events on our Weekly Global Economic & Policy Calendar.


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