After several weeks of flirting with 20,000, the Dow Jones Industrial Average leaped over that landmark shortly after the market opened last Wednesday and the index never looked back.
The index ended the week – Donald Trump’s first full week as president – at 20093.78, up 1.3% for the week, despite a marginal loss on Friday. The S&P 500 gained an even 1% on the week while NASDAQ rose nearly 2%. So far in 2017, NASDAQ is up 5.2% in price while the S&P is up 2.5% and the Dow is 1.7% higher. All three are near record highs. Foreign stocks were also higher for the week. The Stoxx Europe 600 gained 1.0% while the major Asian indexes were all up well over 1%. Mainland Chinese markets will be closed most of this week for the Lunar New Year holiday while Hong Kong will be off Monday and Tuesday.
Yields on European sovereign bonds continued to spike higher, with benchmark German bunds moving higher for the fourth week in a row to their highest level in a year. The 10-year bund closed the week at 0.46% after reaching 0.49% on Thursday, its highest level since mid-January of 2016. That’s up from negative 0.14% at the end of September. Last Tuesday Sabine Lautenschläger, a board member of the European Central Bank, said the bank should soon start winding down its €2.3 trillion bond-purchase program, the first ECB member to make such a comment. Yields on U.S. Treasury securities were up 1-2 basis points on the week.
Following a strong third quarter, when the economy grew by its strongest pace in two years, U.S. GDP growth reverted to its earlier lackluster ways in the fourth quarter. The Commerce Department’s “flash” estimate of Q4 growth came in at an annualized rate of 1.9%, down from the previous quarter’s 3.5% pace. The headline number, which came in below Street forecasts of 2.2% growth, may actually overstate the economy’s strength, as a 1.9% rise in inventories, which will need to be worked off in future quarters, boosted the overall number by a full percentage point. Net exports cut 1.7 percentage points off growth as the trade deficit widened, which will no doubt add urgency to President Trump’s fair trade agenda.
In other economic news last week, durable goods orders fell 0.4% in December despite a strong 0.8% increase in core capital goods. Sales of both new and existing homes both fell last month, dragged down by higher prices and mortgage rates, which rose nearly a full percentage point from November. Existing homes, by far the largest category, fell 2.8% to an annualized rate of 5.49 million. New home sales dropped 10.4% to an annual rate of 536,000, the slowest monthly sales pace since last February and the biggest one-month drop since March 2015. On the positive side, leading economic indicators for December rose 0.5% while the Chicago Fed’s national activity index climbed back into positive territory at 0.14.
Reports/dates/facts/links worth paying attention to over the next week:
1. January 30: Personal income and outlays for December; pending home sales for December.
2. January 31: Conference Board consumer confidence index for January; S&P Corelogic Case-Shiller home price indexes for November; Federal Open Market Committee meeting opens in Washington, D.C.
3. February 1: ADP national employment report for January; auto sales for January; ISM manufacturing index for January; construction spending for December; FOMC meeting ends, followed by announcement at 2:00 P.M.
4. February 2: Weekly unemployment claims.
5. February 3: Employment situation for January; ISM non-manufacturing index for January; factory orders for December.