Weekly Market Update
It was another winning week on Wall Street as the NASDAQ, S&P 500 and Russell 2000 closed the week at all-time highs. Despite a one day pullback – the stock market melt-up – it just went parabolic. The Dow hit 25k on 1/4/2018; we hit 26k on 1/16/18 – 7 trading days. Unbelievable!! And the yield on the 10-year U.S. Treasury hit 2.64% Friday. It didn’t bother stocks one bit, and this is ahead of the government shutting down.
The markets generally shrugged off the U.S. Government shutdown as most markets were modestly higher, but U.S. stocks though under slight pressure were close to being higher after a deal was reached.
STOCKS
The banks were once again in the spotlight, and for the most part, they turned in solid quarters. CitiGroup reported a very good quarter, Bank of the Ozarks announced a record fourth quarter and Goldman earnings top street estimates, but they reported a ‘shocking’ 50% drop in bond trading revenue.
ECONOMY
The U.S. economy has been chugging along at a decent clip and one of the biggest concerns for the markets continues to be inflation. According to JP Morgan, the stage is set for a meaningful pickup in core inflation in 2018 for three reasons: 1) sustained synchronization (global growth), 2) labor markets are tight and 3) caution related to the trauma of the global financial crisis has now faded.
For the housing market, we saw a surprising but perhaps one-time drop in single-family starts, which masked what is otherwise a very solid housing starts and permits report for December. The single-family starts fell 8.2% which far offset a 1.4% gain in multi-family starts. Starts can be affected by weather, which along with related adjustments, are always factors for this reading in the winter months.
But the backlog behind future starts continues to build as permits come in strong. The lack of homes has been holding down new home sales. Though new supply did move into December’s market, as completions for single-family homes jumped 4.3%.
The decline in December starts won’t be helping fourth-quarter GDP, but the strength in permits and completions point to a first-quarter boost and are further confirmation that acceleration is gathering in the housing market.
Reports on manufacturing and industrial production also are pointing to an accelerating economy. The New York manufacturing report and the Philly FED survey might have slowed, but they still remain at very lofty levels. Industrial production is was driven by a surge in mining activity and a solid bounce in utilities.
Finally, the University of Michigan’s consumer sentiment survey also cooled a bit, but still running at a very high level.
INTERNATIONAL
Across the pond, stocks continue to push higher as all eyes were on the U.S. government and whether not a shutdown would take place. And according to UBS, Germany’s political drama is playing out with all the enthralling interest of paint drying, very slowly.
Across the other pond, stocks also pushed higher – it is a bull market you know!
THIS WEEK
With just 8 trading days left in January, the Dow and S&P 500 are on track for their best month since March of 2016 and the NASDAQ is on track for its best month since July 2016.
And, without a 5% correction before the market closes Monday, 1/22, it will mark the longest span in history without one. Giddy Up!!
It will be a big week for earnings as we will start hearing from a number of tech companies and a number of regional banks.
On the economic front, the first read on Q4 GDP will headline the charts, followed by new NS existing home sales and the index of leading indicators.
So, we know as of this writing, the Senate passed a continuing resolution to fund the government until February 8 and the markets are taking it in stride – stocks go up on a shutdown and go up on it re-opening – stocks just want to go up…so stay tuned and we’ll see how the rest of the week goes and we’ll get you updated next Monday.
Have a Great Week!
Todd Day, Portfolio Manager
Horizon Financial Services, LLC
January 23, 2018
