Positive Economic News Offsets Debt Fears

in Market Commentary by

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.

Weekly Returns:

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%)

Major Events:

  • 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.

Our Take:

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.

The following two tabs change content below.
Craig Birk, CFP®

Craig Birk, CFP®

Craig Birk leads the Personal Capital Advisors Investment Committee and serves as the Chief Investment Officer. His focus is translating improvements in technology into better financial lives. Craig has been widely quoted in the Wall Street Journal, Bloomberg, CNN Money, the Washington Post and elsewhere. Prior to Personal Capital Advisors, he was a leader within the portfolio management team at Fisher Investments, helping assets under management grow from $1.5 billion to over $40 billion. Craig graduated from the University of California at San Diego and has earned the Certified Financial Planner® designation.

Leave a Reply

Your email address will not be published.

Disclaimer. This Website may contain links to third-party websites. These links are provided solely as a convenience to you and does not imply an affiliation, sponsorship, endorsement, approval, investigation, verification, or monitoring by PCAC of the contents on such third-party websites. Please be advised that PCAC is not responsible for the content of any website owned by a third party.