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January 13, 2020

Weekly Market Commentary January 6th to January 10th 2020


Nonfarm Payrolls for December grew by 145k jobs, missing the consensus mark by 15k. November payrolls were revised down as well by 10k, to a still very respectable level of 256k. The headline (U3) Unemployment level remains at a fifty-year low of 3.5%. Wage Growth at 2.9% on a year-on-year basis made headlines for “falling below” 3%. While it should be expected that a tight labor market will lead to higher wage growth over time, the naysayers may have forgotten it was only in 2018 when 2.9% wage growth made headlines for concerns of heating up inflation. It seems that 3-3.5% wage growth is the new “Goldilocks” level of neither too hot nor too cold.

The service sector strengthened in the U.S. in December with the Markit PMI and ISM Non-Manufacturing Indices exceeding consensus estimates. While the strength does not reverse the negative trend over the past several months, the service sectors continue to perform better than manufacturing measures. Factory Orders followed suit with weaker manufacturing data reported last week and slowed as anticipated, -0.7% for November in line with consensus estimates.

Consumer Confidence remains robust with the Bloomberg Consumer Comfort Index retracing new cycle highs. Businesses continue to lag in sentiment surveys with a recent Deloitte survey of corporate CFOs continuing to decline, particularly on business spending and hiring plan metrics.

After pulling back a week ago on risk-off sentiment, the 10-Year U.S. Treasury yield recovered some of the lost ground, settling modestly higher this week by 3 basis points at 1.82%.

U.S. stocks started the week skittishly based on tensions with the middle east given missile strikes exchanged by the U.S. and Iran. Equities rallied to new highs later in the week as tensions eased following the announcement of no new military action to be taken by the U.S. The S&P 500 broke through new highs once again, then closed the week 1.3% higher to 3,265. The NASDAQ index broke through new highs as well before retrenching modestly to close the week up by 1.8% to 9,178. The technology-focused index remarkably has now doubled over the past five years.

Key economic releases next week include the much-anticipated December Retail Sales report, CPI and PPI inflation, Housing Starts and Building Permits.