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Posted on January 7, 2019

Weekly Market Commentary January 07, 2018

Market Commentary

The stock market wrapped up 2018 and began 2019 with a couple of big swings as investors reacted to a series of major announcements. On Wednesday evening, Apple warned iPhone sales in China were below expectations. The news sent stocks lower on Thursday, but those losses were erased when stocks soared after an extremely strong jobs report and indications of a more flexible Federal Reserve.

For the week, the S&P gained 1.9%. The MSCI ACWI, which includes stocks from developed and emerging markets, rose 1.6%. Bonds were also able to rally, and the Bloomberg BarCap Aggregate Bond Index climbed 0.5%.

Last week also put an end to a difficult fourth quarter that made 2018 a tough year for many investors. The S&P 500 dropped 13.5% last quarter, which wiped out the gains from the first three quarters. In 2018, the S&P 500 lost 4.4%. Global stocks dropped 9.4%, and bonds’ strong performance late in the year yielded a return of just above 0%.

Key Points for the Week

  • Markets reacted to a big week of announcements.
  • Job growth was extremely strong, and wage growth was very good.
  • Fed Chair Jerome Powell signaled flexibility on rates.
  • Apple warned weakness in China would affect its quarterly results.


Smartphones, Jobs, and Rates

Remember when the market was boring? Last week, a number of major announcements shot markets lower and then higher, while offering some insight into the major issues concerning investors.

One major concern is the global economy is slowing and tariffs are putting more pressure on growth than either the U.S. or China expected. Apple warned revenue would fall about $7 billion short of the mid-range of its previous expectations. The company cited weakness in China as the primary cause of the underperformance. The announcement reinforced the message that tariffs are affecting profits and consumer behavior.

Another major concern is the U.S. economy is slowing and the Federal Reserve is committed to raising rates in spite of it. But Friday’s job report reassured investors the economy is still humming along. As the accompanying chart shows, more than 300,000 jobs were created in December, and the estimates for October and November were revised upward, too. Wage growth was a healthy 3.2% higher over the last year, and unemployment rose because more workers entered the workforce or sought out higher-paying jobs. Investors reacted positively to a very good report.

Later that day, Fed Chair Jay Powell delivered the message some investors wished he had communicated in the press conference following the decision to raise rates. He indicated the Fed is concerned about growth and will remain flexible when raising rates and the pace at which it will shrink its balance sheet. Stock markets went into rally mode on the combination of better economic performance and a more flexible Federal Reserve on Friday.

The announcements this week will affect what moves markets in coming weeks. Apple’s weak results will put more scrutiny on corporate performance just as many companies announce their fourth quarter results. The strong jobs report doesn’t remove economic risk, but investors should feel more confident the economy will remain strong. The Fed being more attentive to current trends lowers the risk it will exacerbate any economic slowdown by continuing to raise rates.

2019 is off to a volatile start. Investors are focused on every piece of data and seemed poised to overreact to data points less important than ones released this week. Stay patient, and don’t be surprised by continued swings in the market.

 


Fun Story

Astronaut Accidentally Calls 911 from Space

A Dutch astronaut accidentally called U.S. rescue services from space. André Kuipers was orbiting the planet and had to contact NASA’s Johnson Space Center in Houston. Kuipers explained that he had to dial 9 before making any call, followed by 011 for an international line. Floating and dialing a phone is much harder than you’d think, and he accidentally missed the important 0.


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