Monthly Archives: January 2016

Market Insights 1/29/2015

Stocks Rise after Bank of Japan Surprise

U.S. stocks rallied, locking in a second-straight weekly advance, on the heels of an unexpected move from the Bank of Japan to adopt a negative interest-rate policy.

Microsoft announced upbeat quarterly results that helped lift tech stocks, while Amazon weighed on the consumer discretionary sector after the company missed analysts’ quarterly forecasts.

In economic news, 4Q GDP was reported slightly below expectations, but a barometer of business activity in the Midwest surprisingly jumped into expansion territory.

Treasuries, crude oil, the U.S. dollar and gold were all higher.

The Markets…

The Dow Jones Industrial Average advanced 397 points (2.5%) to 16,466

The S&P 500 Index increased 47 points (2.5%) to 1,940

Leading the S&P 500 higher included big sector winners in technology +3.15%, Energy +2.92%, Materials +2.89 and Financials +2.79% as all 9 S&P 500 sectors finished in the green.

The Nasdaq Composite jumped 107 points (2.4%) to 4,614

In heavy volume, 1.6 billion shares were traded on the NYSE and 2.6 billion shares changed hands on the Nasdaq

WTI crude oil gained $0.40 to $32.19 per barrel and wholesale gasoline added $0.03 to $1.13 per gallon

The Bloomberg gold spot price increased $2.61 to $1,117.95 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 1.1% higher at 99.57

Markets were higher for the week, as the DJIA advanced 2.3%, the S&P 500 Index increased 1.8%, and the Nasdaq Composite Index gained 0.5%

Preliminary 4Q GDP slightly misses forecasts, while Chicago PMI jumps

The first look (of three) at Q4 Gross Domestic Product, the broadest measure of economic output, showed a quarter-over-quarter annualized rate of expansion of 0.7%, from the unrevised 2.0% expansion in Q3, and below the 0.8% growth forecasted by Bloomberg. Personal consumption came in north of forecasts, rising 2.2%, following the unadjusted 3.0% increase recorded in 3Q, and versus the 1.8% gain that was projected. The slowdown in Q4 growth came as the deceleration in personal consumption was met with downturns in nonresidential fixed investment, in exports, and in state and local government spending that were partly offset by a smaller decrease in private inventory investment, a deceleration in imports, and an acceleration in federal government spending.

On inflation, the GDP Price Index matched expectations at a 0.8% rise from an unrevised 1.3% gain seen in 3Q, while the core PCE Index, which excludes food and energy, rose 1.2%, also in line with forecasts, and following the unrevised 1.4% growth in 3Q.

The domestic economic signals have not changed significantly during the past month in our opinion. While 44 2015 GDP growth was less than 1%, overall the 2% to 2.5% y/y real GDP growth rate that has prevailed for the past six years still seems to be intact although we are cautious and watching it closely. Employment indicators also continue to show improvement, suggesting that consumer spending should continue to support economic growth. The Federal Reserve is in a tight spot. Having just raised interest rates in December and expressed optimism about the outlook for the economy and inflation, it can hardly reverse course just because of volatile stock markets.

The final January University of Michigan Consumer Sentiment Index was revised to 92.0 from the preliminary level of 93.3, and compared to expectations of 93.0, with an upward adjustment for the current economic conditions outlook and a downward revision to the economic outlook. The index was also down compared to December’s level of 92.6. The 1-year inflation projection dipped to 2.5% from December’s 2.6% level, while the 5-10 year inflation outlook ticked higher to 2.7% from 2.6%.

The Chicago Purchasing Managers Index jumped back into expansion territory (above 50), rising to 55.6 in January—the highest since January 2015—from 42.9 in December, and versus expectations of a rise to 45.3.

The 4Q Employment Cost Index grew by 0.6% q/q, matching forecasts and the unrevised figure posted in Q3.

Treasuries were higher, with the yields falling, as the 2-year note and the 30-year bond declined 4 basis points to 0.77% and 2.75%, respectively, while the yield on the 10-year note decreased 6 bps to 1.92% a 9 month low.

Europe and Asia higher after further stimulus measures in Japan

European equities traded higher, with the global markets getting a boost from the surprise announcement from Japan’s central bank to adopt a negative interest-rate policy to try to boost economic growth and inflation. The euro fell versus the U.S. dollar even after the softer-than-expected 4Q GDP report in the U.S., while bond yields in the region traded to the downside. Italian banks bounced following some upbeat results in the sector, which has been pummeled as of late by concerns about rising bad loans. Oil & gas issues joined the broad-based rally, with crude oil prices continuing to show some signs of recovery. In economic news, German retail sales unexpectedly dipped in December and Spain’s 4Q GDP expanded in line with forecasts, while the eurozone core consumer price inflation estimate for January came in slightly hotter than anticipated.

The U.K. FTSE 100 Index, Italy’s FTSE MIB Index and Spain’s IBEX 35 Index were up 2.6%, Germany’s DAX Index gained 1.6%, France’s CAC-40 Index advanced 2.2%, and Switzerland’s Swiss Market Index traded 2.0% higher.

Stocks in Asia finished with widespread gains to close out the week, amid volatile action in the wake of the Bank of Japan’s (BoJ) monetary policy decision, in which it maintained its asset purchase program, while announcing that it will adopt a negative interest-rate strategy—in a three-tier system—and delay the timing of reaching its 2.0% inflation target. The decision, which was passed by a 5-4 majority vote, comes as Japan reported larger-than-expected drops in December household spending and industrial production, along with a modest increase in its core consumer price inflation. The BoJ said it will maintain its asset purchases and negative interest rates as long as it is necessary.

In recent years, actions by central banks have lifted stocks temporarily, but seemed to do little to boost economic activity. The key for sustaining a turnaround in the stock market is a recovery in growth and avoiding a global recession in 2016. Rather than rescuing investors, comments from central bankers are more likely to create volatility, both up and down, in the markets until the global economic path is clearer.

Japanese equities jumped with the yen falling sharply after the BoJ’s decision, while stocks trading in China and Hong Kong rallied. Mainland Chinese stocks rose for the first time in four sessions, with the People’s bank of China continuing to pump cash into the financial system ahead of next month’s holidays.

WEEKLY RECAP: Stocks show some resiliency for a second-straight week

Although volatility remained as oil prices and divergent global monetary policies continued to drive the markets, the S&P 500 and Dow chipped away at sharp drops for January, courtesy of another late-week comeback. The indexes overcame a mid-week selloff as the Federal Reserve maintained its monetary policy stance but its statement fostered some uncertainty regarding the trajectory of future rate hikes. For a second-straight week, the global markets got a boost from central bank action, with the Bank of Japan adopting a negative interest policy, which came on the heels of last week’s signal of further stimulus efforts from the European Central Bank (ECB). Energy stocks gained ground as crude oil prices showed signs of recovery, while the materials sector remained under siege amid festering global growth concerns. The rout for healthcare stocks rolled on to weigh on the Nasdaq.

Earnings season continued to ramp up, with mixed reports from some high-profile companies garnering attention. Dow member Apple Inc. posted softer-than-expected iPhone sales and issued disappointing guidance, along with Dow component Boeing Co. and Ford Motor Co., while Facebook Inc. blew away expectations, Dow member McDonald’s Corp. bested expectations, and Dow component Caterpillar Inc. offered a favorable earnings outlook. Housing data highlighted the U.S. economic calendar, with mortgage applications posting a third-straight solid weekly gain and new home sales jumping more than expected. As noted previously, the corporate picture appears decent, with Q4 earnings season showing mostly positive results so far. Although risks have risen and concerns have spiked, it still doesn’t appear to us that a U.S. recession is in the foreseeable future. Oil has been a major driver of market action, but should be ultimately beneficial to the majority of the economy.

THE WEEK AHEAD: Earnings, manufacturing, services and employment reports set to headline the week

Next week, earnings season will continue to roll on, while the economic docket will deliver some key data, with the ISM and Markit delivering their January business activity data ahead of Friday’s nonfarm payroll report for last month. In our opinion, there is little doubt, we are in a manufacturing recession, but at this point, the much larger services segment of the economy is showing sustained growth. Every predictive recession model we have studied still suggests a low risk of recession. In fact, if we are in one or heading toward one, it would be the first time in history the leading indicators did not roll over and provide ample warning.

Other notable domestic reports slated for next week include: personal income and spending, monthly auto sales, factory orders, and the trade balance. And the political season heats up officially with the Iowa caucuses scheduled for Monday.

Reports on next week’s international calendar include: Australia—Reserve Bank of Australia monetary policy decision, trade balance, building approvals, and retail sales. China—manufacturing and non-manufacturing PMIs. India—Reserve Bank of India monetary policy decision. Japan—business activity reports. Eurozone—Markit’s business activity reports, unemployment rate and retail sales, as well as German factory orders. U.K.—Bank of England monetary policy decision and Markit’s business activity reports.

Company Specific News

Dow member Microsoft Corp. reported fiscal 2Q earnings-per-share ex-items of $0.78, above the $0.71 FactSet estimate, as revenues declined 1.7% year-over-year (y/y) to $25.7 billion, north of the expected $25.3 billion.

Amazon.com Inc. posted 4Q earnings of $1.00 per share, below the $1.55 estimate, as revenues rose 22.0% y/y to $35.7 billion, versus the forecasted $35.9 billion. AMZN’s 1Q revenue outlook had a midpoint that was slightly above expectations.

Dow component Visa Inc. announced fiscal 1Q EPS ex-items of $0.69, above the projected $0.68, with revenues increasing 5.0% y/y to $3.6 billion, roughly in line with forecasts. The company said while it is not changing its financial outlook for the full-year, continued moderating cross-border volume growth and subdued domestic activity across geographies could ultimately affect its results.

Dow member Chevron Corp. reported a 4Q loss of $0.31 per share, although the results included $1.1 billion in impairments and other charges that may be impacting comparability to the expected $0.45 per share profit. The company said its 2015 earnings were down significantly y/y, reflecting a nearly 50.0% y/y drop in crude oil prices. Revenues dropped 33.3% y/y to $28.0 billion, compared to the projected $27.7 billion.

American Airlines Group Inc. posted 4Q EPS ex-items of $2.00, north of the estimated $1.97, as revenues decreased 5.2% y/y to $9.6 billion, roughly in line with forecasts.

Xerox Corp. announced plans to separate into two publicly-traded companies, one a document technology company and the other a business process outsourcing company, expected to be completed by the end of 2016. Separately, the company posted stronger-than-expected 4Q EPS and in line revenues, while announcing an 11.0% increase of its quarterly dividend.

Market Insights 1/28/2016

Stocks Move Higher, Tech & Energy Lead Advance

U.S. stocks finished the regular trading session with solid gains, aided by a rally in crude oil prices and as Facebook highlighted the earnings front, giving a boost to the technology sector.

In economic news, a sharp drop in domestic durable goods orders may have increased uncertainty toward the trajectory of future rate hikes from the Fed ahead of tomorrow’s first look at 4Q GDP.

U.S. Treasuries dipped as yields rose, while gold and the U.S. dollar were also lower.

The Markets…

The Dow Jones Industrial Average increased 125 points (0.8%) to 16,070

The S&P 500 Index advanced 10 points (0.5%) to 1,893

The Nasdaq Composite was 39 points (0.9%) higher at 4,507

In heavy volume, 1.1 billion shares were traded on the NYSE and 2.3 billion shares changed hands on the Nasdaq

WTI crude oil rose $0.92 to $33.22 per barrel and wholesale gasoline increased $0.03 to $1.10 per gallon

The Bloomberg gold spot price decreased $10.90 to $1,114.07 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.3% lower at 98.59

Durable goods orders fall along with jobless claims

Durable goods orders were down 5.1% month-over-month (m/m) in December, compared to the Bloomberg estimate of a 0.7% decline, and November’s downwardly revised 0.5% decrease. Ex-transportation, orders fell 1.2% m/m, versus the 0.1% forecasted dip and November’s negatively revised 0.5% decline. Orders for non-defense capital goods excluding aircraft, considered a proxy for business spending, dropped 4.3%, compared to projections of a 0.2% decrease and the downwardly revised 1.1% decline in the month prior. The report showed broad-based weakness, with the volatile components of the report—defense and non-defense aircraft and parts—both falling sharply, but standout drags came from a tumble in communications equipment, which was met with solid declines in manufacturing and machinery.

The report likely elevated recession concerns ahead of tomorrow’s first look (of three) at 4Q GDP, projected to show growth slowed from a 2.0% q/q annualized rate of growth in Q3 to a pace of 0.8%.

However, there’s little doubt, we are in a manufacturing recession. But, at this point, the much larger services segment of the economy is showing sustained growth. Historically, if the annual average of industrial production is down for an entire year, weakness spread to the broader economy. We have yet to see that kind of weakness, but it’s on our watch list.

Every predictive recession model we have studied still suggests a low risk of recession. In fact, if we are in one or heading toward one, it would be the first time in history the leading indicators did not roll over and provide ample warning.

Weekly initial jobless claims fell by 16,000 to 278,000 last week, versus estimates of a decline to 281,000 as the prior week’s figure was revised upward by 1,000 to 294,000. The four-week moving average decreased by 2,250 to 283,000, while continuing claims rose by 49,000 to 2,268,000, north of the forecasted 2,218,000 level.

Pending home sales ticked 0.1% higher m/m in December, versus projections of a 0.9% rise and following the downwardly revised 0.9% decline registered in November. Compared to last year, sales were 3.1% higher, versus forecasts of a 4.8% rise. Pending home sales reflect contract signings and are used as a gauge of the pipeline of existing home sales, which jumped in December.

The Kansas City Fed Manufacturing Activity Index for January remained at December’s -9 level, versus forecasts of a decline to -10, with a reading south of zero depicting contraction.

Treasuries dipped, with the yields on the 2-year note and the 30-year bond ticking 1 basis point (bp) higher to 0.82% and 2.79%, respectively, and the yield on the10-year note increasing 2 bps to 1.98%.

Additional items on tomorrow’s economic docket will include the Chicago Purchasing Managers Index for January, expected to show activity in the Midwest improved to 45.3 from the 42.9 posted in December, though a reading below 50.0 represents contraction. We will also receive the final University of Michigan Consumer Sentiment Index for January, forecasted to inch lower to 93.0 from the 93.3 registered in the preliminary release, but up from the 92.6 reading for December.

Europe lower and Asia mixed following Fed decision

European equities traded lower, with yesterday’s monetary policy statement from the Federal Reserve, which led to a late-session drop in the U.S., causing some confusion regarding the trajectory of future rate hikes. Traders digested some mixed earnings reports from both sides of the pond, along with the disappointing U.S. durable goods report. In economic news, preliminary U.K. 4Q GDP rose at a 0.5% q/q pace, matching expectations, and compared to the 0.4% gain in 3Q. German consumer price inflation fell in line with forecasts for January, while eurozone economic confidence declined for this month. Oil & gas issues showed some strength as crude oil prices rallied, but Italian banks remained under pressure on continued concerns about bad loans. The euro traded higher versus the U.S. dollar and bond yields in the region finished mixed.

Stocks in Asia finished mixed on the heels of yesterday’s drop in the U.S. as traders grappled with the Fed’s monetary policy statement after it left its target rate range unchanged. Japanese equities declined on the heels of an unexpected dip in the nation’s retail sales for December, but some losses were pared late in the session as the yen gave up early strength. Also, traders may have treaded cautiously ahead of tomorrow’s monetary policy decision from the Bank of Japan. Schwab’s Chief Global Investment Strategist, Jeffrey Kleintop, CFA, offers a look at the global monetary policy front in his article, Central Banks to the Rescue?. Mainland Chinese stocks continued their rout on festering economic growth concerns and despite the People’s Bank of China continuing to pump liquidity into the financial system. Stocks trading in Hong Kong and South Korea gained ground and Australian securities also moved higher with oil & gas, basic materials and financial stocks showing some resiliency, while Indian equities declined.

In addition to the aforementioned monetary policy decision from the Bank of Japan, the international economic docket for tomorrow will be flooded with releases from the island nation on its jobless rate, CPI, industrial production, consumer confidence, vehicle production, housing starts and construction orders. Australia will report its PPI and private sector credit growth, while additional releases from across the pond will include retail sales from Germany, consumer spending from France and CPI for the eurozone.

Market Insights 1/27/2016

Stocks Fall Following Fed Statement

U.S. stocks traded sharply lower on the heels of the Federal Reserve’s decision to leave current monetary policy unchanged.

Ahead of the Fed’s decision, stocks showed some resiliency in the wake of disappointing earnings reports from Dow members Apple and Boeing as mixed inventory data from the Department of Energy gave a boost to crude oil prices.

Treasuries were mixed, the U.S. dollar lost ground and gold was higher, while in domestic economic news, new home sales were reported well above economists’ expectations.

The Markets…

The Dow Jones Industrial Average lost 223 points (1.4%) to 15,944

The S&P 500 Index declined 21 points (1.1%) to 1,883, Utilities were the only S&P sector in the green edging out a .23% gain while Consumer Staples also provided some safety posting a meager .08% loss

The Nasdaq Composite was 100 points (2.2%) lower at 4,468

In heavy volume, 1.1 billion shares were traded on the NYSE and 2.1 billion shares changed hands on the Nasdaq

WTI crude oil rose $0.85 to $32.30 per barrel and wholesale gasoline was unchanged at $1.07 per gallon

The Bloomberg gold spot price increased $5.66 to $1,125.57 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.4% lower at 98.97

Housing data stronger than expected, Fed leaves policy unchanged

New home sales jumped 10.8% month-over-month in December to an annual rate of 544,000 from November’s upwardly revised 491,000 pace, and compared to the Bloomberg forecast of 500,000. The median home price declined 4.3% y/y at $288,900. The supply of new home inventory fell to 5.2 months at the current sales pace from 5.6 months in November as sales jumped m/m in the Northeast, Midwest and West, while sales in the South were nearly unchanged. New home sales are based on contract signings instead of closings.

The MBA Mortgage Application Index rose 8.8% last week, after gaining 9.0% in the previous week. The solid increase came as an 11.3% jump in the Refinance Index was met with a 4.6% increase for the Purchase Index, while the average 30-year mortgage rate fell 4 basis points o 4.02%.

The Federal Open Market Committee (FOMC) announced it will leave current monetary policy unchanged, holding the target for its benchmark interest rate at 0.25-0.50%. Though the Committee did not update its economic projections or hold a press conference, it did judge “that labor market conditions improved further even as economic growth slowed late last year,” and that it “is closely monitoring global economic and financial developments and is assessing their implications for the labor market and inflation, and for the balance of risks to the outlook.” We feel it’s too soon to say whether the Fed will move at its March meeting; but we are fairly confident the FOMC will lower its projections for rate hikes this year from a total of four to closer to what the market’s been expecting, which is no more than two.

Treasuries were mixed, as the yield on the 2-year note lost 1 bp to 0.83%,the yield on the 10-year note was flat at 2.00% and the 30-year bond rate gained 1 bp to 2.80%.

A preliminary read for December durable goods orders headlines tomorrow’s U.S. economic calendar, projected to drop 0.7% m/m, after a flat reading in November. Excluding transportation, orders are expected to be 0.1% lower m/m, while non-defense capital goods orders excluding aircraft, considered a proxy for business spending, are expected to decrease 0.2%, after declining 0.3% in November.

Additional reports expected on tomorrow’s docket include pending home sales, expected to have increased 0.9% m/m for December, and weekly initial jobless claims, forecasted to have decreased to 281,000 from the 293,000 level the week prior. Rounding out the day, the Kansas City Fed Manufacturing Activity Index is forecasted to have declined slightly to a level of -10 for January from the -9 registered in December, with a reading below zero denoting contraction.

Europe turns higher on late-day recovery, Asia finishes mostly to the upside

European equities finished mostly higher, ahead of today’s Fed monetary policy decision, with oil prices turning higher late in the session on some mixed oil inventory data in the U.S., adding to yesterday’s solid advance and limiting the impact of some disappointing earnings reports. The euro was little changed versus the U.S. dollar and bond yields in the region mostly gained ground. In economic news, German consumer confidence came in above expectations for February.

Stocks in Asia finished mostly to the upside on the heels of the solid gain in the U.S., with crude oil prices rising noticeably to help buoy the markets. Japanese equities advanced with the yen giving back some of yesterday’s gains. The advance came ahead of today’s Fed decision in the U.S. and as the Bank of Japan’s monetary policy decision looms on this week’s horizon.

Stocks trading in Hong Kong were higher, though mainland Chinese securities declined as a report showing the nation’s industrial profits fell in December exacerbated festering growth concerns that have contributed to the recent global market rout. Indian equities finished flat after not trading yesterday due to a holiday, and South Korean stocks increased, while Australian listings fell in the wake of a report that showed the nation’s 4Q consumer price inflation came in hotter than expected, led by weakness in financials and oil & gas issues.

Market Insights 1/26/2016

Stocks Using Oil and Data as Rally Fuel

Despite another Chinese market selloff, U.S. stocks are rallying on a jump in crude oil prices and some upbeat economic and earnings reports, headlined by a stronger-than-expected read on domestic Consumer Confidence and a plethora of results from Dow Jones Industrial members.

Treasuries and the U.S. dollar are dipping, while the Fed is beginning its two-day monetary policy meeting. Gold is gaining ground. European equities overcame early losses on the rebound in oil.

The Markets…

The Dow Jones Industrial Average is up 1.77% or 282 pts to close at 16,167

The S&P 500 Index added on 1.43% or 27 points to close at 1,904

In sector news, Energy rallied back posting a 3.44% gain, followed by Industrials +1.66%, Financials +1.49% and Materials +1.45%.

The tech laden Nasdaq Composite moved higher by 1.10% to close at 4,568

WTI crude oil is rising .83 to $31.16 per barrel

The Bloomberg gold spot price is traded $17 higher to $1,123 per ounce

Consumer Confidence improves more than expected

The Consumer Confidence Index rose to 98.1 in January from the downwardly revised 96.3 level in December, and compared to the Bloomberg estimate of 96.5. Sentiment toward the present situation was unchanged, while expectations of business conditions improved month-over-month. Also, on employment, the labor differential—consumers’ appraisal of jobs being “plentiful” minus being “hard to get”—dipped to -0.6 from the -0.3 posted last month.

The preliminary Markit U.S. Services PMI Index declined to 53.7 in January from 54.3 in December, versus forecasts of a dip to 54.0, though a reading above 50 denotes expansion.

The 20-city composite S&P/Case-Shiller Home Price Index showed a gain in home prices of 5.8% y/y in November, versus the Bloomberg expectation of a 5.7% rise. Month-over-month (m/m), home prices were higher by 0.9% on a seasonally adjusted basis for November, above forecasts of a 0.8% increase.

The Richmond Fed Manufacturing Activity Index declined but remained in expansion territory (a reading above zero), declining to 2 in January from 6 in December, matching estimates.

Treasuries finished mixed, as the yield on the 2-year fell 2 basis points (bps) to 0.83%, while the yield on the 10-year note was flat at 2.01% and the 30-year bond rate ticked 1 basis point higher to 2.80%, respectively.

Tomorrow’s conclusion to the FOMC meeting and subsequent statement, other items on the economic calendar include new home sales, with economists expecting a 2.0% m/m increase during December to an annual rate of 500,000 units, as well as MBA Mortgage Applications.

Finally, the Federal Open Market Committee (FOMC) kicked off its two-day monetary policy meeting, with a decision due out tomorrow afternoon. The combination of the volatility in the equity market and the continued rout in oil/commodities, combined with the lack of inflationary pressures, will almost certainly mean the Fed will make no move at its upcoming meeting. It’s too soon to say whether the Fed will move at its March meeting; but we are fairly confident the FOMC will lower its projections for rate hikes this year from a total of four to closer to what the market’s been expecting, which is no more than two.

Europe overcomes early losses, Asia back under pressure

European equities recovered from early losses that stemmed from another selloff in China and yesterday’s drop in crude oil prices. Stocks showed some resiliency as crude oil prices turned positive and some earnings reports in the region were favorable. The euro dipped versus the U.S. dollar and bond yields in the region were mostly lower. In economic news, Switzerland’s exports declined m/m in December, resulting in a larger-than-expected narrowing of the country’s trade surplus.

The U.K. FTSE 100 Index was up 0.6%, Germany’s DAX Index rose 0.9%, France’s CAC-40 Index gained 1.1%, Spain’s IBEX 35 Index and Italy’s FTSE MIB Index advanced 1.5%, and Switzerland’s Swiss Market Index increased 0.7%.

Stocks in Asia finished lower with yesterday’s resumption of the rout in oil prices weighing on sentiment, along with festering global growth concerns, which overshadowed the recent resurfacing of expectations of further monetary policy stimulus efforts from some global central banks. The Shanghai lost 6.42%, the Hang Seng dropped 2.48% and the Japanese Nikkei lost 2.35%, in heavy trading.

In recent years, actions by central banks have lifted stocks temporarily, but seemed to do little to boost economic activity. The key for sustaining a turnaround in the stock market is a recovery in growth and avoiding a global recession in 2016. Rather than rescuing investors, comments from central bankers are more likely to create volatility, both up and down, in the markets until the global economic path is clearer.

Company Specific News

Dow member Procter & Gamble Co. reported fiscal earnings-per-share (EPS) ex-items of $1.04, above the $0.98 FactSet estimate, as revenues declined 9.0% year-over-year (y/y) to $16.9 billion, roughly in line with expectations. The company’s organic growth—excluding divestitures and acquisitions—topped forecasts. PG issued 2016 EPS guidance that missed forecasts, due to a larger-than-expected negative impact of foreign exchange, though it maintained its constant currency core EPS expectation and raised its free cash flow outlook.

Dow component 3M Co. posted 4Q EPS ex-items of $1.80, compared to the expected $1.63, with revenues decreasing 5.4% y/y to $7.3 billion, versus the projected $7.2 billion. MMM reaffirmed its full-year profit outlook.

Dow member DuPont announced 4Q profits ex-items of $0.27 per share, roughly in line with forecasts, as revenues declined 9.0% y/y to $5.3 billion, compared to the expected $5.4 billion. DD issued 2016 EPS guidance that came in below estimates.

Dow component Johnson & Johnson reported 4Q EPS ex-items of $1.44, two cents above expectations, with revenues decreasing 2.4% y/y to $17.8 billion, versus the projected $17.9 billion. JNJ issued 2016 earnings guidance that beat estimates, though its revenue outlook came in shy of forecasts.

Sprint Corp. posted a fiscal 3Q loss of $0.21 per share, compared to the forecasted $0.23 per share shortfall, as revenues declined 10.0% y/y to $8.1 billion, versus the anticipated $8.2 billion. The company raised its full-year operating earnings guidance.

Coach Inc. posted fiscal 2Q EPS ex-items of $0.68, two pennies north of expectations, as revenues increased 4.0% y/y to $1.3 billion, roughly in line with forecasts. The company raised its full-year operating income outlook, while maintaining its 2016 sales guidance.

Market Insights 1/25/2016

Market Rally Ends

The U.S. equity markets were unable to add to the two-session rally that concluded last week, finishing the first trading day of this week with solid losses, as crude oil’s rebound stalled and some regional manufacturing activity disappointed.

Treasuries finished higher, as did gold, while the U.S. dollar fell.

The Markets…

The Dow Jones Industrial Average declined 208 points (1.3%) to 15,885

The S&P 500 Index decreased 30 points (1.6%) to 1,877

The Nasdaq Composite was 73 points (1.6%) lower at 4,518

In heavy volume, 1.1 billion shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq

WTI crude oil fell $1.85 to $30.34 per barrel and wholesale gasoline lost $0.06 to $1.05 per gallon

The Bloomberg gold spot price rose $9.99 to $1,107.94 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.3% lower at 99.27

Drop in regional manufacturing output unexpectedly accelerates

The Dallas Fed Manufacturing Index fell to -34.6 for January—the lowest since April 2009—from December’s negatively revised -21.6 level, with economists surveyed by Bloomberg forecasting an improvement to -14.5. A reading below zero denotes contraction.

Treasuries were higher, as the yield on the 2-year note fell 1 basis point to 0.87%, the yield on the 10-year note was 4 bps lower at 2.02%, and the 30-year bond rate declined 3 basis points to 2.80%.

Items on tap for tomorrow’s economic calendar include January Consumer Confidence, forecasted to remain at December’s level of 96.5, the Richmond Fed Manufacturing Index, with economists expecting a reading of 2 for January, down from the 6 posted in December, with a reading above zero denoting expansion, as well as the S&P Case-Shiller Home Price Index and the preliminary Markit Services PMI Index.

Europe gives back some of late-last week’s rally, Asia extends Friday’s bounce

European stocks finished lower, giving back some of the rally seen in the last two sessions of last week that were fueled by European Central Bank President Mario Draghi’s comments that suggested an expansion of stimulus efforts could come as early as its next meeting in March. Oil & gas issues saw some pressure as oil prices pulled back from their recent solid rebound. Financials also lost ground amid festering concerns about the health of the Italian banking sector. Moreover, sentiment may have been hamstrung by a report showing German business confidence declined for a second-straight month in January, likely bogged down by the turmoil for the global markets to begin 2016. The euro gained ground versus the U.S. dollar and bond yields in the region were mostly lower.

Stocks in Asia finished higher, adding to Friday’s rally, amid the growing expectations of further monetary policy stimulus out of Japan and Europe, while the Chinese markets showed some signs of stability. Japanese equities advanced following Friday’s solid jump, with a larger-than-expected drop in the nation’s exports preceding Friday’s monetary policy decision from the Bank of Japan. Securities traded in mainland China and Hong Kong also rose, with coal and steel issues getting a boost from the government’s pledge to further cut overcapacity and excess labor in those industries, per Bloomberg. Meanwhile, strength in oil & gas stocks on the recent rally in oil prices, along with solid gains for financials, helped boost Australia’s markets, while shares traded in India and South Korea also moved higher.

Market Insights 1/22/2016

Bulls Return

U.S. equities closed nicely higher for a second-straight session, as a global stock rally ensued amid a steep rise in crude oil prices and as global sentiment may have been further buoyed by expectations of additional stimulus measures in the Eurozone and Japan.

Treasuries and gold were lower, while the U.S. dollar traded higher.

The Markets…

The Dow Jones Industrial Average advanced 211 points (1.3%) to 16,093

The S&P 500 Index increased 38 points (2.0%) to 1,907

The Nasdaq Composite jumped 119 points (2.7%) to 4,591

In moderately-heavy volume, 1.2 billion shares were traded on the NYSE and 2.2 billion shares changed hands on the Nasdaq

WTI crude oil surged $2.66 to $32.19 per barrel and wholesale gasoline gained $0.06 to $1.11 per gallon

The Bloomberg gold spot price decreased $3.69 to $1,097.51 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.5% higher at 99.56

Markets were higher for the week, as the DJIA advanced 0.7%, the S&P 500 Index increased 1.4%, and the Nasdaq Composite Index gained 2.3%

Housing and manufacturing data surprise to the upside

Existing-home sales in December jumped 14.7% month-over-month the largest monthly increase ever recorded—to a 5.46 million annual rate, compared to the Bloomberg forecast of an increase to a 5.20 million pace. November’s figure was unadjusted at a 4.76 million annual rate. Sales were 7.7% higher y/y. The median existing-home price was 7.6% above a year ago at $224,100, and housing supply is the lowest since January 2005. Single-family home sales rose sharply, and condominium sales were higher, while all four major regions posted jumps in sales. National Association of Realtors (NAR) chief economist Lawrence Yun said the December robust bounce back caps off the best year since 2006, and while the carryover of November’s delayed transactions into December contributed greatly to the sharp increase, the overall pace taken together indicates sales these last two months maintained the healthy level of activity seen in most of 2015.

The preliminary Markit U.S. Manufacturing PMI Index for January unexpectedly rose to 52.7 from December’s 51.2 level, and compared to the forecast of a dip to 51.0. A reading above 50 denotes expansion.

The Conference Board’s Index of Leading Economic Indicators (LEI) was down 0.2% m/m in December, matching projections, while November’s 0.4% rise was revised to a 0.5% increase. The yield curve continued to lend support, but components pertaining to ISM new orders, building permits, and jobless claims, weighed on the index.

Treasuries were lower, with the yield on the 2-year note increasing 3 basis points to 0.87%, the yield on the 10-year note gaining 2 bps to 2.05% and the 30-year bond rate rising 1 bp to 2.82%.

Europe extends yesterday’s ECB-fueled rally, Asia follows

European equities rallied broadly for a second-straight session, with oil & gas stocks leading the way as crude oil prices extended yesterday’s advance. The Stoxx Europe 600 Index posted its best two-day gain since October 2011, per Bloomberg, and finished the week higher for the first time this year. Sentiment remained buoyed by yesterday’s comments from European Central Bank (ECB) President Mario Draghi that suggested an expansion of further stimulus measures could come as early as its next meeting in March. The ECB’s sooner-than-expected consideration of further stimulus measures comes as inflation was seen as continuing to be weaker than expected, downside economic risks were said to have increased, and as the global markets have been in turmoil to begin 2016.

In economic news, Markit’s preliminary Eurozone Composite PMI Index—a gauge of business activity in both the services and manufacturing sectors—declined to 53.5 for January, from 54.3 in December, and compared to the dip to 54.1 that was expected. However, a reading above 50 denotes continued expansion in business activity.

Lastly, the euro traded lower versus the U.S. dollar and bond yields in the region moved mostly higher.

Stocks in Asia finished broadly higher on the heels of solid gains in the U.S. and Europe yesterday as crude oil prices recovered and the European Central Bank hinted at the possibility of expanded stimulus measures at its next meeting in March. Japanese stocks led the way, with the Nikkei 225 Index jumping 5.9% as the yen weakened and reports suggested the Bank of Japan is considering further monetary policy stimulus. The Nikkei 225 Index rebounded from sharp losses this week that took the index into bear market territory.

Stocks in mainland China and Hong Kong advanced amid strength in the energy sector and as the government signaled it will provide support to try to combat overcapacity in the steel and coal industries, per Bloomberg. Equities in Australia, South Korea and India traded to the upside.

Market Insights 1/21/2016

Stocks Choppy

U.S. equities gave up sizable gains but managed to finish to the upside in some volatile trading as crude oil prices rallied after recently falling to near 12-year lows and while European Central Bank President Draghi conveyed possible reconsideration of the central bank’s policy stance at its next meeting.

In economic news, weekly jobless claims rose and some regional manufacturing activity improved, but remained at a level depicting contraction.

Gold was slightly higher, Treasuries were lower and the U.S. dollar also finished to the downside after initially jumping on the heels of Draghi’s remarks.

The Markets….

The Dow Jones Industrial Average advanced 116 points (0.7%) to 15,882

The S&P 500 Index gained 10 points (0.5%) to 1,869

The Nasdaq Composite finished flat at 4,472

In heavy volume, 1.2 billion shares were traded on the NYSE and 2.4 billion shares changed hands on the Nasdaq

WTI crude oil increased $1.18 to $29.53 per barrel, wholesale gasoline ticked $0.01 higher to $1.03 per gallon

The Bloomberg gold spot price added $0.85 to $1,101.77 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.1% lower at 98.99

Jobless claims surprisingly rise

Weekly initial jobless claims rose by 10,000 to 293,000 last week, versus the Bloomberg estimate calling for a decline to 278,000 as the prior week’s figure was revised lower by 1,000 to 283,000. The four-week moving average rose by 6,500 to 285,000, while continuing claims dropped by 56,000 to 2,208,000, south of the forecasted 2,247,000 level.

The Philly Fed Manufacturing Index in January improved to -3.5 from -5.9 in December, where economists had expected it to remain, but a reading below zero denotes contraction.

Treasuries were lower, as the yield on the 2-year note ticked 1 basis point higher at 0.83%, the yield on the 10-year note rose 4 bps to 2.02%, and the 30-year bond rate gained 5 bps to 2.80%.

Tomorrow’s domestic economic calendar will conclude with the release of December existing home sales, projected to rise 9.2% month-over-month to an annual rate of 5.2 million units, rebounding from November’s drop to 4.8 million units. Although demand for houses has shown signs of weakness recently, household formation has been increasing (according to data compiled by Bloomberg) and interest rates remain low. This should bolster mortgage demand.

Europe rebounds, Asia falls in volatile action

European equities traded higher, bouncing back following yesterday’s selloff, with basic materials and oil & gas stocks showing some strength despite festering global growth concerns and the recent rout in crude oil prices. The focus was on the European Central Bank (ECB), which expectedly left its monetary policy stance unchanged with its benchmark interest rate remaining at a record low of 0.05%. However, at the highly-scrutinized customary press conference following the decision, ECB President Mario Draghi suggested the central bank may deploy further stimulus measures sooner than expected as he noted that it is necessary to review and possibly reconsider its policy stance at its next meeting in March and there are “no limits” to its action. The comments come as Draghi said inflation—the central bank’s lone policy mandate—dynamics continue to be weaker than expected and noted increased downside economic risks, likely in response to the recent tumble in the global markets. Heading into the meeting, the general expectation was for the ECB to review its policy stance in June, per CNBC. The comments came as the ECB appeared to underwhelm the markets last month with its expanded stimulus measures. The euro gave up early gains and declined versus the U.S. dollar and bond yields in the region were mostly lower.

The U.K. FTSE 100 Index was up 1.8%, France’s CAC-40 Index and Spain’s IBEX 35 Index gained 2.0%, Germany’s DAX Index rose 1.9%, Switzerland’s Swiss Market Index advanced 0.9%, and Italy’s FTSE MIB Index jumped 4.2%.

Stocks in Asia finished mostly to the downside, with global sentiment remaining skittish amid the persistent drop in crude oil prices, festering global growth concerns, and volatility in the currency markets. Markets in Japan and China reversed early gains to finished lower with the yen overcoming losses late in the session and Chinese currency uncertainty in both Shanghai and Hong Kong continuing. Japan’s Nikkei 225 Index extended its drop into bear market territory. Stocks trading in mainland China and Hong Kong fell despite action from the People’s Bank of China (PBoC), which injected the largest amount of cash into the financial system in three years, per Bloomberg. Equities in South Korea and India traded lower, while Australian stocks bucked the trend, even as financials and oil & gas issues moved lower.

Market Insights 1/20/2015

Stocks Stage Comeback

While still not pretty, after beginning the day deeply rooted in negative territory, and then the blue-chip index accelerating to a more than 500-point decline, the U.S equity markets were able to stage a comeback, with the major indexes finishing well off the lows of the day. The fall in crude oil prices continued to pressure the energy sector, as well as up the global growth uncertainty.

Treasuries moved higher amid the palpable anxiety, while mixed housing data and a cooler-than-expected inflation report didn’t help matters. Mostly positive earnings news on the equity front had little effect, while the U.S. dollar and gold were higher.

The Markets….

The Dow Jones Industrial Average fell 249 points (1.6%) to 15,767

The S&P 500 Index declined 22 points (1.2%) to 1,859

The Nasdaq Composite shed 5 points (0.1%) to 4,472

In very heavy volume, 1.5 billion shares were traded on the NYSE and 3.2 billion shares changed hands on the Nasdaq

WTI crude oil fell $1.22 to $28.35 per barrel, wholesale gasoline lost $0.01 to $1.02 per gallon

The Bloomberg gold spot price rose $14.11 to $1,101.53 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.1% higher at 99.12

Housing construction mixed, consumer price inflation cooler than expected

Housing starts for December declined 2.5% month-over-month (m/m) to an annual pace of 1,149,000 units, compared to the Bloomberg forecast of a 1,200,000 unit rate. November’s starts were upwardly revised to an annual pace of 1,179,000. Single and multi-family unit starts were both down m/m, but finished solidly higher y/y, led by the latter. Building permits fell 3.9% m/m in December to an annual rate of 1,232,000, after November’s downward revision to a 1,282,000 rate, but above the expected annual pace of 1,200,000 units. Single-family unit permits grew m/m and were nicely higher compared to last year, while multi-family permits fell m/m, trimming their sharp y/y growth.

Housing activity has slowed as of late, likely due to the flare-up in global economic growth concerns and the volatility that has ensued in the wake of the Fed hiking rates for the first time in nearly a decade. However, building permits, one of the leading indicators tracked by the Conference Board as it is a gauge of future construction, showed the annualized rate of single-family units is at the highest level in eight years, per Bloomberg. Also, as noted by the National Association of Home Builders yesterday, sentiment among home builders remains at a level that “should bode well for future home sales in the year ahead.” Every predictive recession model I have studied still suggests a low risk of recession. In fact, if we are in one or heading toward one, it would be the first time in history the leading indicators did not roll over and provide ample warning.

The Consumer Price Index (CPI) dipped 0.1% m/m in December, versus forecasts of a flat reading, while November’s flat level was unrevised. The core rate, which strips out food and energy, ticked 0.1% higher m/m, compared to expectations of a 0.2% increase, and November’s unrevised 0.2% rise. Y/Y, prices were up 0.7% for the headline rate, versus forecasts of a 0.8% gain, while the core rate was 2.1% higher, in line with projections. November’s y/y figures showed an unrevised 0.5% rise and an unadjusted 2.0% increase for the headline and core rates respectively.

The MBA Mortgage Application Index rose 9.0% last week, after surging 21.3% in the previous week. The solid increase came as an 18.7% jump in the Refinance Index more than offset a 1.6% decline for the Purchase Index, while the average 30-year mortgage rate fell 6 basis points to 4.06%.

Treasuries finished higher, as the yield on the 2-year note declined 5 bps to 0.83%, the yield2 on the 10-year note and the 30-year bond fell 7 bps to 1.99% and 2.76%, respectively.

Tomorrow’s economic calendar will give investors a look at weekly initial jobless claims, forecasted to decline to a level of 278,000 from the prior week’s 284,000, as well as the Philly Fed Business Activity Index, with economists expecting January’s report to match December’s -5.9 reading.

Europe and Asia broadly lower as global downside volatility remains

European equities traded sharply lower across the board, with global growth concerns continuing to dampen sentiment, exacerbated by a reduced 2016 global growth forecast from the International Monetary Fund (IMF). Oil & gas issues paced the widespread losses with crude oil prices remaining in selloff mode and as shares of Royal Dutch Shell PLC. fell after reporting a tumble in quarterly profits. Also, Zurich Insurance Group AG (ZURVY $22) saw heavy pressure after the company forecasted a quarterly loss for its general insurance business unit. In economic news, U.K. jobless claims unexpectedly fell and the nation’s unemployment rate surprisingly dipped to 5.1% for November. The euro was little changed versus the U.S. dollar, while bond yields in the region were mixed.

The U.K. FTSE 100 Index and France’s CAC-40 Index dropped 3.5%, Germany’s DAX Index declined 2.8%, Spain’s IBEX 35 Index decreased 3.2%, Italy’s FTSE MIB Index fell 4.8%, and Switzerland’s Swiss Market Index traded 3.1% lower.

Further east, stocks in Asia also finished broadly lower on the global uncertainty, the continued tumble in crude oil prices, and the IMF’s lowered 2016 global growth forecast. Japanese equities fell, pressured by a rally in the yen late in the session, with the nation’s Nikkei 225 Index entering bear market territory as the index is down over 20% since its August high. Mainland Chinese stocks declined, despite continued relative stability in the yuan, while the recent drop in Hong Kong’s dollar to near the lowest level since 2007, per Bloomberg, weighed on the Hang Seng Index, which tumbled 3.8%.

Market Insights 1/19/2016

Early Enthusiasm Fades

Shrugging off positive trading sessions from their foreign counterparts, U.S. stocks pared early solid gains to finish mixed, as initial support from a rally in China on optimism of further stimulus measures from the government eroded. Continued pressure on energy stocks dragged the equity markets lower, as early gains in crude oil prices dissipated by the days end. Meanwhile, treasuries were nearly unchanged, the U.S. dollar was modestly higher, while gold was lower.

The Markets…

The Dow Jones Industrial Average rose 28 points (0.2%) to 16,016

The S&P 500 Index added a point (0.1%) to 1,881

The Nasdaq Composite fell 11 points (0.3%) to 4,477

In heavy volume, 1.2 billion shares were traded on the NYSE and 2.4 billion shares changed hands on the Nasdaq

WTI crude oil fell $0.82 to $29.57 per barrel, but wholesale gasoline gained $0.01 to $1.03 per gallon

The Bloomberg gold spot price declined $2.25 to $1,087.43 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.1% higher at 99.09

Homebuilder sentiment slightly below expectations

The National Association of Home Builders (NAHB) Housing Market Index showed homebuilder sentiment this month remained at December’s downwardly revised 60 figure from the originally-reported 61 level, where the Bloomberg estimate had called for it to remain. Builder confidence remained above 50, which separates good and poor conditions, for the nineteenth-straight month. The NAHB noted, “After eight months hovering in the low 60s, builder sentiment is reflecting that many markets continue to show a gradual improvement, which should bode well for future home sales in the year ahead.” The NAHB added that the economic outlook remains promising, as consumers regain confidence and home values increase, which will help the housing market move forward.

With sentiment remaining solid, tomorrow, we will get a look at housing construction activity for December, with the release of housing starts and building permits (economic calendar). Starts are projected to rise 2.3% month-over-month to an annual rate of 1,200,000 units, while permits are forecasted to drop 6.4% to a rate of 1,200,000 units. Although demand for houses has shown signs of weakness recently, household formation has been increasing (according to data compiled by Bloomberg) and interest rates remain low. In our opinion, we feel this should bolster mortgage demand.

Treasuries finished nearly unchanged, as the yield on the 2-year note ticked 1 basis point higher to 0.87%, while the yields on the 10-year note and the 30-year bond were flat at 2.05% and 2.82%, respectively.

In addition to tomorrow’s release of housing data, investors will also get the Consumer Price Index (CPI), with economists expecting a flat reading and a 0.2% m/m increase for the headline and core rate, respectively, matching the figures posted in November, while MBA Mortgage Applications will also be reported.

Europe chips away at dismal start to year, Asia mostly higher

European equities finished broadly higher, bolstered by a rally in China on the heels of some lackluster economic data, which boosted expectations of further government stimulus measures. However, stocks came off of the best levels of the day, with oil & gas stock gains being pared as crude oil prices turned mixed. The Stoxx Europe 600 Index rebounded somewhat from its recent tumble to begin the year, which took the index into bear market territory at the end of last week, as global market volatility has increased.

The euro turned modestly higher versus the U.S. dollar, while bond yields in the region were mixed. In economic news, German investor confidence fell for the first time in three months for January, but came in above expectations, while eurozone consumer price inflation came in flat m/m in December. U.K. consumer price inflation unexpectedly ticked 0.1% higher, versus the flat reading that was anticipated.

The U.K. FTSE 100 Index was up 1.7%, France’s CAC-40 Index rose 2.0%, Germany’s DAX Index and Switzerland’s Swiss Market Index advanced 1.5%, while Italy’s FTSE MIB Index and Spain’s IBEX 35 Index increased 1.0%.

Stocks in Asia finished higher, with the Chinese yuan remaining stable, while a plethora of Chinese economic data fostered hopes of further stimulus measures from the government. China’s 4Q GDP grew at a 6.8% y/y pace—the slowest quarter of growth since March 2009—after expanding by 6.9% in 3Q, where economists had expected the pace to remain. For the year, China’s economy grew at a 6.9% pace, in line with expectations, but was down from the 7.3% expansion posted in 2014, and compared to the nation’s 7.0% growth target, posting the slowest annual rate of expansion since 1990. However, looking into the report, a bright spot may have been the rise in the country’s services sector, which is now the largest component of the economy, per Bloomberg, as the nation transitions to a consumer driven economy. In other Chinese economic news, industrial production rose at a level matching forecasts, while retail sales grew at a slightly smaller-than-expected pace.

Market Insights 1/15/2016

Sea of Red

Though off the worst levels of the day, U.S. stocks closed with steep losses ahead of the three-day holiday weekend as global uneasiness continued to fester with mainland Chinese markets tumbling into bear market territory and crude oil prices falling to 12-year lows.

Treasuries rallied as a deluge of domestic economic data disappointed, while gold was higher and the U.S. dollar was lower.

The Markets…

The Dow Jones Industrial Average tumbled 391 points (2.4%) to 15,988

The S&P 500 Index dropped 45 points (2.3%) to 1,877

All 9 of the S&P 500 sectors were lower with energy -2.89% and Technology -2.82% taking the largest beating, the best performing sector on the day were Utilities giving back .89%

The Nasdaq Composite fell 127 points (2.7%) to 4,488

In heavy volume, 1.5 billion shares were traded on the NYSE and 2.8 billion shares changed hands on the Nasdaq

WTI crude oil fell $1.78 to $29.42 per barrel and wholesale gasoline lost $0.05 to $1.02 per gallon

The Bloomberg gold spot price increased $10.11 to $1,088.49 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.2% lower at 98.92

Markets were lower for the week, as the DJIA dropped 2.2%, the S&P 500 Index fell 2.2%, and the Nasdaq Composite Index lost 3.3%

Heavy dose of economic data mostly disappoints

Advance retail sales for December were down 0.1% month-over-month (m/m), matching the Bloomberg forecast, while November’s 0.2% increase was adjusted to a 0.4% gain. Auto sales were flat and sales at gasoline stations fell 1.1%. Last month’s sales ex-autos dipped 0.1% m/m, versus expectations of a 0.2% gain, while the 0.4% rise in the previous month was revised to a 0.3% increase. Sales ex-autos and gas were flat m/m for December, versus the 0.4% increase that was anticipated, while November’s 0.5% gain was unrevised. Sales of general merchandise, clothing, electronics, and appliances all declined, while sales of furniture, home goods, food services, and building materials all gained.

The preliminary University of Michigan Consumer Sentiment Index rose to 93.3 this month from 92.6 in December, and compared to estimates calling for 92.9. The economic conditions component of the survey deteriorated, but the outlook aspect improved. The 1-year inflation projection declined to 2.4% from 2.6%, while the 5-10 year inflation outlook ticked higher to 2.7% from 2.6%.

The Producer Price Index (PPI) showed prices at the wholesale level in December were down 0.2% m/m, in line with expectations, while November’s 0.3% gain was unrevised. The core rate, which excludes food and energy, ticked 0.1% higher m/m, matching forecasts, and November’s 0.3% rise was unadjusted. Y/Y, the headline rate fell 1.0%, in line with projections, and the core PPI was up 0.3% last month, matching estimates. In November, producer prices were down 1.1% and up 0.5% for the headline and core rates, respectively.

The Empire Manufacturing Index showed the contraction in output from the New York region (a reading below zero) for January surprisingly accelerated sharply. The index dropped to -19.4 from the downwardly revised -6.2 in December, with the forecast calling for an improvement to -4.0.

Industrial production decreased 0.4% m/m in December, versus the estimated 0.2% decline, and November’s 0.6% drop was revised to a 0.9% fall. Manufacturing production dipped, while output in mining and utilities fell. Capacity utilization declined to 76.5% from November’s downwardly revised 76.9% rate, and versus projections of 76.8%. Capacity utilization is 3.6 percentage points below its long-run average.

Today’s data was mostly on the soft side, notably the disappointing manufacturing data, likely exacerbating global growth concerns, but the one bright spot was the larger-than-expected improvement in consumer sentiment, led by their expectations. As noted previously, the consumer has tailwinds of lower oil prices, increased minimum wages and signs of business’ planning to raise compensation. We believe this combination could lead to upside surprises from consumer spending, helping to support the service side of the economy (88% of the U.S. economy), and offsetting the drag from the manufacturing sector.

Treasuries rallied, with the yield on the 2-year note declining 5 basis points to 0.84%, the yield on the 10-year note dropping 6 bps to 2.03% and the 30-year bond rate falling 8 bps to 2.80%.

Please note: All U.S. markets will be closed on Monday in observance of the Martin Luther King, Jr. Day holiday.

Europe lower, Asia falls as mainland Chinese stocks drop into bear market territory

European equity markets traded broadly lower, with oil & gas issues falling as crude oil prices returned to selloff mode after yesterday’s rebound. Also, global sentiment was hampered by a sharp drop in China, while economic data in the U.S. came in softer than anticipated to exacerbate global growth concerns. Technology stocks also saw pressure on the heels of Intel’s results across the pond. The euro rallied versus the U.S. dollar, while bond yields in the region moved mostly lower. In economic news, EU new car registrations rose solidly in December, the eurozone trade surplus widened more than anticipated, and U.K. construction output unexpectedly declined m/m in November.

Stocks in Asia finished lower despite the solid gain in the U.S. yesterday, with a return of the rout for the Chinese markets upending global sentiment, while crude oil prices turned back into the red overnight after posting a rebound yesterday. China’s Shanghai Composite Index tumbled, reaching bear market territory as it is more than 20.0% below its December high. Despite some continued stability in the yuan, stocks found pressure from festering growth concerns, exacerbated by today’s much smaller-than-expected new yuan loans report for December, while a report that some banks in Shanghai stopped accepting shares of smaller listed companies as collateral for loans exacerbated sentiment. Stocks trading in Hong Kong, India, Australia and South Korea all traded lower and Japanese equities erased early gains in afternoon action as the yen rallied on the sharp selloff in China.

WEEKLY RECAP: 2016 slide as markets see another wild weekly ride

The global markets continued to see heightened volatility for the week, with multiple selloffs leading to an extension of the rout to begin 2016. The same catalysts that led to last week’s tumble persisted, with crude oil prices falling to 12-month lows and mainland China entering bear market territory on heightened global growth/currency concerns, while geopolitical uneasiness remained. Energy, financials and materials issues led a broad-based decline. Q4 earnings season began to roll on, with results from the financial sector being met with mixed reactions, though Dow member JPMorgan Chase & Co. was a standout winner. Meanwhile, General Motors Co. raised its earnings outlook, while boosting its share buyback plan and dividend, while Ford Motor Co’s and CSX Corp’s 2016 guidance disappointed.

We continue to believe that U.S. and global stocks will continue to experience bouts of volatility and pullbacks; but a major bear market is likely to be avoided. Key determinants of the path stocks will take include central bank policy, inflation, currency volatility and earnings/valuation. We continue to reinforce the benefits of broad and global asset class diversification during a more difficult market environment.

THE WEEK AHEAD: Housing heavy U.S. economic calendar next week

When the U.S. markets return from the long Martin Luther King Jr. Day holiday weekend, traders will be treated to a heavy dose of housing data, with releases including: the NAHB Housing Market Index, weekly mortgage applications, housing starts and building permits, and culminating with existing home sales.

Other releases on next week’s domestic economic docket are weekly jobless claims, the Consumer Price Index (CPI), the Philly Fed Business Activity Index, Markit’s preliminary Manufacturing PMI Index, and the Leading Index.

International reports of note for next week include: China—industrial production, retail sales, property prices and 4Q GDP. Japan—industrial production and capacity utilization, the Tertiary Industry Index and the All Industry Activity Index. Australia—vehicle sales, new home sales and consumer confidence. U.K.—house prices, CPI, PPI, retail sales and employment data. Eurozone—CPI, construction output and preliminary Markit Manufacturing and Services PMIs, as well as the European Central Bank’s (ECB) monetary policy decision. Germany—CPI, PPI and preliminary Markit Manufacturing and Services PMIs. France—business confidence and preliminary Markit Manufacturing and Services PMIs.