Market Insights 12/28/2018

U.S. stocks finished mixed to close out a wild week that saw the worst Christmas Eve session followed by a sharp rally and a huge intra-day upside reversal.

Treasury yields and the U.S. dollar dipped as a limited government shutdown is likely to continue into the New Year. Crude oil prices and gold increased.

The Markets…

The Dow Jones Industrial Average declined 76 points (0.3%) to 23,062

The S&P 500 Index decreased 3 points (0.1%) to 2,486

The Nasdaq Composite ticked 5 points higher (0.1%) to 6,585

In moderate volume, 897 million shares were traded on the NYSE and 2.2 billion shares changed hands on the Nasdaq

WTI crude oil rose $0.72 to $45.33 per barrel and wholesale gasoline ticked $0.01 higher to $1.30 per gallon

The Bloomberg gold spot price advanced $4.56 to $1,280.27 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—dipped 0.1% to 96.34

Markets rallied for the week, as the DJIA rose 2.8%, the S&P 500 Index grew 2.9%, and the Nasdaq Composite surged 4.0%

Pending homes sales fall for second month, manufacturing data above forecasts

The Chicago Purchasing Managers Index decreased to 65.4 in December, from 66.4 in November, and versus the Bloomberg expectation of 60.2. A reading above 50 denotes expansion and this was the ninth reading north of 60 this year. The report likely eased some concerns that have nudged higher as several regional manufacturing reports have showed much larger-than-expected slowdowns in growth, with the Richmond Fed gauge surprisingly contracting for the first time since 2016.

Treasuries finished higher, with the yield on the 2-year note decreasing 4 basis points to 2.52%, the yield on the 10-year note dropping 5 bps to 2.72%, and the 30-year bond rate declining 3 bps to 3.03%.

Pending home sales fell 0.7% month-over-month in November, versus projections of a 1.0% increase, and following the unrevised 2.6% drop registered in October. Sales were 7.7% lower year-over-year. Pending home sales reflect contract signings and are a gauge of the pipeline of existing home sales, which unexpectedly rose in November.

Global markets mostly higher after volatile U.S. session ends in gains

European equities were higher, with investors processing yesterday’s choppy U.S. market trading that ultimately culminated in a strong rise. European stocks reversed to the upside after Thursday’s heavy selling, particularly in French and German equities, which may have helped push German stocks—now on track for their worst year since 2008—to enter 2019 in bear market territory. Today’s move higher was led by basic resources stocks, following a rise in metal prices and despite trade tensions between the U.S. and China continuing to heighten global growth worries.

Stocks in Asia finished mostly higher, following the wild session in the U.S. yesterday that came on the heels of an historic more than 1,000 point rally for the Dow. Mainland Chinese stocks gained ground and Hong Kong markets nudged higher as Reuters reported that a Chinese Ministry of Commerce spokesman had confirmed U.S. and China face-to-face trade talks are slated for January.

Trade worries still appeared elevated as it was unclear if the talks will yield progress toward a permanent agreement between the world’s two largest economies. Mainland Chinese stocks, which will be closed on Monday, posted the worst performance among the major equity indexes for 2018. Australian, South Korean and Indian stocks also moved higher

Japan’s Nikkei 225 Index saw pressure in its final session of the year as the markets will be closed for a holiday on Monday. The index recorded its worst annual decline since 2011, per Bloomberg, after Bank of Japan policymakers warned that “uncertainty over global conditions is heightening” and that the situation could be prolonged.

Stocks rally in final week of 2018 amid wild market swings

U.S. stocks finished notably higher after three consecutive weeks of declines, as volatility continued to be elevated with large swings in market action, defying the tradition of more quiet trading during a holiday week. Markets posted their lowest Christmas Eve returns ever as investors tried to decipher a statement from Treasury Secretary Mnuchin that market liquidity was firm.

After the Christmas holiday, equities reversed course with the Dow notching its largest point gain in history as comments from the White House appeared to somewhat resolve fears about the job security of Fed Chairman Jerome Powell. Thursday’s trading was particularly volatile, with U.S. stocks staging a final-hour comeback—with the Dow swinging 870 points—after being deep in the red for most of the trading session.

Energy issues defied the market upswing as WTI continued to plummet and reached a multi-year low on Monday with U.S. inventories rising. The U.S. dollar saw some pressure as markets didn’t seem bothered by a partial shutdown of the government that continued through the shortened market week. The 2-year and 10-year Treasury yields extended recent declines and the focus remained on global growth concerns.

As the markets enter another holiday-shortened week, next week’s economic calendar will ramp up, with key releases including the ISM Manufacturing PMI, Markit’s Manufacturing and Services PMIs, and monthly auto sales. However, the headlining release could be Friday’s December non-farm payroll report, with the wage component likely garnering the most scrutiny, as well as a joint interview with Fed Chairman Jerome Powell, with his predecessors Janet Yellen and Ben Bernanke.

Please Note: the U.S. markets will be closed on Tuesday, January 1st in observance of the New Year holiday.