After three weeks of gains, the global stock market rally took a breather last week.
Following a solid performance in November, their best month since July, U.S. stocks ended mostly lower last week. While the Dow managed to eke out a 0.2% increase, the other major indexes fell, led by NASDAQ, which dropped 2.6%, and the S&P 500, which lost 0.9%. Small-cap stocks, which had double-digit returns last month, lost 2% or more. Foreign stock markets were also lower. In Europe, the Stoxx Europe 600 fell 0.9%. Japan’s Nikkei 225 rose 0.2%, but most Asian markets were lower.
Bond prices resumed their decline, raising interest rates still further. The yield on the benchmark 10-year Treasury note ended the week at 2.38%, up two basis points on the week, putting it at its highest level since June 2015. The 30-year bond yield rose six bps to 3.06%, its highest level in over a year. The 10-year German bund yield ended the week at 0.28% but hit 0.37% on Thursday, its highest point since January. The impetus for the rise in yield may have been OPEC’s first agreement in eight years to reduce production in an effort to boost oil prices, with non-member Russia also agreeing to limit output. Crude oil prices jumped nearly 10% for the week, with benchmark U.S. crude rising above $51 a barrel.
Friday’s jobs report for November was a mixed bag, with positive headline numbers but some weakness in the details. Nonfarm payrolls rose a better-than-expected 178,000, but the prior month’s gain was reduced by 19,000 to 142,000. The unemployment rate fell to a lower-than-expected 4.6%, a nine-year low. But that was mainly because more people left the workforce, with the labor participation rate slipping to 62.7%. Average hourly earnings also fell 0.1%, the first negative reading of the year and down from the 0.4% gain in October.
As always, the last week of the month was a busy week for U.S. economic reports, besides the employment report, with most of the news positive. GDP for the third quarter was revised upward to show annualized growth of 3.2%, up from the initial estimate of 2.9% and the strongest growth rate in two years. After-tax corporate profits rose 3.5% from the second quarter and 5.2% from a year earlier. The Fed’s Beige Book covering October and the first half of November said “outlooks were mainly positive” at its 12 districts, with regional banks generally reporting either “modest” or “moderate” growth. The Institute for Supply Management’s manufacturing index rose more than a point to 53.2 last month from 51.9 in October. Construction spending rebounded by 0.5% in October while the prior month’s 0.4% decline was revised upward to show no change. Consumer spending rose a less-than-expected 0.3% in October but personal incomes rose a better-than-forecast 0.6%. In the housing sector, pending home sales rose a scant 0.1% in October, possibly the result of the spike in interest rates and higher home prices.
Reports/dates/facts/links worth paying attention to over the next week:
1. December 5: ISM non-manufacturing composite index for November.
2. December 6: Factory orders for October.
3. December 7: Consumer credit for October.
4. December 8: Weekly unemployment claims.
5. December 9: University of Michigan consumer sentiment index for December, first reading.