Weekly Economic Update – January 14th, 2020
  • The U.S. stock market indices hit another record high this week, as tensions in the Middle East were scaled back and the technology sector continued to outperform
  • NASDAQ once again led the way with a sizeable gain of 1.8% on the first full trading week of 2020, doubling the 0.9% gain of the S&P 500 and outpacing the 0.7% gain of the DJIA
  • The smaller–cap Russell 2000 Index once again trailed its large-cap counterparts, declining 0.2% on the week
  • The dominant news was at the beginning of the week as fears that the conflict with Iran would escalate, but those fears subsided as the week went on
  • As was the case for most of 2019, the Information Technology sector led the way with a gain of 2.2%, followed closely by the 2% gain from the Communications Services sector
  • Also, as was the case for most of 2019, the Energy sector brought up the rear, dropping 1.1% on the week after a 6.5% drop in the price of crude oil to under $59/barrel
  • On Friday, the December jobs report was released and 145,000 jobs were added, below the consensus expectations of 160,0000 and less than the previous two months
  • U.S. Treasuries ended the week slightly higher as the 2–year yield declined to 1.56% and the 10–year yield declined one basis point to 1.82%
  • The U.S. Dollar Index advanced 0.5% to 97.36

The S&P 500 Crests 29,000 Before Pulling Back Slightly

Stocks hit more record highs this week as the S&P 500 and NASDAQ continued their march into record territory. In fact, the S&P 500 crested that wholly–psychological 29,000–point barrier and has investors dreaming of 30,000.

The week did not bring much economic news to the markets, besides a lukewarm jobs report at the end of the week. Instead, the market moved forward two steps and back one step most of the week as investors tried to figure out what would happen in the Middle East. As the week wore on and tensions seemed to subside, the market inched forward a little more.

Once again it was the Tech sector that led the way, with Apple doing its part after reporting better than expected iPhone sales in China. And when tensions subsided in the Middle East and it was apparent that there would not be a disruption in the oil supply, the price of oil tumbled over 6%, driving the Energy sector down too.

Jobs Report

On Friday, the U.S. Bureau of Labor Statistics reported that the total nonfarm payroll employment rose by 145,000 in December, and the unemployment rate was unchanged at 3.5%, a 50–year low that has held steady for quite some time.

From the Bureau of Labor Statistics:

“In December, the unemployment rate held at 3.5 percent, and the number of unemployed persons was unchanged at 5.8 million. A year earlier, the jobless rate was 3.9 percent, and the number of unemployed persons was 6.3 million.

Two Men Holding Two Gray Metal Tools

 

Among the major worker groups, the unemployment rates for adult men (3.1 percent), adult women (3.2 percent), teenagers (12.6 percent), Whites (3.2 percent), Blacks (5.9 percent), Asians (2.5 percent), and Hispanics (4.2 percent) showed little or no change in December.”

In terms of wage growth, the BLS reported little growth, but growth nonetheless:

“In December, average hourly earnings for all employees on private nonfarm payrolls rose by 3 cents to $28.32. Over the last 12 months, average hourly earnings have increased by 2.9 percent. In December, average hourly earnings of private-sector production and nonsupervisory employees, at $23.79, were little changed (+2 cents).”

What Sector Rotation?

For the first full trading week of 2020, the S&P 500 sectors performed very much as they did in 2019, but there were some differences too. First off, the Information Technology Sector once again was the leader of the pack, after jumping out to a gain of over 2% on the week. And the Energy sector once again led the losers as it finished 11th out of 11 with a negative return of more than 1%.

The Financial sector, which benefited from an accommodative Federal Reserve and was one of the 3 sectors to outperform the broad S&P 500 Index in 2019, underperformed on the week and dropped 0.5%. The other sector that was in the red was the defensive Materials sector, which also underperformed much of 2019.

All Eyes on January

How well does the entire month of January predict annual market performance is a question that a lot of investors are asking. Well, according to Stock Trader’s Almanac, going back to 1950, that metric of January’s monthly performance predicting the year has worked 87% of the time.

 

January Scrabble

But if you take out the years from 1950–1962, the January metric worked about as well as a monkey making a coin toss. From 1962 to 2019, a below-par January accurately predicts a bad year 55% of the time.

Remember January 2018? The markets rose almost 5.6% in January 2018 and went on to record a negative year. And January 2019 saw the markets up on the way to a very positive 2019.

That’s exactly 50/50.

Sources

bls.gov;standardandpoors.com;stocktradersalmanac.com;factset.com;nyse.com;msci.com;nasdaq.comdowjones.commorningstar.comedwardjones.combloomberg.com

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