The Market Today

TODAY’S CALENDAR

Quiet Close to 2018: The only economic report scheduled this morning is the Dallas Fed Manufacturing Index, expected to pull back further along with the other recent readings on manufacturing activity.  Perhaps more importantly, it will be interesting to see what kind of momentum stocks close the year with.  Already down 7.0% YTD, the S&P is unlikely to get back to breakeven for the year.  However, the post-Christmas rally certainly stopped the hemorrhaging for an index that was down 14.8% MTD prior to the 26^th.

 

Starting 2019 with an Economic Bang: With an early close for the markets and a full close for New Year’s Day tomorrow, the bulk of this week’s data is scheduled for the second half of the week.  We will see reports on the trade balance (deficit growing), new home sales (discouraging), construction spending (disappointing), manufacturing (weakening), auto sales (holding strong), and the ever-important monthly jobs data (still-strong). The ADP report on Wednesday and BLS data on Friday will be the focus.  Additionally, Fed Chair Powell speaks on Friday with Bostic, Williams, and Daly on Saturday.  Powell may look to tweak his message December 19 that the balance sheet normalization was on “auto-pilot.”

 

Upcoming Vining Sparks Events: On a programming note, we will publish our 2018 Year-in-Review video on Wednesday, January 2^nd, and will host our 2019 Economic Outlook Webinar on Thursday, January 10^th.  The focus of the outlook will be the growing risks to economic stability.  To register in advance, please click here.

 

TRADING ACTIVITY

Overnight – December Drop Puts U.S. Stocks in Position for Worst Year Since Recession: In a fitting end to 2018, the major focus in a quiet overnight session is on a piece of weaker-than-expected economic data from China and conflicting reports about potential progress on a trade deal between the world’s two largest economies. Several major markets are closed Monday for holidays, including the stock markets tracking Chinese companies. However, investors did receive another disappointing economic data point from China. Manufacturing activity contracted unexpectedly in December according to the government’s latest PMI, which dropped below 50 for the first time since February 2016. That report comes after President Trump tweeted over the weekend, “Just had a long and very good call with President Xi of China. Deal is moving along very well. If made, it will be very comprehensive, covering all subjects, areas and points of dispute. Big progress being made.” While the WSJ later confirmed the phone call, they also cited sources that indicated “the president may be overstating how close the two sides are to an agreement.” Even with the mixed messaging, the Stoxx Europe 600 traded higher and U.S. futures had strengthened throughout the thinly-traded overnight session, reaching as high as 1.0% before pulling off the highs ahead of the U.S. session. Still, the S&P 500, which is down 7% for the year and on pace for its biggest annual drop since 2008, will need a roughly 4% gain on Monday to prevent December 2018 from being the worst December since the Great Depression. Treasury yields were higher (2-year +1.0 bps to 2.53%, 10-year +2.1 bps to 2.74%) after falling to multi-month lows on Friday.

 

NOTEWORTHY NEWS

ICYMI – December 28, 2018 Weekly Market Recap: Last week was short on trading days but long on excitement. Despite closing early Monday, the S&P 500 sank 2.7% and registered its worst Christmas Eve performance on record. In response to the prior week’s volatility, Treasury Secretary Mnuchin had placed phone calls to the CEOs of the six largest U.S. banks on Sunday and convened the President’s Working Group on Financial Market Groups , sometimes referred to as the plunge protection team, on Monday. While both actions were presumably intended to calm markets, some said they only heighted anxiety. However, Wednesday’s return from the holiday break saw stocks surge, giving the Dow its first 1,000-point gain on record and its largest percentage gain (along with the S&P 500) since March 2009. The volatility continued Thursday with the Dow falling as much as 2.7% before surging in the final hour and a half to end up 1.1%. Despite a weekly gain, stocks were still on pace to post their worst December since the Great Depression. The economic calendar was light and several reports were postponed as a result of the partial government shutdown that began on Saturday and was still in effect at Friday’s market close. The data that was released, however, generally disappointed. Initial jobless claims were solid but annual home price gains hit a 24-month low, the Richmond Fed Manufacturing Index dropped the most on record to the weakest since February 2016, consumer’s expectations (Conference Board) hit a 25-month low, and pending sales disappointed with the largest annual decline since April 2014. Treasury yields moved up and down as stocks whipped back and forth but ultimately closed lower on the week. The 2-year yield dropped 12.3 bps to 2.52%, the lowest since June, as Fed Funds futures essentially priced out any additional rate hikes from the Fed. The 10-year yield dropped 7.2 bps to 2.72%, the lowest since February 5. Click here to view the full recap.