Stocks were mostly higher on Friday as Donald Trump was sworn in as president of the United States but were lower for the second straight week.
Both the Dow and NASDAQ lost about 0.3% on the week while the S&P 500 slipped 0.1%. Stock prices were mostly lower abroad, too. The Stoxx Europe 600 fell 0.9% on the week while Japan’s Nikkei 225 lost 0.8%. Shanghai bucked the downtrend, gaining 0.3%. Global stocks rose sharply following Trump’s election on November 8 but have been generally quiet over the past month as investors wait on his first moves as president, especially regarding global trade, regulation and taxation.
Bond yields were higher on the week following some relatively hawkish comments from Janet Yellen. The Federal Reserve Chair didn’t say anything particularly new, basically reiterating the Fed statement after it raised short-term interest rates by 25 basis points last month. In a speech to the Commonwealth Club in San Francisco on Wednesday, she said she and most Fed officials expect to raise rates “a few times a year” through 2019, when its target interest rate is projected to reach 2.9%. But that was enough to put the brakes on the past month’s mini-rally in bonds . The benchmark 10-year Treasury note ended the week at 2.47%, up seven basis points on the week. On Tuesday, however, before Yellen spoke, the note closed at 2.32%, its lowest level since the end of November after hitting 2.60% in mid-December, its highest mark since 2014. Yields were also higher in overseas markets. The 10-year German bund closed the week at 0.42%, up eight bps, while Japan’s benchmark bond rose two bps to 0.07%.
Economic reports released last week were mostly positive. The Fed’s Beige Book covering the last six weeks of 2016 said the economy “continued to expand at a modest pace” across the country, with labor markets “tight or tightening” during the period. Industrial production rose a better than expected 0.8% in December to its fastest pace in more than two years, although that was somewhat offset by a downwardly revised 0.7% decline in November. Last month’s figure got a boost from a 6.6% jump in utility production, the biggest monthly increase in 27 years. Housing starts climbed 11.3% in December to an annual rate of 1.23 million, rebounding from a revised 16.5% decline the previous month. Both figures were skewed by the multifamily sector, which tends to be volatile. Building permits, a leading indicator, were down slightly to 1.21 million. For the full year, housing starts were up nearly 5% to 1.17 million, the best year since 2007. The National Association of Home Builders’ housing market index fell two points to 67 in January. On the inflation front, the consumer price index rose 0.3% in December from the previous month and 2.1% compared to a year earlier, the biggest annual increase since June 2014.
Reports/dates/facts/links worth paying attention to over the next week:
1. January 24: Existing home sales for December.
2. January 26: Weekly unemployment claims; Chicago Fed national activity index for December; new home sales for December; leading economic indicators for December.
3. January 27: Fourth quarter GDP, first estimate; durable goods orders for December; University of Michigan consumer sentiment index for January, second reading.