What I’m Watching This Week – 19 January 2016

The Markets (as of market close January 15, 2016)

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.

Market/Index 2015 Close Prior Week As of 1/15 Weekly Change YTD Change
DJIA 17425.03 16346.45 15988.08 -2.19% -8.25%
Nasdaq 5007.41 4643.63 4488.42 -3.34% -10.36%
S&P 500 2043.94 1922.03 1880.33 -2.17% -8.00%
Russell 2000 1135.89 1046.20 1007.72 -3.68% -11.28%
Global Dow 2336.45 2189.48 2127.02 -2.85% -8.96%
Fed. Funds 0.50% 0.50% 0.50% 0 bps 0 bps
10-year Treasuries 2.26% 2.11% 2.03% -8 bps -23 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

  • 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.
  • 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.