As January Goes, so Goes the Year? Stay Tuned.
Stocks finished the week higher, with all three of the major averages posting a second straight week of gains, as a rebound in oil prices and better than feared fourth quarter earnings helped calm investors frayed nerves.
February 01, 2016
| By Mike Schwager
Performance for Week Ending 1/29/2016:
The Dow Jones Industrial Average (Dow) rose 2.32%, the Wilshire 5000 Total Market IndexSM (Wilshire 5000SM) gained 1.74%, the Standard & Poor’s 500 Index (S&P 500) added 1.75% and the Nasdaq Composite Index (NASDAQ) tacked on 0.50%. Sector breadth was positive with 9 of the 10 S&P sector groups finishing higher. The Telecom sector (+4.32%) led the way higher followed by Energy (+4.23%) and Utilities (+3.66%).
||Closing Price 1/29/2016
||Percentage Change for Week Ending 1/29/2016
||Year-to-Date Percentage Change Through 1/29/2016
*See below for Index Definitions
MARKET OBSERVATIONS: 1/25/16 – 1/29/16
Stocks finished the week higher, with all three of the major averages posting a second straight week of gains, as a rebound in oil prices and better than feared fourth quarter earnings helped calm investors frayed nerves. Adding to the positive tone was another round of stimulus efforts by the Bank of Japan (BoJ). On Friday the BoJ stunned global markets by introducing negative interest rates at its policy meeting. The central bank will now begin to charge (instead of paying) banks an interest rate of -0.1% on their excess reserves. The decision boosted expectations for additional easing by other central banks, particularly in Europe and China.
FOMC Meeting: As expected, the Federal Open Market Committee came and went without any change in U.S. interest rate policy. The after meeting communique, however, took on a slightly “dovish” tone as the Fed raised concerns about inflation and international developments. In terms of the latter, the statement said the Fed is “closely monitoring” their implications for the US economy. In terms of inflation, the committee expects it “to remain low in the near term, in part because of the further declines in energy prices”. The language on economic activity was bit downbeat noting that growth slowed late last year. The statement also noted that household spending and business fixed investment were increasing at a “moderate” pace rather than the “solid” rate described at the prior meetings.
The cautious tone suggests that the probability of four rate hikes this year, as indicated by the December Summary of Economic Projections, has lessened. While a more ‘dovish’ Fed would have in the past been cause for celebration, not so this time, as the reaction was a sharp sell-off. The market reaction suggests investors are becoming nervous about the sustainability and path of the US growth outlook. Since there was no follow-up press conference, attention will now shift to Fed Chair Yellen’s testimony on Capitol Hill on February 10 &11, for further insight into the Fed’s thinking on the pace and path higher for rates.
Q4 Earnings Round-up:
According to Bloomberg, through Friday 201 members of the S&P 500 have reported results with 76% surprising to the upside. Reported earnings for the S&P are currently down 2.6% but are still tracking solidly better than the 7% decline expected at the start of reporting season. Analysts have modestly revised their expectations higher and now expect S&P 500 earnings to finish the quarter down 5.6%. As has been the case over the past few quarters, the Energy sector remains the biggest drag. When looking at expectations excluding the Energy sector, overall results are forecast to rise by 0.5%.
The Week Ahead:
It will be another big week for earnings with over 115 members of the S&P 500 scheduled to report results. Included in this group are Dow-components Exxon Mobil, Pfizer and Merck. The data calendar will also be busy this week. Reports of interest include the January ISM manufacturing index, personal income and saving, construction spending, the ISM non-manufacturing index, factory orders, and the January payroll report. The payroll data will be watched very closely. According to Bloomberg, nonfarm payrolls are forecast to rise by 190K while the unemployment rate is expected to remain unchanged at 5.0%. The Fed speaking calendar will be relatively quiet with only three appearances scheduled.
The Dow Jones Industrial Average is a price-weighted average of 30 blue-chip stocks that are generally defined as the leaders in their industry. It has been a widely followed indicator of the stock market since October 1, 1928.
Wilshire 5000 Total Market IndexSM represents the broadest index for the U.S. equity market, measuring the performance of all U.S. equity securities with readily available price data. The index is comprised of virtually every stock that: the firm's headquarters are based in the U.S.; the stock is actively traded on a U.S. exchange; the stock has widely available pricing information (this disqualifies bulletin board, or over-the-counter stocks). The index is market cap weighted, meaning that the firms with the highest market value account for a larger portion of the index.
Standard and Poor's 500© Index is a capitalization-weighted index of 500 stocks. The index is designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
The NASDAQ Composite Index is a broad-based capitalization-weighted index of stocks in all three NASDAQ tiers: Global Select, Global Market and Capital Market. The index was developed with a base level of 100 as of February 5, 1971.
Indices do not include any expenses, fees, or sales charges, which would lower performance. Indices are unmanaged and should not be considered an investment. It is not possible to invest directly in an index.
The individual companies mentioned in this piece were for informational purposes only and should not be viewed as recommendations.
The comments should not be construed as a recommendation of individual holdings or market sectors, but as an illustration of broader themes. This document contains forward-looking statements about various economic trends and strategies. You are cautioned that such forward-looking statements are subject to significant business, economic and competitive uncertainties and actual results could be materially different. There are no guarantees associated with any forecast and the opinions stated here are subject to change at any time and are the opinion of the individual strategist. Information in this report does not pertain to any investment product and is not a solicitation for any product. This material has been prepared using sources of information generally believed to be reliable. No representation can be made as to its accuracy.
Global CIO Scott Minerd and Head of Macroeconomic and Investment Research Brian Smedley provide context and commentary to complement our recent publication, “Forecasting the Next Recession.”
In his market outlook, Global CIO Scott Minerd discusses the challenges of managing in a market melt up and highlights several charts from his recent piece, “10 Macro Themes to Watch in 2018.”
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