Markets, Economy

Weekly Kickstart (12/31/2018-01/04/2019)

12/31/18 8:00 AM

iStock-626627280.jpgStocks stabilized last week, as the S&P 500 rose by 2.86 percent to 2,485.74. That left the benchmark index down 7.03 percent 2018-to-date, and 15.18 percent below the all-time high hit just a few months ago. Although it was encouraging to see major indices post their first weekly gain since November, it was not the easiest trek higher for equities. Indeed, the S&P 500 following its largest 5-day decline in seven years lost another 2.71 percent on Monday, one of the worst Christmas Eve’s for stocks on record and perhaps related to continued end-of-year tax loss selling. The bulls, though, were able to step in late Monday afternoon and lift the broad index off of the lows and in turn help it avoid closing in bear market territory. This positive momentum continued over the next two trading days and included the biggest 1-day point gain for the S&P 500 in history. These wild swings in equity valuations have been exacerbated by thin, holiday trading volume, but more importantly are not the result of significant changes in the underlying fundamentals of every single publicly-traded company on a daily basis. Moreover, the recent spike in correlation could suggest that stocks are simply going through a correction process. Exactly how long this will last remains unknown but there are signs that investors remain optimistic about the long-term prospects for equities.

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For example, last week was the first time in over a month that there was a positive net flow of cash into both stock mutual funds and exchange traded funds (ETFs), according to Lipper. Similarly, 61 percent of U.S. investors in a recent Gallup poll admitted that they are concerned about stock market volatility, including 16 percent who said they are “very concerned.” Forty-nine percent of respondents, though, also said that they are optimistic about the performance of the stock market over the next twelve months, compared to just 28 percent who reported being pessimistic. Further, around three in four investors said that they still believe the stock market is a “a good place for people to invest and grow their retirement savings,” and 68 percent said that they are comfortable “riding out the 500-point single-day drops.” Nearly one in five respondents even said that these sharp declines could provide a good opportunity to acquire shares of quality companies, suggesting an understanding of the importance of long-term participation in the market. Finally, a new E*TRADE survey found that more than a third of investors will increase the amount of money they contribute to their retirement plan in 2019, and roughly the same proportion said that they plan to seek guidance from a financial professional. The report’s authors added that this mindset “in the face of market headwinds and uncertainty … [demonstrates] some pretty sophisticated thinking when it comes to … portfolio decisions,” stressing that investors “seem to take to heart that the single most important aspect of investing you can control is how much you put into your nest egg.”

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To recap a few of the things we learned about the economy last (holiday-shortened) week, the positives included that housing inflation continued to cool, the 30-year mortgage rate fell to an almost 4-month low, and first-time claims for unemployment benefits held near the best level in half a century. As for the negatives, pending home sales fell, consumer confidence declined, and gauges of national and regional manufacturing activity continued to send mixed signals. This holiday-shortened week the pace of economic data picks up slightly, with a few important reports on factory output, construction, services sector activity, and employment scheduled to be released, including the potentially market-moving December job report from the Bureau of Labor Statistics (BLS) due out on Friday. Some reports, though, may continue to be delayed as a result of the ongoing government shutdown.

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**A more detailed snapshot of the U.S. economy can be found here.**

What To Watch:

Monday

  • 2-Yr Note Settlement
  • 5-Yr Note Settlement
  • 5-Yr TIPS Settlement
  • 7-Yr Note Settlement
  • Dallas Fed Mfg Survey 10:30 AM ET

Tuesday

  • New Year's Day
  • All Markets Closed

Wednesday

Thursday

Friday

  


 

Sources: Econoday, Reuters, Gallup, E*TRADE, Twitter, FRBSL

Post author: Charles Couch

Disclosures