Weekly Market Updates

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Week Ending January 11

Cooler heads prevailed in U.S. equity markets last week. With the backdrop of strong economic data, the S&P 500 was up 2.6%, while the VIX index (a popular volatility measure) fell to ~18.2 for the first time since early December. U.S./Chinese trade news was positive last week after high-level trade talks concluded, the first since the G20 summit last November. The recent talks went so well they spilled into a 3rd day and a joint statement on progress is expected next week. Tuesday, FOMC notes from their December meeting were released and several officials indicated that given "muted inflation pressures" the committee could "afford to be patient" on future rate hikes. The continued dovish comments from the committee have been well received by equity markets as the systemic rate raises of the last few years have given way to more dynamic rate decisions.

On January 9, The Federal Reserve Board and the Federal Open Market Committee released the minutes of the Committee meeting held on December 18-19, 2018. In discussing financial markets for the intervening period, they noted increased volatility in asset prices from reduced risk-taking by investors. They cited China and United States trade, global growth outlook and Brexit negotiations as reasons for reduced risk taking. In review of the United States economic situation they indicated that labor market conditions continue to strengthen, industrial production continues to expand, household spending continues to increase but real residential investment declined further in the fourth quarter. Notably, the committee discussion saw the participants conclude that "the increased concerns about global growth, made the appropriate extent and timing of future policy firming less clear than earlier."


Week Ending December 28

After beginning the week in freefall, equites rose for the week on a dramatic melt up in stocks on Wednesday that saw the Dow Jones Industrial Average gain 1,086 points in one day. Already elevated market volatility was exacerbated by lower than normal market liquidity due to the holiday-shortened week and the partial government shutdown. In addition, Treasury Secretary Steven Mnuchin stirred fears of a liquidity crisis in the financial system by calling all six major banks to check on their status. Although he declared liquidity is fine within the banking system, the announcement unnerved many investors. The S&P 500 Index after dividends is on pace for its first annual loss since 2008 as slowing growth, tariffs and a further tightening from the Federal Reserve remain key headwinds for investors in 2019.

Treasury prices rose over the course of the week amidst high volatility in the equity markets. Treasury prices rose significantly on Monday as equities plummeted after there were reports that President Donald Trump was considering firing Federal Reserve Chairman Jerome Powell. A tweet from the President criticizing the Fed led to increased speculation and investors to seek the perceived safety of Treasuries. However, White House officials denied reports that the President was considering the move and equities soared on Wednesday, causing Treasury prices to drop significantly. Treasury prices then rose moderately on both Thursday and Friday in the wake of volatile days in the equity markets as investors still have concerns over the government and the economy.

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Week Ending December 14

Last week the S&P 500 Index declined further returning -1.22%. The index has declined 5.72% in the first two weeks of December, establishing a YTD loss for 2018 with only ten trading days remaining in the year. Equity markets showed a volatile week trying to recover from the previous week's 4.55% loss in the S&P 500 Index. Positive news on perceived improving trade relations with China and UK Prime Minister Theresa May receiving a vote of confidence to retain her leadership helped buoy stocks through mid-Wednesday. Negative news that President Trump's former attorney was sentenced to prison, increased concerns over global growth, and the European Central Bank essentially ending its quantitative easing program by capping new purchases, attributed to the index declining the remainder of the week.

Economic data released on Friday from China and Europe exacerbated concerns that economic growth will slow in 2019. In China, growth in industrial production and retail sales slowed while the euro-area composite Purchasing Managers' Index unexpectedly fell in Europe. This came after the European Central Bank cut its economic growth forecasts on Thursday, with ECB President Mario Draghi saying "It's a climate of great uncertainty." The slowdown is at odds with the ECB's decision to end its bond-buying program this month, which was signaled earlier this year. However, the ECB confirmed it will keep key interest rates unchanged at least through the summer of 2019.