Friday’s rally provided a welcomed start to the New Year as all of the major indices posted solid gains. For the week, the Russell 2000® Index (3.20%) led all of the major indices, followed by the Nasdaq (2.34%), S&P 500® Index (1.86%) and the Dow Jones Industrial Average (1.61%). Consumer sentiment rose on positive employment data, and comments by Federal Reserve Chairman Powell. Friday’s release of the December employment report included 312,000 jobs in December, the largest monthly increase since February 2018. Also, adjustments to the two prior months added another 58,000 jobs. Unemployment edged up to 3.9% as more people looked for jobs. Wages rose 0.4% in December for an annual increase of 3.2%. Chairman Powell’s comments on Friday provided an assuring message. He stated “As always, there is not a preset path for policy” and, “With muted inflation readings that we’ve seen coming in, we will be patient as we watch to see how the economy evolves.” He vowed that the central bank is “prepared to adjust policy quickly and flexibly” if necessary. China’s central bank also lowered reserve rates to encourage small business lending; the government also confirmed that mid-level trade talks with the Trump Administration are scheduled for this week. Taken together, these events appear to have dampened concerns about a possible recession while providing a more positive outlook for 2019.
Friday’s 746 point gain in the Dow reversed Thursday’s selloff. Most analysts attributed the selloff to Apple’s announcement, after the market close on Wednesday, of its first revenue shortfall in fifteen years. The company cited lower iPhone sales in China. Investors faced the conundrum: Was this an isolated issue? Or, did the shortfall presage a trend for other companies in reporting fourth quarter earnings? Trade-related issues may well impact other multi-national companies; but Apple’s problem appears more specifically related to increased competition from Chinese companies offering far less expensive phones with similar, or even enhanced, features. Also, many loyal iPhone owners are delaying upgrades. Overtime, Apple anticipates that apps and services, rather than product sales, will increasingly drive revenues and earnings; the transition, though, is somewhat rocky.
The new Congress was sworn in last week; and the government shutdown continues. With Congress adjourned until Tuesday, and no substantive move toward a breakthrough, the shutdown will not likely end before Wednesday; the then 18-day closure will be the second-longest in recent history.
A renewed commitment by OPEC countries to lower oil production also helped the equity markets. Oil prices are expected to rise this year as other factors, including lower-than-projected production from fracking activities, contribute to a supply and demand rebalance. The improved market sentiment may provide support until earnings season begins in mid-January. Investors, many of whom were overwhelmed by economic concerns in the fourth quarter, abandoned the markets in favor of cash. After last week’s rally, the markets remain oversold; with new data, the computer-driven programs, though, can buy as dramatically as they sold.
Source: Pacific Global Investment Management Company
Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.
