Last Week:

  • U.S. equities finished positive for the week: Following the rough end to 2018, U.S. equities started the new year with some initial turbulence before rebounding to end the holiday-shortened week. The main drivers being the Apple profit warning, weakness in China, and the weak ISM manufacturing index number, before the rebound driven by Jerome Powell’s dovish comments and the strong Job’s report on Friday. On the week, the Dow Jones Industrial Average (Dow) gained 371 points, or rose 1.61%, to 23,433. The Standard & Poor’s (S&P500) index increased 46 points, or rose 1.86% to 2,532. The Nasdaq closed 2.34% higher at 6,739 while the 10-year Treasury ended the week at 2.68%.
  • Macro Update: Last week, the Bureau of Labor Statistics reported that the U.S. economy added 312,000 jobs (the largest gain in 10 months) in December, well above expectations of 184,000 jobs. The unemployment rate ticked up to 3.9%, mainly driven by a higher participation rate, now at 63.1%. The report showed broad based job gains led by healthcare, food services and drinking places, construction, manufacturing, and retail trade, highlighting the continued strength of the U.S. labor market. Average hourly earnings grew +0.4%, on top of last month’s +0.2% growth, with the last 12-months earnings growth rate rising to +3.2%. Overall, the strong December Jobs Report serves as 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 strong wage gains show strong support for continued consumer spending.
  • However, not all the macro data released last week was positive. During the week, we also saw the ISM manufacturing index (a measure of manufacturing conditions) for December come in at 54.1, below expectations of 57.5 and down from the previous month’s 59.3. The main driver was a sharp decline in the New Orders component which came in at 51.1, down more than 10 points from November’s 62.1 level. With that said, the December number was still above 50, which continues to show an expansion (above 50 – expansion, below 50 – contraction).

Look Ahead:

  • The week will start slow on the corporate calendar with the heaviest earnings releases taking place on Wednesday with the homebuilders in focus. The J.P. Morgan Healthcare conference will be taking place throughout the week and will likely generate some news flow as the companies present.
  • On the economic calendar, we will see the ISM Non-manufacturing Index and Factory orders out Monday, Consumer credit, Job Openings and Labor Turnover (JOLTs), and Trade Balance on Tuesday, Fed speakers and Federal Open Market Committee (FOMC) meeting minutes on Wednesday, Jobless Claims on Thursday, and Consumer Price Index (CPI) on Friday. Outside the United States, trade talks with China will commence during the week, we will see Euro-zone retail sales on Monday, Euro-zone confidence numbers on Tuesday, and China CPI and Producer Price Index (PPI) on Thursday.