US and foreign markets ended with substantial gains for the week. Markets staged a sharp rebound earlier in the week as solid earnings overrode fears of the coronavirus. However, stocks sold off on Friday following the release of the Federal Reserve’s Monetary Policy Report warning “Because of the size of the Chinese economy, significant distress in China could spill over to U.S. and global markets through a retrenchment of risk appetite, U.S. dollar appreciation, and declines in trade and commodity prices,” It is unknown at this point if efforts to contain the virus will be successful and some forecasts showed China’s growth rate falling from 6% to as low as 3.2% in the first quarter. However, Chinese officials have promised they will meet their purchases of U.S. goods as part of the trade deal despite the impact of the virus.
Good U.S. labor data also helped to support the markets. For the past couple of years, in excess of 70% of the new hires are coming from people entering or reentering the workforce, in particular millennial women. Hence, the increasing numbers of jobs with little or no change in the unemployment rate. This allows economic growth to continue without igniting a sharp increase in inflation.
The 10-year Treasury yield rose to 1.583%. Crude oil fell to $50.41 a barrel and natural gas rose to $1.851 MMBTUs. The U.S. dollar rose against a basket of currencies and gold prices fell to $1573.70 an ounce.
In economic numbers this week:
- The private China Caixin/Markit purchasing managers indexes were released:
- Manufacturing fell from 51.5 in December to 51.1 in January. This still represents expansion, but at the slowest rate in five months.
- Services fell from 52.5 in December to 51.8 in January.
- Destatis reported that German factory orders fell 2.1% in December. This follows a 0.8% decrease in November.
- The U.S. Markit purchasing managers indexes for January showed:
- Manufacturing fell from 52.4 in December to 51.9 in January.
- Services rose from 52.8 in December to 53.4 in January.
- The Commerce Department reported the U.S. trade gap declined 1.7% in 2019 as both exports and imports fell. The trade gap with China fell 17.6%, the lowest in six years.
- The Labor Department Reported
- Q4 productivity grew at a 1.4% annual rate following a 0.2% decline in the third quarter.
- Unit labor costs also grew at a 1.4% annual rate.
- First time jobless claims in the prior week dropped 15,000 to a seasonally adjusted 202,000, a nine month low. The four week moving average of claims also dropped 3,000 to 211,750.
- The U.S. added 225,000 in January.
- The unemployment rate increased from 3.5% to 3.6% as more people entered the workforce.
- Average hourly wages in January were 3.1% above a year ago.
- The EIA weekly oil report is here wpsrsummary. Also, the EIA reported in the past week:
- Field production of crude oil fell from 13.0MM to 12.9MM barrels per day.
- Natural gas storage fell by 137BN cubic feet and is above the five year average at this time of year.
- Baker Hughes reported the number of active oil rigs rose 1 to 676 and the number of active gas rigs fell 1 to 111.
- Factset reported that with 64% of S&P 500 companies reporting, the blended earnings have increased 0.7% from Q4 2018.
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Loren C. Rex, CFP®, AIF®, MA Erik A Smith AIF®
President Managing Partner
Generations Financial Planning & Wealth Management 269-441-4143
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Battle Creek, MI 49017
Carrie Fuce, Assistant 269-441-4091
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These are the opinions of Loren Rex and Erik Smith and are not necessarily those of Cambridge, are for informational purposes only, and should not be construed or acted upon as individualized investment advice. The Indices mentioned are unmanaged and cannot be invested into directly.