Market Digest – Week Ending 1/18
Stocks finished the week higher, driven by positive US jobs news and economic growth in China. New housing starts spiked, providing additional momentum. Earnings were mixed as Intel and Bank of America disappointed while GE, Morgan Stanley, Goldman Sachs and Citigroup were among the companies posting better than expected results. Treasuries were little changed with positive economic reports offsetting rising fear of the upcoming debt ceiling.
S&P 500: 1,486 (+1.0%)
MSCI ACWI ex-US: (+0.2%)
US 10 Year Treasury Yield: 1.84% (-0.02%)
Gold: $1,685 (+1.4%)
USD/EUR: $1.332 (-0.2%)
- Monday – President Obama saying it would be irresponsible not to approve an increase in the upcoming debt ceiling. Republicans are threatening to use the issue to force spending cuts.
- Monday – Rumors circulated that Dell is in talks with at least two private equity firms. Shares rose 17%.
- Tuesday – Multiple bombings at a university in Syria killed at least 80. The government and rebel forces each blamed the other.
- Tuesday – Retail sales rose 0.5% in December, ahead of estimates.
- Wednesday – President Obama unveiled a set of gun control measures including increased background checks and banning some assault weapons and high capacity magazines.
- Wednesday – Militants with suspected ties to Al Qaeda seized a gas complex in remote Algeria, taking up to 650 hostages.
- Thursday – New US home construction jumped 12% from November and 37% from a year ago.
- Friday – Algerian special-forces reportedly freed most hostages from Wednesday’s raid, but the fate of all hostages is unknown.
- Friday – China’s Q4 GDP rose to 7.9%, accelerating from Q3 and beating most estimates.
- Friday – The Michigan Consumer Sentiment survey unexpectedly dropped to 71.3.
The capital markets were eerily calm for a second straight week. Strong jobs numbers resulted in an uptick on Wednesday, but the average daily price change for the S&P 500 was just 0.23% for the week. Since the 2.5% advance on the first trading day of the year, only two days have seen moves above 0.5%. The VIX, commonly known as the “fear index”, closed Friday at a multi-year low of just 12.5.
We generally view the VIX as a lagging indicator, not a leading one, but it does feel as if sentiment has quickly shifted from worry to calm. That can be dangerous. Bull markets don’t usually end until there is a sense of euphoria – or at least overconfidence. We don’t have that. So while we expect the longer term trend to continue, it wouldn’t be surprising to see a short term correction sometime soon.