Resnick Advisors Weekly Update – January 2, 2018
January 2, 2018
The international trade deficit was $69.7 billion in November, up $1.6 billion, or 2.3%, from $68.1 billion in October. Exports of goods for November were $133.7 billion, $3.8 billion more than October exports. Imports of goods for November were $203.4 billion, $5.4 billion more than October imports.
The Conference Board Consumer Confidence Index® fell to 122.1 in December, down from 128.6 in November. The Present Situation Index, which measures consumers’ views on the present state of the economy, increased from 154.9 to 156.6, although the Expectations Index declined from 111.0 in November to 99.1 in December.
In the week ended December 23, initial claims for unemployment insurance was 245,000, unchanged from the previous week’s level. The advance insured unemployment rate remained 1.4%. The advance number of those receiving unemployment insurance benefits during the week ended December 16 was 1,943,000, an increase of 7,000 from the previous week’s level, which was revised up 4,000.
DJIA: 24,719.22, down 0.14%
Nasdaq: 6,903.39, down 0.81%
S&P 500: 2,673.61, down 0.36%
Russell 2000: 1,535.51, down 0.48%
Global Dow: 3,085.41, up 0.23%
Fed. Funds: 1.25%-1.50%, unchanged
10-year Treasuries: 2.41%, down 7 bps
U.S. stock benchmarks produced modest losses amid very light trading in the holiday-shortened week. Mid-cap stocks outperformed, and the tech-heavy Nasdaq Composite lost ground. The dollar weakened for the week, while the price of oil, as reflected by the Brent index, reached a new high of about $67 per barrel for the year. There was little stock-specific news to drive the markets, but traders noted that the possibility of Apple cutting its first-quarter sales targets for the new iPhone X model was a negative. Apple, which is a component of the Dow Jones Industrial Average and the Nasdaq, was down about 2.9% for the week. Utilities stocks were supported by declining Treasury yields that increased the relative attractiveness of their dividends.
Led by the Nasdaq, all the major U.S. indexes recorded solid gains in 2017, with large-cap stocks generally performing better than smaller-caps. It was the ninth straight year of positive total returns for the S&P 500, but the index lagged many overseas markets as non-U.S. stocks bounced back after several years of underperformance, with returns to U.S. investors enhanced by stronger currencies versus the dollar.
In their market outlook for 2018, T. Rowe Price’s Rob Sharps, the firm’s CIO, and Justin Thomson, CIO for equities, noted that cyclical sectors showed some strength in the second half of 2017 after lagging secular growth stocks earlier in the year, a change that perhaps reflects growing optimism about U.S. fiscal stimulus. They added that U.S. corporate tax cuts would tend to favor U.S. small-caps, which are more exposed to the domestic economy and are more heavily taxed, on average, than their large-cap counterparts.
There was a trickle of generally positive economic data released between the Christmas and New Year’s Day holidays. Initial jobless claims were unchanged from the previous week, remaining at historically low levels. November pending home sales were better than estimates, and data on retail spending leading up to Christmas were encouraging. The Conference Board’s Consumer Confidence Index was lower after reaching a 17-year high in November.
Investor demand helped push the yield of the benchmark 10-year U.S. Treasury note lower for the week (bond prices and yields move in opposite directions). The 10-year Treasury yield had reached its highest level since March last week — briefly touching 2.5% — as tax reform neared passage in Washington.
The 2.41% yield offered by the 10-year note on Friday afternoon was nearly unchanged from the 2.45% level at the end of 2016. The yield of the two-year Treasury note was little changed for the week, but yields of shorter-maturity Treasuries rose significantly during the year, leading to a flattening of the yield curve. Since the beginning of the year, the additional yield offered by the 10-year Treasury note compared with the two-year note has shrunk from 125 basis points to about 52, its lowest level in at least a decade.
After holding up well during the month despite a deluge of new issuance, municipal bonds produced solid returns for the week amid more favorable technical conditions. Investment-grade and high yield corporate bonds also recorded positive results amid very light market activity.
In a quiet, week, major European indexes ended mixed as few fresh catalysts seemed to meaningfully shift market sentiment. Traders noted that volumes were low, and, throughout much of the week, less than one percentage point separated the top-performing mining stocks from the underperforming technology sector. The pan-European STOXX 600 Index ended the week flat, while Germany’s DAX 30, Spain’s IBEX 35, and France’s CAC 40 all ended lower.
Both the blue chip FTSE 100 and the FTSE 250, which comprises mostly medium-sized companies, reached record highs on the final trading day of the year. A rise in commodity prices, most notably copper, helped fuel the outperformance. UK retailers were also stronger, buoyed by a surge in online shopping. A weaker pound also helped UK companies that draw their profits from overseas.
The dollar continued its slide during the week against all major currencies, and traders said that the greenback was heading for its worst year in more than a decade, while the euro climbed to its highest level in more than three months.
Major Japanese stock market indexes were little changed for the week. The Nikkei 225 Stock Average fell 0.6% (-138 points) and closed at 22764.94. The large-cap TOPIX Index also fell about 0.6%, but the TOPIX Small Index rose about 0.4%. Year to date, the Nikkei rose 19.1%, the large-cap TOPIX advanced about 19.7%, and the TOPIX Small Index climbed 30.2%. The yen on Friday traded at about ¥112.7 per U.S. dollar versus about ¥117/dollar at the end of 2016.
Signs of cooling growth in China have begun to emerge in the final quarter of 2017, according to China Beige Book International (CBB), the latest evidence that the Chinese economy is slowing after a surprisingly strong 2017.
Portions of the preceding information are reprinted with permission from Broadridge Investor Communication Solutions, Inc. Copyright 2018. Portions of the preceding information are shared from T. Rowe Price Weekly Market Wrap-Up.