The first, albeit holiday shortened, week of the year started off on a nice note with equity markets posting gains and interest rates falling slightly on the long end of the curve while commodities and the U.S. dollar moved sideways. Earnings season kicks off this coming week. Given the policy reforms the market has been pricing in since the election will not take effect until 2018, healthy earnings growth takes on greater importance throughout 2017.
Last Week’s Market Anecdotes:

  • All three major U.S. equity indices (DJIA, S&P 500, NASDAQ) hit new highs, a healthy sign for the market.
  • The psychologically important, yet arbitrary, index level of 20,000 for the DJIA remained elusive last week, flirting intraday as close as 19,999.63, but never breaching the mark.
  • Last year’s worst performing sectors (healthcare, consumer discretionary) have been this year’s best performing and last year’s best performing (utilities, energy) have been this year’s worst.
  • After the post-election surge in 10 year U.S. Treasury yields, they’ve been drifting lower over the past couple of weeks, currently at 2.41%. Globally, they’re second highest only to Australia (2.68%) among developed markets. Europe (0.30%), Japan (0.06%), U.K.)1.38%), and Canada (1.73%) have all risen since the U.S. election.
  • The U.S. dollar is in a three week downtrend or retracement of the 5% surge it experienced after the election.

Last Week’s Economic Anecdotes:

  • Modest job growth of 156,000 missed expectations for 175,000 but prior month positive revisions made up the difference. The 12 month moving average of gains fell to 180,000, well below the 229,000 level of last December but still above levels back in early 2013.
  • Headline (U-3) and extended (U-6) measures of unemployment registered 4.7% and 9.2% respectively. December 2015 U-3 and U-6 levels were 5.0% and 9.9% respectively.
  • The labor market is taking on a typical late stage feel of modest deceleration of hiring, tighter slack, and signs of wage pressures. Year over year wage growth of 2.9% is the highest since May 2009 and the 12 month average wage growth is up to 2.6%, the highest since February 2010.
  • The number of long-term unemployed people, those working part time for economic reasons, and the median duration of unemployment (10.3 months) are approaching more ‘normal’ levels.
  • The ISM manufacturing index registered a healthy 54.7 in December, the best reading in a year while the non-manufacturing index printed a 57.2, beating expectations of 56.8.
  • December auto sales came in at an 18.13mm annual rate which made December the best month for auto sales since July 2005!!!
  • The FOMC released minutes from their December 2016 meeting where they raised rates. No material take aways. They acknowledged higher potential growth from fiscal initiatives and increased potential spending as a result of higher consumer and business confidence. Markets are forecasting slightly less than two hikes in 2017 while official Fed projections call for three.
  • The word “uncertainty” was used 12 times during the FOMC December meeting. Only the market volatility in January 2016 and Brexit in the summer of 2016 surpassed the “uncertainty” count of December’s meeting.