A strong rally on Friday enabled the major U.S. indexes to close narrowly mixed in price last week, but enough to push NASDAQ to a record high to close the week.
The Dow jumped 0.9% Friday, its biggest one-day gain in nearly two months, although it still ended down 0.1% in price for the week. Both the S&P 500 and NASDAQ both managed to end the week about 0.1% higher, with the latter index closing at an all-time high of 5667. The catalyst for Friday’s rally was a strong January jobs report as well as President Trump’s signing of an executive order to start the process for rolling back parts of the Dodd-Frank act, which helped bank stocks, which rose more than 2% on the day. Foreign stocks were also higher on Friday although lower for the week. The Stoxx Europe 600 fell 0.6% while Japan’s Nikkei 225 dropped 2.8%.
Friday’s stock market got a boost from January’s employment report, which came in better than expected on several counts. The 227,000 increase in nonfarm payrolls was more than 50,000 higher than the Street consensus forecast and more than 30,000 above the most bullish individual estimate. It was also some 70K higher than the December increase. The unemployment rate did inch up to 4.8%, but that was largely due to a rise in the labor-force participation rate to 62.9% from 62.7%, indicating that more people were motivated to look for work. The only negative in the report was a lower than expected 0.1% gain in average hourly earnings and a downward revision in December’s increase, which was halved to 0.2%.
U.S. government bond yields were little changed as the Federal Reserve took no action at its monetary policy meeting last week. The yield on the benchmark 10-year Treasury note closed at 2.46%, down two basis points. The Fed acknowledged that “consumer and business sentiment have improved of late” but left interest rates unchanged; it also provided no clue about what it might do at its next meeting in mid-March. In overseas bond markets, the yield on the 10-year German bund, which jumped 23 basis points in January, eased back four bps last week to close at 0.42%. Japan’s 10-year bond rose two bps to 0.10%, its highest level in a year.
In addition to the employment report, there were several important U.S. economic reports covering the past two months that were released last week, most of which came in strong. The Institute for Supply Management’s manufacturing index rose 1.5 points in January to 56.0, its highest level in more than two years, while the new orders segment stayed above 60.0 for the second month in a row for the first time in more than three years. The non-manufacturing index, which covers most of the economy, held relatively steady at 56.5, with new orders rising to 58.6. Figures above 50 indicate expansion. Separately, December factory orders rebounded by 1.3% after falling 2.3% in November. Construction spending fell 0.2%. Looking at the consumer economy, consumer spending rose 0.5% in December while personal incomes rose 0.3%, in line with estimates. The Conference Board’s consumer confidence index fell slightly in January to 111.8 after hitting a 15-year high in December. Pending home sales rose a better-than-expected 1.6% in December despite higher interest rates and low inventories of homes for sale.
Reports/dates/facts/links worth paying attention to over the next week:
1. February 7: Consumer credit for December.
2. February 9: Weekly unemployment claims.
3. February 10: University of Michigan consumer sentiment index for February, first reading; U.S. Treasury budget report for January.