Data
U.S. equity benchmarks moved higher during the holiday shortened trading week.[1]
The S&P 500 recovered from the worst Christmas eve drop in history to gain 2.9%.1
The Russell 2000 & Nasdaq each gained around 4%.1
S&P 500 sub-sectors were mostly positive last week.
Consumer Discretionary & Technology led to the upside.1
Utilities & Real Estate were the only negative sectors on the week.1
The CBOE Volatility Index (VIX) declined 6% to end the week at 28.34.1
US Treasury yields moved lower across the maturity curve.1
The shorter maturities dropped more than longer dated US Treasuries.
Foreign bond yields were lower in Europe & Asia.1
Commodities as an aggregate asset class were slightly lower last week.
WTI Crude lost 0.50% to end at $45.33.1
Gold gained almost 2%.1
The US Dollar index was down.1
In our opinion, U.S. economic data was mixed last week.
The labor market continued to show strength as jobless claims remained low.1
Consumer confidence fell a sharp 8.3 points to its lowest level since July.1
The Citigroup Economic Surprise Index moved slightly lower to its 2018 lows.1
An index of equities outside the U.S. (MSCI EAFE) were mixed on the week.1
Conclusion
US equity indices overcame the worst Christmas Eve trading day in history that saw the S&P 500 drop by 2.7% but went on to finish the week in positive territory.[2]
The S&P 500 ended the week +2.9% while the Nasdaq & small cap tracking Russell 2000 finished up almost 4%.2
This so called “Santa Rally” seemed to start on Wednesday and brought down the
S&P 500’s December losses to -9.8%.2
S&P 500 sub-sectors were mostly higher on the week.
Performance leaders for much of 2018 led to the upside. (Cons. Discretionary & Tech)
Traditionally defensive sectors led to the downside as the only negative performers last week. (Utilities & Real Estate)
After significant outperformance since October, Utilities have now given back a large portion of this outperformance in the last approximate 2 weeks.2
We’re happy to have taken advantage of an overweight in this sector for most of our clients since June before selling earlier in the month.
Yields of US Treasuries dropped across the yield curve last week as the 2yr was -0.12%, the 10yr was
-0.07%, and the 20yr was -0.01%.2
Despite the strong equity rally by the end of the week, we believe the bond market signaled a more cautious-minded flight-to-quality.
We’d like to point out that when short-term US rates drop faster than longer maturities this is called a “bull steepener”.
This is often a result of the market pricing in a more dovish Fed policy outlook and often occurs at the tail end of the economic cycle.
The US Dollar extended its weekly losses with a decline of 0.6% on the week.2
We believe this could be signaling that investors expect the Federal Reserve to be far less supportive of the greenback next year.
The 10-year Japanese gov’t bond dropped back into negative yield territory.2
This is the 1st time this major global economic bellwether has had a negative yield since 2016.2
In our opinion, this is an important variable to watch in the prevailing market environment.
Fed Fund Futures are now pricing in a high probability of zero interest rate hikes in 2019.2
This is a big change from even 2 months ago when the market was pricing in several.
We believe this is very relevant to note heading into 2019 as well as Fed Chairman Powell’s emphasis recently on “international financial conditions.”
Ryan A. Mumy, CFP®, AIF®
Chief Investment Officer
Contact:828/855-9400 or info@CIASonline.comor rmumy@bloomberg.net
[1] Source: Bloomberg – 12/28/2018
[2] Source: Bloomberg – 12/28/2018