Weekly Market Drivers | LPL Financial Research

Stocks Start the New Year with a Bang

US: S&P 500 Index +1.6%, Dow +1.3%, Nasdaq +1.4%
Europe: STOXX Europe 600 +0.5%, German DAX -0.9% France CAC 40 +1.9%, U.K. FTSE 100 +3.1%
Asia: Japan Nikkei +0.1%, China Shanghai Composite +0.6%, Korea KOSPI  +1.2%
Rates/Commodities: 10-Year Treasury yield -3 basis points to 2.70%, WTI crude oil +3.0%, COMEX gold: +1.9%

After posting their worst December in 87 years, stocks bounced back in spectacular fashion in January as the S&P 500 Index rose 2.0% this week through Thursday to finish January 7.9% above its year-end closing level.

The week started off slow with a resolution, if only temporarily, to the longest partial-government shutdown on record, which was met with little fanfare by investors. A Justice Department announcement that formal charges would be levied against the CFO of Huawei, a Chinese technology firm, also dragged on sentiment ahead of formal U.S.-China trade negotiations. However, the Federal Reserve (Fed) served as the rising tide on Wednesday, lifting all boats—or stocks—when Fed Chairman Jerome Powell struck a decidedly market-friendly tone in his press conference following policymakers’ two-day meeting in which interest rates were left unchanged, as expected. The outcome sent Treasury yields decidedly lower, while a weakening of the U.S. dollar provided a tailwind for commodities, particularly industrial metals. On the outcome of the Fed meeting, LPL Chief Investment Strategist John Lynch said, “We thought the Fed would err on the side of caution this week, and going forward, we expect policymakers to further exercise flexibility in rates and balance sheet changes as they juggle solid U.S. fundamentals against slower global growth.”

Overseas, the STOXX Europe 600 posted its best monthly return in more than three years, but lagged major U.S. indexes for the week as investors grappled with a series of data that showed economic activity in the region continued to deteriorate. Gross domestic product data showed that Italy fell into recession last quarter, while Germany came very close amid particular weakness in the auto sector. Adding to the more cautious tone was another Brexit-related vote on Tuesday that brought the U.K. no closer to an amicable divorce from the European Union. Meanwhile, progress in the high-level U.S.-China negotiations fueled a late-week rally in Asian stocks despite few details out of the meetings. U.S. delegates are now slated to visit China mid-February for another round of talks.

The economic calendar is rather light next week, but another round of Markit PMI data will be on investors’ radars, particularly in Europe. Corporate earnings will be the main focus in the U.S., with more than 90 S&P 500 firms set to report, including Google, Disney, and General Motors. Track these and other important events on our Weekly Global Economic & Policy Calendar.

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