What I’m Watching This Week – 8 December 2014

The Markets

An unexpectedly strong jobs report on top of generally positive U.S. housing and manufacturing numbers helped nudge the Dow and S&P to new records yet again at the end of the week. However, the report also may have helped bring on a dip in the price of the benchmark 10-year Treasury by raising questions about whether the employment gains would bolster the case for a Federal Reserve rate hike in the first half of 2015.

Market/Index 2013 Close Prior Week As of 12/5 Weekly Change YTD Change
DJIA 16576.66 17828.24 17958.79 .73% 8.34%
Nasdaq 4176.59 4791.63 4780.76 -.23% 14.47%
S&P 500 1848.36 2067.56 2075.36 .38% 12.28%
Russell 2000 1163.64 1173.23 1182.43 .78% 1.61%
Global Dow 2484.10 2571.40 2565.63 -.22% 3.28%
Fed. Funds .25% .25% .25% 0% 0%
10-year Treasuries 3.04% 2.18% 2.31% 13 bps -73 bps

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

Last Week’s Headlines

  • The U.S. economy created 321,000 new jobs in November, and the Bureau of Labor Statistics said the prior two months’ gains were higher than previously thought. November’s gains also surpassed the 241,000 monthly average so far this year. Job increases were widespread, led by professional/business services, retail, health care, and manufacturing. However, the unemployment rate remained at 5.8%. Hourly wages were up 0.4% during the month and have grown 2.1% over the last year.
  • Accelerated promotions may have lured shoppers out early and cut into Black Friday retail sales. The National Retail Federation said sales over the Thanksgiving weekend were down 11% from 2013, but the trade group said it still anticipates total holiday sales to be up more than 4% by the end of the year.
  • The latest data from the International Monetary Fund showed that China is expected to be the world’s largest economy as of this year. The country’s anticipated $17.6 trillion in real GDP edged out the United States’ $17.4 trillion.
  • A 1.8% increase in construction of single-family homes in October helped send total construction spending up 1.1% for the month, according to the Commerce Department. However, total spending was up just 1.9% over the last 12 months.
  • The Institute for Supply Management’s gauge of activity in the U.S. services sector showed growth accelerating in November. The 59.3% reading was 2.2% higher than in October. However, the Commerce Department said orders at U.S. manufacturers slid 0.7% in October and would have been worse if not for a 21.2% jump in orders for military equipment, especially aircraft.
  • The U.S. trade deficit saw little change in October, edging downward to $43.4 billion from $43.6 billion in September as exports increased more than imports.
  • European Central Bank President Mario Draghi said the ECB expects Europe’s slow growth to slump even further next year and that opposition from some of the eurozone’s stronger members (i.e., Germany) would not keep the ECB from adopting supportive measures.

Eye on the Week Ahead

In a data-light week, the Commerce Department’s retail sales report could help clarify interpretations of last week’s Black Friday sales data. The results of an upcoming auction of loans to European banks could influence whether the ECB eventually adds corporate and sovereign bond purchases to its current bond-buying activities.