Market Insights 1/17/2020

U.S. equities moved modestly higher and posted weekly gains for the second week in a row.

The rally came courtesy of a host of relatively favorable December reports out of China and a surge in U.S. housing starts.

Treasury yields were higher and took the greenback with them. Oil prices fell and gold was higher on the day.

The Markets…

The Dow Jones Industrial Average added 50 points (0.2%) to 29,348

The S&P 500 was up 10 points (0.3%) to 3,327

The NASDAQ rose 32 points (0.3%) to 9,389

Volume was brisk with 988 million shares were traded on the NYSE and 2.5 billion shares changed hands on the NASDAQ

WTI oil rose $0.02 to $58.54 per barrel and wholesale gasoline fell $0.01 to $1.64 per gallon

The Bloomberg gold spot price rose $9.80 to $1,560.30 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—added 0.3% to 97.62

For the week, the Dow was up 1. 8%, the S&P 500 added 1.9% and the NASDAQ was up 2.3%

This week saw the unofficial start to Q4 earnings season, and per data compiled by Bloomberg, of the 45 S&P 500 companies that have reported thus far, roughly 62% have beat revenue forecasts, with the aggregate y/y growth rate at about 3.9%. Approximately 63% of the companies have topped earnings estimates, though the aggregate y/y profit growth rate is roughly -2.7%.

Housing construction surges, industrial production and consumer sentiment dip

Housing starts for December jumped 16.9% month-over-month to an annual pace of 1,608,000 units—the highest level since the end of 2006—well above the Bloomberg forecast of 1,380,000 units. Construction for single-unit and multi-unit structures both rose solidly, with the former in the Midwest surging to overshadow declines in single-family housing starts in the Northeast and West. November starts were revised higher to an annual pace of 1,375,000.

The January preliminary University of Michigan Consumer Sentiment Index dipped to 99.1 versus expectations to match December’s 99.3 level. The index remained elevated despite the dip, with the current conditions portion of the report ticking higher but the expectations component nudging lower.

The Labor Department’s Job Openings and Labor Turnover Survey (JOLTS), a measure of unmet demand for labor, fell to 6.80 million jobs available to be filled in November, from October’s upwardly-adjusted 7.36 million figure and below forecasts calling for 7.25 million. This was the first sub-7.0 million figure since March 2018 as the largest decreases were seen in retail trade and construction sectors, while job openings fell in the South and Midwest regions. The hiring rate remained at October’s 3.8% level and the separation rate held at the prior month’s 3.7% rate.

Treasuries were mostly lower; the yield on the 2-year note was little changed at 1.57%, while the yield on the 10-year note added 2 basis points (bps) to 1.82% and the 30-year bond rate increased 3 bps to 2.28%.

Global markets rally alongside U.S.

Global equities finished out the last session of the week higher, with the Stoxx Europe 600 Index touching record high territory. International markets digested some relatively favorable Chinese economic data.

Meanwhile, the Eurozone construction output rebounded in November. U.K retail sales came in lower than expectations for December. The euro and British pound saw pressure versus the U.S. dollar, while the yen posted modest gains.

The U.K. FTSE 100 Index was up 0.9%, France’s CAC-40 Index rose 1.0%, Germany’s DAX Index gained 0.7%, Italy’s FTSE MIB Index was 0.8% higher, Spain’s IBEX 35 Index advanced 1.1%, and Switzerland’s Swiss Market Index increased 1.4%.

China’s Shanghai Composite Index ticked 0.1% higher and the Hong Kong Hang Seng Index advanced 0.6%, while Australia’s S&P/ASX 200 Index moved 0.3% higher. South Korea’s Kospi Index edged 0.1% to the upside, and India’s S&P BSE Sensex 30 Index finished little changed. Japan’s Nikkei 225 Index gained 0.5%.

Stocks up for second-straight week

U.S. stocks posted a second week of gains, extending a solid advance thus far in 2020, with trade worries fading after the “phase one” U.S.-China deal was signed and the revamped North American trade agreement passed through the Senate. Also, the financial sector unofficially kicked off Q4 earnings season with mostly upbeat results headlined by Dow member JPMorgan/Chase but Wells Fargo & Company was a standout disappointment.

U.S. data showed inflation remained tame, manufacturing growth accelerated more than expected in key regions of New York and Philadelphia, jobless claims fell sharply, retail sales grew solidly, and the Fed’s Beige Book showed continued growth, all preceding Friday’s surge in housing starts.

All but one of the eleven major market sectors rose, led by utilities, real estate, materials and technology, but energy issues declined as crude oil prices continued to retreat from the geopolitical-fueled spike seen as 2020 kicked off.