General market news
- Rates moved lower last week after the Federal Reserve (Fed) decided to take a wait-and-see approach and leave rates where they were. The 10-year U.S. Treasury was as low as 2.61 percent late last week and opened at 2.70 percent on Monday. Meanwhile, the 2-year opened at 2.52 percent and the 30-year opened at 3.05 percent. Part of the short end of the curve remained inverted.
- All three U.S. indices were up on the week. They were supported by earnings and continued dovish commentary from the Federal Open Market Committee (FOMC) following its January meeting. The FOMC noted that it can be patient as it determines what future adjustments may be necessary. This early commentary supports investors who believe 2019 may see a slower increase in rate hikes than in years past.
- Strong earnings from some of the more cyclical sectors, including energy, communication services, and industrials, also helped support a risk on trade. Among those were Facebook (FB), Exxon Mobil (XOM), and Chevron (CVX). Increased daily active user growth bolstered the social media company, while strong production trends offered support for the oil firms.
- Last week was very busy on the economic front, with a normal schedule of data releases plus the influx of data that was delayed during the government shutdown. On Tuesday, the Conference Board Consumer Confidence Index fell to an 18-month low of 120.2 in January. This is down from 128.1 in December and was likely due in large part to the government shutdown.
- On Wednesday, the FOMC voted unanimously to keep the federal funds rate unchanged. This was widely expected by market participants.
- On Friday, the Institute for Supply Management (ISM) Manufacturing index rose to 56.6 in January, recovering some of the decline from December. Also on Friday, January’s employment report was released. A total of 304,000 new jobs were added during the month. The unemployment rate grew to 4 percent, but that was driven by more people entering the labor market.
|MSCI Emerging Markets||1.74%||8.80%||8.80%||–13.49%|
|Fixed Income Index||Month-to-Date||Year-to-Date||12-Month|
|U.S. Broad Market||0.81%||0.81%||2.27%|
Source: Morningstar Direct
What to look forward to
With the government shutdown over, this week’s reports are expected to be available on time.
On Tuesday, the ISM Nonmanufacturing index is expected to pull back slightly, from a very strong 58 to 57.3. This is a diffusion index, where values above 50 indicate expansion and below 50 indicate contraction. So, this would be a very healthy figure, despite the small pullback.
On Wednesday, the international trade report is expected to show the trade deficit improving slightly, from $55.5 billion to $54 billion. This report is unusual, as it will reflect delayed data from November due to the shutdown. Based on already-reported results from other countries, however, there may be significant downside risk to this number. If so, this will be a headwind to fourth-quarter growth.
The reports still outstanding from past weeks include retail sales, housing starts, personal income and spending, December’s international trade report, and the fourth-quarter gross domestic product number.