Equity markets did not take a breather after 2017 as last week was very strong. Stock market valuations are very high in a historical context which technically signals a correction coming but spreadsheets do not predict markets any better than people do! Interest rates have also creeped up in the past several months with the 10-year U.S. Treasury at 2.5%. Historically, interest rates are still very low, which is favorable for business and the stock market.
With full employment, by government measurement, it is encouraging to see some wage growth. One objective of the recently passed tax legislation is wage growth. We have seen many companies pay out bonuses to employees, including PCA, but hopefully salary/wage growth will be sustained.
LOW UNEMPLOYMENT, BUT LESS HIRING
The Department of Labor’s latest jobs report announced a headline unemployment rate of only 4.1% in December, but it also showed companies adding just 148,000 net new workers last month. Even so, net payroll growth averaged 204,000 during the last three months. In hiring terms, the health care sector grew more than any other industry in 2017, expanding by 300,000 jobs. Wages rose 2.5% last year. The broader U-6 jobless rate, encompassing the underemployed, ticked up a tenth of a point to 8.1%, which was still half a percent below its level of a year ago.1
MORE FACTORY ACTIVITY DURING THE HOLIDAYS
December saw U.S. manufacturers pick up their pace. The Institute for Supply Management’s purchasing manager index for the factory sector surprised to the upside with a fine reading of 59.7. Economists polled by Briefing.com had projected the PMI to decline 0.2 points to 58.0. ISM’s non-manufacturing PMI fell in December, weakening 1.5 points to a reading of 55.9.2
WTI CRUDE CONTINUES TO RALLY
Finishing at $61.41 on the NYMEX Friday, it advanced 1.7% last week. Investor concern over anti-government protests in Iran and stateside data showing smaller crude reserves helped. Oil settled at $62.01 Thursday, which was a peak unmatched in roughly three years.3
A SHORT, NOTEWORTHY WEEK STARTS THE YEAR
During January 2-5, the Dow Jones Industrial Average topped 25,000 and the Nasdaq Composite went above 7,000. The blue chips ended the week at 25,295.87; the Nasdaq, at 7,136.56; the S&P 500, at 2,743.15. The 4-day gains: Dow, 2.18%; Nasdaq, 3.35%; S&P, 2.50%. The CBOE VIX wrapped up the week down at 9.22.4,5
Nothing major is scheduled for Monday or Tuesday. On Wednesday, KB Home, Lennar, and Supervalu present earnings. The December Producer Price Index appears Thursday, plus a new initial claims report. Friday, a new earnings season starts off with announcements from BlackRock, Infosys, JPMorgan Chase, PNC Financial, and Wells Fargo, and three important economic indicators arrive for consideration – the December retail sales report from the Department of Commerce, the December Consumer Price Index, and the preliminary January consumer sentiment index from the University of Michigan.
|% CHANGE||YTD||1-YR CHG||5-YR AVG||10-YR AVG|
|REAL YIELD||8/11 RATE||1 YR AGO||5 YRS AGO||10 YRS AGO|
|10 YR TIPS||0.46%||0.42%||-0.55%||1.56%|
Sources: wsj.com, bigcharts.com, treasury.gov – 1/5/185,6,7,8
Indices are unmanaged, do not incur fees or expenses, and cannot be invested into directly. These returns do not include dividends. 10-year TIPS
real yield = projected return at maturity given expected inflation.
This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. The information herein has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. Investments will fluctuate and when redeemed may be worth more or less than when originally invested. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All market indices discussed are unmanaged and are not illustrative of any particular investment. Indices do not incur management fees, costs and expenses, and cannot be invested into directly. All economic and performance data is historical and not indicative of future results. The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. The NASDAQ Composite Index is a market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System. The Standard & Poor’s 500 (S&P 500) is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. NYSE Group, Inc. (NYSE:NYX) operates two securities exchanges: the New York Stock Exchange (the “NYSE”) and NYSE Arca (formerly known as the Archipelago Exchange, or ArcaEx®, and the Pacific Exchange). NYSE Group is a leading provider of securities listing, trading and market data products and services. The New York Mercantile Exchange, Inc. (NYMEX) is the world’s largest physical commodity futures exchange and the preeminent trading forum for energy and precious metals, with trading conducted through two divisions – the NYMEX Division, home to the energy, platinum, and palladium markets, and the COMEX Division, on which all other metals trade. Additional risks are associated with international investing, such as currency fluctuations, political and economic instability and differences in accounting standards. This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. MarketingPro, Inc. is not affiliated with any person or firm that may be providing this information to you. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional.
1 – forbes.com/sites/maggiemcgrath/2018/01/05/unemployment-rate-holds-steady-at-4-1-as-u-s-adds-148000-jobs-in-december/ [1/5/18]
2 – briefing.com/investor/calendars/economic/2018/01/01-05 [1/5/18]
3 – marketwatch.com/story/oil-prices-fall-losing-grip-on-3-year-high-2018-01-05 [1/5/18]
4 – markets.wsj.com/us [1/5/18]
5 – finance.google.com/finance?q=INDEXDJX:.DJI&ei=POlPWoHEE5eJjAHrvInABw [1/5/18]
6 – bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=1%2F5%2F17&x=0&y=0 [1/5/18]
6 – bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=1%2F5%2F17&x=0&y=0 [1/5/18]
6 – bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=1%2F5%2F17&x=0&y=0 [1/5/18]
6 – bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=1%2F4%2F13&x=0&y=0 [1/5/18]
6 – bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=1%2F4%2F13&x=0&y=0 [1/5/18]
6 – bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=1%2F4%2F13&x=0&y=0 [1/5/18]
6 – bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=1%2F4%2F08&x=0&y=0 [1/5/18]
6 – bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=1%2F4%2F08&x=0&y=0 [1/5/18]
6 – bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=1%2F4%2F08&x=0&y=0 [1/5/18]
7 – treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyield [1/5/18]
8 – treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyieldAll [1/5/18]