Markets “In a Nutshell” for January 9, 2019

Investment Week at a Glance

Stocks finished higher for the week.  The Dow Jones Industrial Average was up 1.61%, the S&P 500 rose 1.86%, the New York Stock Exchange Composite (2,000 stocks) was up 2.15% and the average investors index (Value Line Index) was up 3.08%.  Foreign stocks (DJ Global ex U.S.) were up 1.22%.  Bond prices were higher for the week, pushing the yield on the 10-year U.S. Treasury down 8 basis points to finish the week at 2.66%.  (Data sources: Barron’s Financial, Wall Street Journal)

Strong Jobs and Wage Report

It was going to take a convincing jobs report to buck the negative sentiment flooding markets recently and that’s exactly what was released last Friday. U.S. employers added 312,000 jobs in December, shocking markets and sending a strong signal that this labor market can continue the torrent pace of job growth. Average hourly earnings also gained 3.4% in December and helped 2018 clinch the largest yearly increase in wages during the 10 year expansion at 3.2%. Wages also expanded their pace of growth over inflation, allowing workers to benefit more from their rise in paychecks. The unemployment rate also rose due to added participants into the labor force looking to seek work, a sign of an optimistic outlook in job opportunities. For all of 2018, 2.64 million jobs were added, the best since 2015, and continued the streak of 99 straight months of positive job growth. (Wall Street Journal)

U.S./China Trade Deal Countdown Starts

Beginning Monday, trade negotiators for both the U.S. and China begin meeting to resolve the contentious trade war that has consumed the two largest economies in the world. Negotiators have until March 1^st under the current truce struck earlier in December that will hold off the planned U.S. tariff increase on $200 billion of Chinese imports. The biggest issues that the U.S. are seeking to resolve are increased access to Chinese markets and increased protection of intellectual property. To date, China has increased purchases of U.S. farm products and lowered tariffs on autos, but the U.S. has shown that a any compromise and de-escalation of the trade conflict is going to require addressing the two larger issues.

The two sides remain far from a deal, but there is a cautious optimism stemming from the truce deal that both sides will come together to meet each other’s needs. China’s economy has begun to slow down since the beginning of the trade war, while the U.S. has continued to display above average growth, giving the U.S. the much needed leverage that it needs to force China to concede its growing market power. An end to the trade war would provide global markets a much needed boost after severely underperforming U.S. stock markets in 2018. Both sides have strong incentives to reach a deal by March 1^st, but a cautious approach to believing it will happen is appropriate. (Wall Street Journal)

Quiz:

For the year 2018, which sector of the S&P 500 had the highest total return?

a. Communication Services

b. Health Care

c. Information Technology

d. Utilities

Answer is below…

 

Have a good week!

 

Answer to quiz:

d. Health Care was the best performing sector of 2018 with a return of 6.47% followed by Utilities (4.11%), Consumer Discretionary (0.83%) and Information Technology (-0.29%). (Morningstar/Standard & Poors)