What I’m Watching This Week – 25 January 2016

The Markets (as of market close January 22, 2016)

Boosted by a jump in oil prices and a rally in the European markets, U.S. stocks enjoyed their first week of gains in a month. Global stocks responded favorably to news from the European Central Bank that more stimulus could be forthcoming. Colder weather may have led to an increase in demand for oil, shooting prices above $30, closing at $32.13 (WTI) a barrel. On the whole, each of the indexes listed here showed gains week-on-week, although each index remains in negative territory year-to-date. Bond yields for 10-year Treasuries, which had dropped below 2.0% earlier in the week, climbed to a little over 2% as prices dipped toward the end of the week.

The price of gold (COMEX) fell from last week’s close, selling at $1,098.50 by late Friday afternoon, down from the prior week’s closing price of $1,104.10. The national average retail regular gasoline price decreased to $1.914 per gallon on January 18, 2016, $0.082 below the prior week’s price and $0.152 under a year ago.

Market/Index 2015 Close Prior Week As of 1/22 Weekly Change YTD Change
DJIA 17425.03 15988.08 16093.51 0.66% -7.64%
Nasdaq 5007.41 4488.42 4591.18 2.29% -8.31%
S&P 500 2043.94 1880.33 1906.90 1.41% -6.70%
Russell 2000 1135.89 1007.72 1020.77 1.30% -10.13%
Global Dow 2336.45 2127.02 2135.79 0.41% -8.59%
Fed. Funds 0.50% 0.50% 0.50% 0 bps 0 bps
10-year Treasuries 2.26% 2.03% 2.05% 2 bps -21 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

  • Home builders maintained confidence in the new home market, according to January’s preliminary Housing Market Index from the National Association of Home Builders. The index for January, at 60, is unchanged from December’s downwardly revised reading. An index reading above 50 represents improvement, and a reading in the low 60s is indicative of gradual improvement.
  • Both housing starts and building permits for privately owned housing units dipped in December following November’s surge, according to the latest report from the Census Bureau. Housing starts (marked by the actual beginning of construction) fell 2.5% below November’s figure, while the number of building permits issued dropped 3.9%. Nevertheless, both housing starts (6.4%) and permits (14.4%) are ahead of their respective numbers for December 2014. And housing completions in December were 5.6% above the revised November estimate and 7.9% ahead of December 2014.
  • Existing home sales rebounded in December, according to the latest information from the National Association of Realtors®, which saw the index jump to a seasonally adjusted annual rate of 5.46 million–an increase of 700,000 over November. Lawrence Yun, chief economist for the NAR notes that December’s sales figures close the best year of existing home sales since 2006. The median existing-home price for all housing types in December was $224,100, up 7.6% from December 2014 ($208,200). Last month’s price increase marks the 46th consecutive month of year-over-year gains.
  • Falling prices in energy (-2.4%) and food (-0.2%) led to an overall decline in the Consumer Price Index, which fell 0.1% in December. The index for all items less food and energy rose 0.1% in December, its smallest increase since August. The all items index rose 0.7% over the last 12 months, compared to the 0.5% 12-month increase for the period ending November. The latest figures highlight the continuing lack of inflationary pressure–something the FOMC may consider when it meets later this month.
  • S. manufacturers started the year with a rebound in output and new business growth from the lows seen during December, resulting in Purchasing Managers’ Index™ (PMI) of 52.7 in January–up from December’s PMI of 51.2. While the latest index signals moderate improvement in overall business conditions, it is still the second-lowest index since October 2013.
  • For the week ended January 16, there were 293,000 initial claims for unemployment insurance, an increase of 10,000 from the prior week’s revised total. For the week ended January 9, the advance number for continuing unemployment insurance claims was 2,208,000, a decrease of 56,000 from the previous week’s revised level. The advance seasonally adjusted insured unemployment rate remained at 1.6% for the week ended January 9.

Eye on the Week Ahead

So far, 2016 has been anything but kind to market investors. This week’s reports on new home sales, durable goods, and the GDP, as well as updates from the latest FOMC meeting, could offer some indication as to the direction of the economy in general, and equities markets in particular for the weeks ahead.