Weekly Market Drivers | LPL Financial Research

Stocks stage late-week rebound

US: S&P 500 Index -0.22%, Dow +0.12%, Nasdaq +0.11%
Europe:
STOXX Europe 600 +0.22%, German DAX +0.68% France CAC 40 +1.02%, U.K. FTSE 100 -2.14%
Asia: Japan Nikkei +0.52%, China Shanghai Composite +0.22%, Korea KOSPI +2.52%
Rates/Commodities: 10-Year
Treasury yield +3 basis points to 2.76%, WTI crude oil -0.82%, COMEX gold: +1.26%

Solid gains on Friday helped major U.S. indexes overcome early-week losses, though the S&P 500 Index came up just short of notching its fifth straight weekly gain.

The slow start came on the heels of reports that the White House rejected an offer to hold preparatory talks with Chinese officials ahead of next week’s formal trade negotiations, and reports that the International Monetary Fund cut its global growth forecasts for this year and next to 3.5% and 3.6%, respectively. Better-than-expected manufacturing and jobless claims data, and a solid Leading Economic Index (LEI) reading helped boost sentiment as the week progressed. The LEI, a component of our Recession Watch Dashboard, rose 4.3% year over year in December, suggesting the odds of a recession are low.

Overseas, investors shook off disappointing economic data that showed continued weakness in European business activity, which fell to more than five year lows according to Eurozone Composite Purchasing Managers Index (PMI) readings. In its monetary policy meeting, which concluded Thursday, the European Central Bank acknowledged that risks remain to the downside as economic data has deteriorated recently, and inflation has failed to sustain any upward momentum. The comments helped provide a tailwind that lifted regional indexes into positive territory for the week.

In Asia, Japan’s central bank voted to maintain its ultra-loose monetary policy as it continues to grapple with stubbornly-low inflation and deteriorating conditions in the country’s manufacturing sector. Data out this week showed that China’s economy continues to weaken as year-over-year gross domestic product (GDP) growth fell to 6.5% in 2018, its lowest level since at least 1990. Still, emerging markets equities continued to outperform foreign developed stocks as commodity prices sustained their upward momentum despite a modest rebound in the U.S. dollar. “Economic data out of China continues to add pressure on the Chinese to resolve U.S. trade issues and increases the odds of meaningful fresh stimulus,” said LPL Chief Investment Strategist John Lynch. “A potential U.S.-China trade agreement over the next several months would also have a stimulative effect that we think could help buoy emerging-market stocks.”

Earnings season marches along next week with 122 S&P 500 companies scheduled to report. The nonfarm payrolls report and the Conference Board’s Consumer Confidence Index will likely garner more attention than normal coming off a 35-day government shutdown. Overseas, fourth-quarter Eurozone GDP will be released, along a vote on U.K. Prime Minister Theresa May’s Brexit Plan B. In Asia, key data include Chinese Purchasing Managers’ Index. Track these and other important events on our Weekly Global Economic & Policy Calendar.

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