Last Week:

  • U.S. equities finished positive for the week: On the week, the Dow Jones Industrial Average (Dow) gained 327 points, or rose 1.32%, to 25,064. The Standard & Poor’s (S&P500) index increased 42 points, or rose 1.57% to 2,707. The Nasdaq closed 1.38% higher at 7,264 while the 10-year Treasury ended the week at 2.71%.
  • Economic Data Summary: Last week, the Bureau of Labor Statistics (BLS) reported that the U.S. economy added 304,000 jobs in January, well above expectations of 165,000 jobs. We saw the December jobs number revised down from 312,000 to 222,000 jobs; however, the rate of new jobs for the last three months is still at 240,000 new jobs, which remains incredible for a late cycle economy. The unemployment rate ticked up to 4.0%, possibly driven by the government shutdown according to the BLS. The report showed broad-based job gains led by leisure and hospitality, construction, healthcare, and transportation and warehousing, highlighting the continued strength of the U.S. labor market. Average hourly earnings grew a modest +0.1%, on top of last month’s +0.4% growth, with the last 12-months earnings growth rate staying at +3.2%. Once again, the strong January Jobs Report is a reminder of the strength of the American consumer. With about 70% of U.S. GDP driven by the consumer, the current unemployment level and wage gains show strong support for continued consumer spending.
  • Last week, we also saw the Federal Open Market Committee (FOMC) decide to leave interest rates unchanged and deliver an overall “dovish” statement. There were a number of significant language changes including, changing “further gradual increases” to “future adjustments” (which leaves room for future moves to go in either direction) and promising to be “patient” before adjusting policy incrementally. The Fed also stated that the bank is “prepared to adjust any of the details for completing balance sheet normalization in light of economic and financial developments,” while reiterating that the Fed has a range of tools to make monetary policy more accommodative. Odds of a rate increase in 2019 now peak at 5.7% for September, with December and January consensus expectations showing rate cuts with 9% and 17% probabilities respectively.
  • During the week, we also saw the ISM manufacturing index (a measure of manufacturing conditions) for January come in at 56.6, above expectations of 54.2, and up from the previous month’s weak 54.1. In particular, the sharp New Orders component decline we saw in December was reversed, up 6.9 points to 58.2, contributing to the overall index gain.
Haverford Trust Line Graph - "Rate Hike Probabilities By Fed Meeting".
Source: Strategas Research Partners

Look Ahead:

  • Fourth quarter earnings season will continue this week, with expected earnings releases from Alphabet, Becton Dickinson, Chubb, Emerson Electric, Viacom, Walt Disney, Chipotle, General Motors, Tapestry, S&P Global, and Philip Morris International, among others.
  • The economic calendar will be light this week, with Durable Goods data on Monday, Non-manufacturing PMIs on Tuesday, Productivity and Mortgage Applications on Wednesday, and Jobless Claims and Consumer Credit on Thursday.
  • The State of the Union Address will be held on Tuesday, February 5, 2019 at 9:00PM EST.