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In the Markets – Week-Ending February 3rd

by Peter J. Creedon

Newsletter: In the Markets – Week-Ending February 3rd 
Crystal Brook Advisors
We Make Financial Planning Crystal Clear

United States: The ISM manufacturing index reached 56.0 in January, the highest reading 65 since November 2014 when the oil price slide began (top chart). Broad- based gains point to steady optimism among survey respondents. The 60 production component rose one point to 61.4, eclipsing the 60 mark for the 55 first time in more than two years. New orders also inched higher, climbing to 60.4. The “hard” data have offered some corroboration that actual 50 output and new orders are following the uptick in sentiment. Nondefense 45 capital goods orders ex-aircraft, our preferred gauge of near-term business fixed investment spending, rose 0.8 percent in December following a solid 40 1.5 percent reading in November. Core capital goods orders have risen in six of the past seven months, a feat that is quite rare. (1)  Nonfarm productivity rose 1.3 percent in the fourth quarter as output growth outpaced hours worked for a second consecutive quarter. Compensation per hour rose at a 3.0 percent rate. (1)

Europe: Inflation across the currency zone rose to 1.8 percent in the year to January, up from 1.1 percent is December on the back of a sharp rise in energy prices.” The target for inflation of the European Central Bank is 2.0 percent. (2)  Why these numbers seem to be important at the moment is that they raise questions about the possibility that the European Central Bank might reverse, or at least back off from the monetary policy it had been following over the last several years of extraordinarily low… or even negative… interest rates and quantitative easing. (2)  The extremely weak European economy has certainly been a cause for the ECB to follow a policy of monetary easing, but the weak European economy has not been the only area of the world facing such problems and attempting to pursue policies of monetary ease and currency depreciation to help avoid a worse economic situation and to get their economies growing again. (2)

Asia: Signs that Trump is embarking on an era of American protectionism — heightened after he nixed the U.S.-led Trans-Pacific Partnership pact and by his threats to start a trade war with China — are causing anxiety across Southeast Asia. Indonesia, which was not a party to the TPP but had said it would consider joining, is now focusing on an alternative Asia deal that China has begun championing. (3)  Signs that Trump is embarking on an era of American protectionism — heightened after he nixed the U.S.-led Trans-Pacific Partnership pact and by his threats to start a trade war with China — are causing anxiety across Southeast Asia. Indonesia, which was not a party to the TPP but had said it would consider joining, is now focusing on an alternative Asia deal that China has begun championing. (3)

Latin America: Signs that Trump is embarking on an era of American protectionism — heightened after he nixed the U.S.-led Trans-Pacific Partnership pact and by his threats to start a trade war with China — are causing anxiety across Southeast Asia. Indonesia, which was not a party to the TPP but had said it would consider joining, is now focusing on an alternative Asia deal that China has begun championing. (3)  At stake for less developed but relatively open economies is the ability to sustain economic growth rates that for Indonesia at least have hovered around 5 percent, helping lift more of its people into the middle class and giving a large youth population access to jobs. Trade and investment from the U.S. and China, alongside Japan, has helped propel that. (3)

Monday 1/30
  • All-time intraday highs were set at 20,125.58 for the Dow 30, 2,300.99 for the S&P 500, 5,669.61 for the Nasdaq and 9,502.50 for Dow transports on Jan. 26. The Russell 2000 lags by setting its all-time intraday high of 1,392.71 on Dec. 9. (4)
  • The Dow Jones Industrial Average (20,093.78 on Jan. 27) set an all-time intraday high of 20,125.58 on Jan. 26. Monthly and quarterly value levels are 19,482 and 18,300, respectively, with a weekly risky level of 20,643 and semiannual risky levels at 20,893 and 22,148. My annual risky level is in-between at 22,042. My annual value level lags at 15,111. (4)
Tuesday 1/31
  • The Nasdaq ended flat, while the S&P 500 and the blue chip Dow Jones industrial average dropped 0.1% and 0.5%, respectively. The small-cap S&P 600 rose more than 0.8%. Volume in the stock market today was running slightly higher on both major exchanges, according to preliminary data. (5)
Wednesday 1/25
  • Stocks barely budged on Wednesday despite an interest rate announcement by the Federal Reserve and a flood of fresh earnings reports. Through all of that, the Dow Jones Industrial Average (DJINDICES:^DJI) and the S&P 500 (SNPINDEX:^GSPC) indexes each finished only marginally higher. (6)
Thursday 1/26
  • Ralph Lauren Corp. shares RL, -12.32% slid 10% in premarket trade Thursday, after the company said its chief executive is leaving and warned of charges to cover a restructuring program. The designer apparel brand had net income of $82 million, or 98 cents a share, in its fiscal third quarter, down from $131 million, or $1.54 a share, in the year-earlier period. Adjusted per share earnings came to $1.86 a share, ahead of the FactSet consensus of $1.64. Revenue came to $1.7 billion, down 12% from the year-earlier quarter, to match the FactSet consensus. (7)
Friday 1/27
  • Employers added 227,000 jobs in January, the best gain since September, the Labor Department said Friday. That was significantly higher than last year’s average monthly gain of 187,000 jobs.

Market Close

  • The financial sector popped 2%, by far the biggest gain of any S&P 500 sector. Shares of J.P. Morgan Chase & Co. JPM, +3.01% , Bank of America Corp. BAC, +2.42% and Citigroup Inc. C, +3.16% all rose more than 2%, and Goldman Sachs Group Inc. GS, +0.04% and Morgan Stanley MS, -0.02% both added more than 4%. (7)
  • The Dow Jones Industrial Average DJIA, +0.94% rallied 176 points, or 0.9%, to 20,061, led by a 5% surge in shares of Visa Inc. V, +4.59%  . (7)

Contributor: Thomas Padula

Sources:  (1),Wells Fargo Economics Group (2),Seeking Alpha  (3),Bloomberg (4),The Street (5),Investor’s Business Daily (6), The Motley Fool (7) MarketWatch ,(8), Wall Street Journal