Investors Whiplashed, but Stocks Up for Second Week
US: S&P 500 Index +1.86%, Dow -1.63%, Nasdaq +2.34%
Europe: STOXX Europe 600 +2.13%, German DAX +1.98% France CAC 40 +1.25%, U.K. FTSE 100 +1.54%
Asia: Japan Nikkei -2.26%, China Shanghai Composite +0.84%, Korea KOSPI -1.51%
Rates/Commodities: 10-Year Treasury yield -6 basis points to 2.66%, WTI crude oil +3.90%, COMEX gold: +0.22%
A Friday rally that saw the U.S. equities spike more than 3% helped the S&P 500 Index kick off the New Year with its second straight weekly advance. The energy sector outperformed as oil continued to rise off its December 24 low, while interest-rate sensitive utilities and REITs were the only two sectors that failed to finish higher. Elsewhere, the dollar weakened against most major currencies, which, along with persistent volatility, sustained gold’s ascent.
Drilling down, the late-week surge was an abrupt reversal that followed a Thursday selloff triggered by disappointing U.S. manufacturing data and an announcement from the world’s largest smartphone maker that its fourth-quarter revenue would fall short of Wall Street’s expectations, fueling simmering global growth concerns. However, investors did an about-face on Friday thanks to a combination of a better-than expected nonfarm payrolls report, which we discussed on the LPL Research blog, very market-friendly comments from Federal Reserve Chair Jerome Powell, and an announcement from China’s central bank that it was lowering its reserve requirement (minimum percentage of banks’ capital required to be maintained) and reducing fees and taxes imposed on financial institutions in an effort to boost the country’s cooling economy.
The announcement out of China spurred a 2% rally in the Shanghai Composite and Hang Seng that lifted both indexes into positive territory for the week, but data showing its manufacturing sector contracted last month for the first time since 2016 kept gains in check. In Europe, stocks followed a similar pattern to U.S. equities despite economic data that showed both manufacturing and services sector activity for December barely expanded to cap off 2018.
Moving along to the week ahead, trade will garner the bulk of global investors’ attention, as a U.S delegation will travel to Beijing to resume trade talks with Chinese officials. On the economic front, investors will be keen on consumer price data in the U.S. after this week’s surprise increase in wage growth. In the Eurozone, December’s consumer confidence, retail sales, and third-quarter final Gross Domestic Product data is scheduled to be released. Turning to Asia, consumer and producer prices are due out of China. Track these and other important events on our Weekly Global Economic & Policy Calendar.
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