THE WEEK ON WALL STREET
Stocks descended from record highs Friday, as traders reacted to a U.S. drone strike that killed Iran’s top military officer. Oil prices rose more than 3% following the breaking news. Wall Street benchmarks ended up having a sideways week, shortened by the New Year’s Day holiday. The Dow Jones Industrial Average lost 0.04% across four trading sessions; the S&P 500, 0.16%. In contrast, the Nasdaq Composite rose 0.16%. The MSCI EAFE index, benchmarking developed overseas stock markets, added 0.30%.
OIL TAKES CENTER STAGE
WTI crude oil settled at $63.05 a barrel on the New York Mercantile Exchange Friday, down from an intraday peak of $64.09 (which was its highest price since April). The commodity rallied Friday as energy traders considered the possibility of supply disruptions in the Middle East in retaliation for last week’s U.S. air strike.
MANUFACTURING ACTIVITY DECLINES
At the start of each month, economists watch the Institute for Supply Management’s Purchasing Managers Index for the factory sector, which is considered a key barometer of U.S. manufacturing health. Last week, ISM announced a December reading of 47.2 for this index, the poorest in more than ten years. A reading below 50 indicates manufacturing activity is contracting rather than expanding.
THE WEEK AHEAD: KEY ECONOMIC DATA
Tuesday: The Institute for Supply Management presents its December Non-Manufacturing Purchasing Managers Index, gauging the pace of activity in the U.S. service sector.
Wednesday: Payroll processor ADP releases its December national private-sector employment report.
Friday: The December jobs report from the Department of Labor.
THE WEEK AHEAD: NOTABLE COMPANIES REPORTING EARNINGS
Wednesday: Constellation Brands (STZ), Lennar (LEN), Walgreens Boots Alliance (WBA)
Friday: Infosys (INFY)
BOTTOM LINE, LOOKING HEAD
There’s no doubt the year has started a little dicey with the middle eastern conflict as reported in the news. For the moment, this is really just noise. The true measure of our economy and stock market will be in corporate earnings for the 4th quarter, which will begin to be heavily reported in the next few weeks.
This is an election year which will certainly create plenty of political theater and there will likely be some volatility surrounding the election circus. For the moment, it still appears the Fed has their finger on the scale and wants to continue pushing the economy along. While they may be holding on moving interest rates, they are buying bonds with both fists. Since September 2019 they have purchased, on average, $101 billion per month as compared to around $80 billion per month during QE3. As you can see from the chart below, the Fed’s balance sheet is once again growing.
They say it isn’t Quantitative Easing. Call it whatever you want, but this strategy, in effect, keeps interest rates low.