Equity markets marched higher again last week, with just three days left in the month, the S&P 500 is on pace for its best start since 1987. Dovish remarks from ECB President Mario Draghi put a charge in the markets toward the end of the week. Commodity markets, particularly oil and natural gas, climbed higher along with interest rates across the curve.

Market Anecdotes

  • Bespoke noted that when the S&P 500 returns over 5% in January, the remainder of the year has been positive 13 of 19 times. We have posted 14 record closing highs this month, a mark that has been surpassed only two times on record, the last happening in June 1955.
  • We are 3,245 days into the second longest bull market in history and it’s been smooth sailing for a long stretch. It has now been 578 days since we’ve seen a 5% pullback, second longest streak on record, and 448 days since we’ve seen a 3% pullback, the longest streak on record.
  • Healthcare and consumer discretionary sectors have led the way thus far in ‘18, up over 10%, while the overall market stands up 6.9%.
  • Fourth quarter earnings for the S&P 500 are on pace for 12% y/o/y growth with roughly 25% of companies reported.
  • U.S. dollar weakness has been a major story to begin the year and is now down 14% since late 2016, a three-year low. Comments came from US Treasury secretary Mnuchin that a weaker US dollar is good for U.S. trade. Tariffs and currency debasement are ‘in play’ with the administration’s goal of reducing the trade deficit.
  • High yield spreads hit 3.16% last week, the tightest (lowest) level since July 2007. High yield credits are defaulting at a 3.3% clip in December, down from 5.8%. On average since 1996, when spreads are this tight, high yield has averaged 5.4% over the next year, lower than the 8.0% average for all other periods.
  • Home sales have been volatile but trending higher all year because of record low inventories, both absolute and relative to demand. Low inventories have kept prices at record highs which should persist until the supply/demand imbalance fades.

Economic Release Highlights

  • 4Q GDP rose at a 2.6% annual rate, not booming growth but, personal consumption jumped to 3.8% which portends well from growth momentum looking forward.
  • December durable goods jumped 2.9%, driven by strong aircraft and vehicle orders, well over the high end forecast of 1.5%.
  • December existing home sales fell slightly from the robust November pace, but 2017 as a whole, saw 5.51 million sales, the best year since 2006.
  • US crude oil inventory saw its 10th consecutive week of declines, now -15.7% y/o/y BUT still up 13% from 2015 levels.