Market Update: Fri, Jan 25, 2019 | LPL Financial Research


Daily Insights

Markets little changed during holiday-shortened week. With stocks moving higher in early trading Friday, major indexes in the U.S. are tracking towards a relatively flat week following the Martin Luther King Jr. holiday. While the S&P 500 Index has spent the week consolidating gains within its expected resistance zone of 2600-2650, last Friday saw more than 70% of components reach a new 20-day high. Readings above 50% have historically been consistent with higher future returns, and a breach of this threshold has been something we have been looking for to signal broad participation in the recovery. Another positive, the Russell 2000 has outperformed the S&P 500 by almost 4% since late-December, suggesting investors’ buying hasn’t been limited to safer, large-cap names.

Global PMI disappoint, U.S. bucks trend. January flash Purchasing Managers’ Index (PMI) data released yesterday showed business activity in Europe fell to a five-and-a-half year low as a rebound in French and German services PMI was more than offset by declines in manufacturing. The manufacturing sector in Germany, the region’s largest economy, fell into contraction territory, and a decline in exports pushed Japan’s manufacturing PMI to the brink of contraction. Markit’s U.S. manufacturing PMI rebounded slightly as new orders recovered and business optimism increased.  While U.S. manufacturing data has bucked the global trend by remaining firmly in expansionary territory, lower business investment has weighed on production over the past few months as trade uncertainty has soured corporate sentiment. We’re encouraged by the rebound in Markit data, and we expect a rebound in capital expenditures once the U.S. and China reach a trade resolution.

Lowest jobless claims print in 49 years
. Data released yesterday showed initial jobless claims fell to 199K in the week ending January 18, the lowest print since 1969 and significantly lower than consensus estimates of 218K. While initial jobless claims data has trended lower the past few years, last week’s tally was particularly impressive given the partial government shutdown and weakening corporate sentiment. Recent reports have shown the U.S. labor market remains strong, and should help buoy consumer health and output growth this year.

LEI points to low recession odds. The Conference Board’s Leading Economic Index (LEI), which is based on a composite of 10 economic indicators (like manufacturers’ new orders, stock prices, and weekly unemployment claims), grew 4.3% year over year in December. While LEI growth has tapered off recently, the index has risen year over year for 109 straight months, a sign to us that recessionary odds are low. Since 1970, the LEI has turned negative before every economic recession, and because of its solid predictive ability, it’s a component of our Recession Watch Dashboard.

Pats or Rams? Historically, the S&P 500 has done better when a team from the NFC wins the Super Bowl. This fun (but totally spurious) correlation is known as the Super Bowl indicator. Looking at the past 52 Super Bowls we found that when the NFC wins, the S&P 500 gains 10.2% for the year versus 5.8% when the AFC wins. Lastly, when the Patriots are involved bulls usually aren’t happy – as the average return for the S&P 500 is only 2.2% the nine times they’ve been in the big game (and actually worst under Tom Brady). Today on the LPL Research blog we will take a look at this fun bit of market trivia.



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Index data obtained via FactSet


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