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02/20/2018
Market Update

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After generating the best January performance in more than 20 years, the S&P 500 Index turned negative earlier this month—erasing its year-to-date gains before ultimately entering “correction” territory when it fell as much as 10% from its recent peak. On the fixed income side, however, investors have been more comfortable to hold risk, resulting in credit-quality spreads remaining close to their narrowest levels of the year.
This Week
  • After generating the best January performance in more than 20 years, the S&P 500 Index turned negative earlier this month—erasing its year-to-date gains before ultimately entering “correction” territory when it fell as much as 10% from its recent peak. On the fixed income side, however, investors have been more comfortable to hold risk, resulting in credit-quality spreads remaining close to their narrowest levels of the year.

  • The trade deficit widened by 5.3% in December to a post-recession high. Exports expanded by 1.8% but were outpaced by imports (primarily consumer goods), which jumped by 2.9% to a record high. A wider trade deficit detracts from economic growth.

  • The Institute for Supply Management’s index of non-manufacturing activity remained solid in January, with accelerated growth in new orders and employment. A similar report from Markit Economics also showed increases in hiring activity and new orders, but a slight slowdown in output.

  • Job openings (a measure of labor demand) remained near historically strong levels in December despite falling from a revised 5.98 to a seven-month low of 5.81 million, according to the Department of Labor’s Job Openings and Labor Turnover Survey. Hires held steady at 5.49 million, still lagging the number of available jobs. Analysts suggested that the survey’s low ratio of unemployed individuals to job openings may point to ongoing pressure on employers to offer higher wages.

  • Initial jobless claims shrank by a greater-than-expected 9,000 to 221,000 in the week ending February 3, as labor-market conditions continued to tighten. The less volatile four-week moving average cooled by 10,000 to 224,500. Continuing claims remained near a 45-year low, falling by 33,000 to 1.92 million in the week ending January 27.

  • Outstanding consumer credit (which measures non-mortgage debt) grew by 5.8% in December after rising by 9.8% in November. Economists said the report offers confidence in near-term consumer spending, consistent with strong labor and stock markets—but also suggests a possible lack of sustainability as debt burdens increase.

  • Mortgage-purchase applications were unchanged in the week ending February 2, due to recently accelerating interest rates. Refinancing activity (which is often sensitive to even small rate changes) picked up 1% in the same period.

  • The eurozone’s PMI composite for January showed the fastest pace of growth in more than a decade. Strength in the services component was driven by solid readings in new orders, output charges and overall optimism.

  • The Bank of England (BoE) left interest rates at 0.50% in a unanimous vote by members of the rate-setting Monetary Policy Committee, but also noted that future rate hikes may come sooner than previously anticipated in order to keep a hold on inflation.

  • Japan’s PMI composite revealed accelerating growth in January, supported by gains in jobs and new orders. 

 

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