What I’m Watching This Week – 22 January 2018

The Markets (as of market close January 19, 2018)

Corporate earnings season entered its second week with generally favorable results, which likely drove equities last week. Each of the benchmark indexes listed here posted weekly gains, led by the Dow and Nasdaq, which continues to post strong early-year gains in the technology sector. Apparently, the threat (and eventual occurrence) of a federal government shutdown didn’t curb investor enthusiasm. On the other hand, the government shutdown probably did impact long-term bond prices as the yield on 10-year Treasuries climbed 11 basis points (as prices fall, yields rise), while the U.S. dollar also dropped.

The price of crude oil (WTI) fell to $63.57 per barrel last Friday, down from the prior week’s closing price of $64.40 per barrel. The price of gold (COMEX) also declined last week to $1,331.10 by early Friday evening, down from the prior week’s price of $1,338.30. The national average retail regular gasoline price increased for the fourth week in a row to $2.557 per gallon on January 15, 2018, $0.035 above the prior week’s price and $0.199 more than a year ago.

Market/Index 2017 Close Prior Week As of 1/19 Weekly Change YTD Change
DJIA 24719.22 25803.19 26071.72 1.04% 5.47%
Nasdaq 6903.39 7261.06 7336.38 1.04% 6.27%
S&P 500 2673.61 2786.24 2810.30 0.86% 5.11%
Russell 2000 1535.51 1591.97 1597.63 0.36% 4.05%
Global Dow 3085.41 3229.08 3255.56 0.82% 5.51%
Fed. Funds target rate 1.25%-1.50% 1.25%-1.50% 1.25%-1.50% 0 bps 0 bps
10-year Treasuries 2.41% 2.54% 2.65% 11 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 Economic Headlines

  • According to the Federal Reserve’s Industrial Production and Capacity Utilization report, industrial production rose 0.9% in December, even though manufacturing output edged up a modest 0.1%. For the fourth quarter as a whole, total industrial production jumped at an annual rate of 8.2%, after being held down in the third quarter by hurricanes Harvey and Irma. The gain in manufacturing output in December was the fourth consecutive monthly increase. Overall, the increase in industrial production was largely driven by the output of utilities, which advanced 5.6% for the month. Mining moved up 1.6%. Capacity utilization for the industrial sector was 77.9%, a rate that is 2.0 percentage points below its long-run average.
  • New residential construction slowed in December. According to the latest Census Bureau report, applications for building permits fell 0.1% below November’s rate, while new housing starts dropped 8.2% from November’s revised estimate. On the plus side, housing completions in December were up 2.2% over November’s figures and are 7.4% above the December 2016 rate. A lack of inventory may have propelled home completions in order to get more new homes on the market. This focus on housing completions may have pushed new applications and starts to the back burner.
  • In the week ended January 13, initial claims for unemployment insurance was 220,000, a decrease of 41,000 from the previous week’s level. The advance insured unemployment rate rose 0.1 percentage point to 1.4%. The advance number of those receiving unemployment insurance benefits during the week ended January 6 was 1,952,000, an increase of 76,000 from the prior week’s level, which was revised up by 7,000.

Eye on the Week Ahead

The first report on the fourth-quarter gross domestic product is out this week. Economic growth exceeded 3.0% in the third quarter and is expected to remain about the same for the last quarter of 2017. Also, reports on the housing sector for December are available this week.

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