The Markets
Last week was a perfect storm of bad news for investors, as China's
continuing economic and stock market woes and the ongoing plunge in oil
prices--combined with a stream of disappointing news about the U.S.
economy--sparked yet another sharp selloff. Markets took a beating, with
the Russell 2000 index leading the way (-3.68%). Both the Russell 2000
and the Nasdaq are down more than 10% for the first two weeks of 2016.
Crude oil closed below $30 a barrel, settling at $29.42. Concerns
about sanctions being lifted in Iran, which observers worry will
exacerbate the current oversupply situation, helped fuel the price
plunge. The national average regular retail gas price dropped to $1.996
on January 11, $0.032 less than the previous week and $0.143 lower than a
year ago.
Gold prices rose and Treasury yields dropped toward week's end, as
investors sought relative safety. Gold closed at $1,088.60 an ounce,
while the benchmark 10-year Treasury lost 8 basis points from a week
prior.
Last Week's Headlines
- According to the Bureau of Labor
Statistics (BLS), job openings changed minimally in November, rising to
5.43 million from October's reading of 5.35 million. Hires and
separations were also little changed. Within separations, the quits rate
was 2.0% and the layoffs and discharges rate was 1.2%. Over the 12
months ended in November, job openings rose 11%, with the largest
increases in health care and social assistance and accommodation and
food services.
- The Federal Reserve "beige book"
reported modest growth in 9 of its 12 districts for the latter part of
2015 into 2016. New York and Kansas City reported growth as "essentially
flat," and contacts from Boston were "upbeat." Expectations for future
growth were positive in Boston, Philadelphia, Chicago, Atlanta, Dallas,
and Kansas City.
- The U.S. Treasury reported that the
budget deficit was $14.4 billion in December, down from $64.6 billion in
November. Fiscal year to date, the deficit totals $216 billion,
compared to $177 billion for the same period last year.
- Import prices fell 1.2% in December,
the largest monthly drop since August 2015, reported the BLS. The
decline was driven mainly by fuel import prices, which fell a
precipitous 9.5% in December following a 3.5% drop in November. (Fuel
import prices fell 40.5% in 2015, following a 29.1% drop in 2014.)
Imports excluding fuel fell 3.4% in 2015, the largest drop since the
index was first published in 2001. Exports fell 1.1% in December, also
the largest monthly decline since last August. Both agricultural and
nonagricultural exports fell 1.0% during the month. Export prices
dropped 6.5% in 2015, the largest annual decline since the index was
first published in 1983.
- The BLS also reported a decline of
0.2% in the Producer Price Index for final demand in December, compared
to an increase of 0.3% in November. The December dip was attributed to a
0.7% decline in the prices of goods, largely resulting from falling gas
prices. Services rose 0.1%. For the year, the index fell 1.0%, compared
to an increase of 0.9% in 2014.
- U.S. retail and food services sales
posted a monthly drop of 0.1% during the all-important shopping month of
December, recording a total of $448.1 billion, reported the Department
of Commerce. Total sales for 2015 were up just 2.1%, which was the
smallest annual increase since 2009. The biggest annual gainers were
sporting goods, hobby, book and music stores (7.6%); nonstore retailers
(7.1%); food and drink establishments (6.7%); and motor vehicles (6.3%).
- The Federal Reserve reported that
industrial production declined 0.4% in December, primarily due to
cutbacks in utilities and mining. This was the third consecutive monthly
decline. November figures were also revised downward, to a drop of 0.9%
from a previously estimated 0.6%. Year-over-year, production was down
1.8%. Capacity utilization for manufacturing was 76.0% in December 2015,
2.5% lower than its long-term average.
- A bright note last week came from the
University of Michigan's Surveys of Consumers, which said that the
preliminary reading for the Index of Consumer Sentiment was 93.3 for
January, compared to 92.6 for December. This is the fourth month in a
row that consumer sentiment rose. Chief Economist Richard Curtin
attributed the growth to continuing levels of low inflation.
- According to the Department of
Commerce, business inventories fell 0.2% in November from October, but
were up 1.6% over the previous 12 months. Sales also fell 0.2% from
October and were down 2.8% year-over-year. The inventories/sales ratio
in November was 1.38, compared to 1.32 a year prior.
- Unemployment benefit applications
totaled 284,000 for the week ended January 9, a rise of 7,000 from the
previous week. This is the second-highest level since July. The advance
number for seasonally adjusted insured unemployment during the week
ended January 2 was 2,263,000, which was 29,000 higher than the previous
week.
Eye on the Week Ahead
Investors will continue to monitor the China-and-oil drumbeat, as
well the continuing flow of corporate earnings reports. This week's
economic releases include key reports on housing, inflation, and
manufacturing.
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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