The Markets
Last week began with both domestic and global markets hitting the
skids amid concerns over China's stock market plunge, North Korea's
apparent nuclear testing, and falling oil prices. A favorable employment
report at the end of the week may have helped stem the downward tide,
but not nearly enough to prevent the market from registering one of its
worst weeks in memory. The Dow lost over 1,000 points from last week's
December 31 close, while the S&P 500 dropped almost 6%. The Nasdaq
and Russell 2000 also fell by more than 7%.
New information on China's receding economy sent its stock market
spiraling as the government closed trading twice last week. The price of
oil has fallen to its lowest level since 2004, further softening energy
stocks, which negatively impacted the large-cap indexes.
The price of gold (COMEX) increased, selling at $1,104.10 by late
Friday afternoon, up from $1,060.50 a week earlier. Crude oil (WTI)
prices also dropped, selling at $32.88 per barrel by week's end. The
national average retail regular gasoline price decreased to $2.028 per
gallon on January 4, 2016, $0.006 below the previous week's price and
$0.186 under a year ago.
Last Week's Headlines
- The final U.S. labor figures for 2015
revealed that the employment sector enjoyed one of its best years in the
last decade as nonfarm payrolls increased by 292,000 in December, while
the unemployment rate remained at 5% for the third month in a row.
According to the Bureau of Labor Statistics, gains in the job market
occurred in several industries, led by professional and business
services, construction, health care, and food services and drinking
places. Mining employment continued to decline. The number of unemployed
persons, at 7.9 million, was essentially unchanged in December, and for
the past 12 months, the unemployment rate and the number of unemployed
persons were down by 0.6 percentage point and 800,000, respectively.
Adding to the favorable employment situation, revisions to October and
November added more jobs for each month than previously estimated. While
the average hourly earnings for all private-sector employees fell by a
cent to $25.24 in December, over the past year, average hourly earnings
actually rose 2.5%.
- The manufacturing sector closed 2015
on a sour note. The Census Bureau's latest report showed that new orders
for manufactured goods in November decreased $1.1 billion, or 0.2%,
from October. The news wasn't much better for December, as the Institute
for Supply Management® composite Purchasing Managers' Index® contracted
for the second consecutive month registering 48.2%, a decrease of 0.4
percentage point from November's reading of 48.6%. And, according to the
final seasonally adjusted Markit U.S. Manufacturing Purchasing
Managers' Index™, U.S. manufacturers ended the year by recording the
weakest improvement in overall business conditions since October 2012,
as the index fell to 51.2 in December, down from 52.8 in November. Chris
Williamson, chief economist at Markit said, "The manufacturing sector
saw a disappointing end to 2015, and its plight looks set to continue
into the New Year as headwinds show no sign of abating any time soon."
- While the manufacturing sector may be
showing signs of weakness, the non-manufacturing area (services,
construction, mining, agriculture, forestry, fishing and hunting) grew
in December, according to the latest Non-Manufacturing ISM® Report On
Business®, which saw its non-manufacturing index register 55.3%. Any
index reading of 50% or higher indicates growth. Nevertheless, while
there was continued growth in December, it moved at a slightly slower
rate than the prior month, which had a higher reading of 55.9%.
- Spending on construction, estimated at
a seasonally adjusted annual rate of $1,122.5 billion, decreased during
November 2015, according to the latest figures from the Census Bureau.
Spending in November was 0.4% below the revised October estimate of
$1,127.0 billion. Spending in November on private construction (-0.2%)
and public construction (-1.0%) were below their respective estimates
for October 2015. Nevertheless, construction spending in November 2015
was 10.5% above the November 2014 estimate of $1,016.1 billion.
- The international trade deficit
narrowed by $2.2 billion in November compared to October, according to
the Census Bureau's latest report. The goods and services deficit for
November was $42.4 billion, as exports were $182.2 billion ($1.6 billion
less than October) and imports were $224.6 billion ($3.8 billion less
than October). Year-to-date, the goods and services deficit increased
$25.2 billion, or 5.5%, from the same period in 2014. Exports decreased
$99.0 billion, or 4.6%, while imports decreased $73.7 billion, or 2.8%.
The continued strength of the dollar has driven up prices for foreign
buyers, further curtailing exports, while slumping oil prices have
contributed to declining imports. Overall, these figures point to
slowing global trade.
- For the week ended January 2, there
were 277,000 initial claims for unemployment insurance, a decrease of
10,000 from the prior week's unrevised total. For the week ended
December 26, the advance number for continuing unemployment insurance
claims was 2,230,000, an increase of 25,000 from the previous week's
revised level. The advance seasonally adjusted insured unemployment rate
was 1.6% for the week ended December 26.
Eye on the Week Ahead
Several important economic indicators are highlighted this week. Of
particular interest are the latest reports on job openings, producer
prices, retail sales, and industrial production.
Data sources: News items are based
on reports from multiple commonly available international news sources
(i.e. wire services) and are independently verified when necessary with
secondary sources such as government agencies, corporate press releases,
or trade organizations. Market data: Based on data reported in WSJ
Market Data Center (indexes); U.S. Treasury (Treasury yields); U.S.
Energy Information Administration/Bloomberg.com Market Data (oil spot
price, WTI Cushing, OK); www.goldprice.org (spot gold/silver); Oanda/FX
Street (currency exchange rates). All information is based on sources
deemed reliable, but no warranty or guarantee is made as to its accuracy
or completeness. Neither the information nor any opinion
expressed herein constitutes a solicitation for the purchase or sale of
any securities, and should not be relied on as financial advice. Past
performance is no guarantee of future results. All investing involves
risk, including the potential loss of principal, and there can be no
guarantee that any investing strategy will be successful.
The Dow Jones Industrial Average (DJIA) is a price-weighted index
composed of 30 widely traded blue-chip U.S. common stocks. The S&P
500 is a market-cap weighted index composed of the common stocks of 500
leading companies in leading industries of the U.S. economy. The NASDAQ
Composite Index is a market-value weighted index of all common stocks
listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap
weighted index composed of 2,000 U.S. small-cap common stocks. The
Global Dow is an equally weighted index of 150 widely traded blue-chip
common stocks worldwide. Market indices listed are unmanaged and are not
available for direct investment.
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