Global stocks got off to a roaring start to the new year, breaking more records and establishing new milestones.
NASDAQ, last year’s U.S. market leader, got off to the best start, gaining 3.4% for the week after closing above 7000 for the first time on Tuesday, the first trading day of 2018. It closed Friday at 7137. The Dow, which topped 25000 for the first time on Thursday, ended the week at 25296, up 2.4% for the week, its best start to a new year since 2003. The S&P 500 gained 2.6%, its best start since 2006 and best weekly gain in over a year.
But the big gains weren’t confined to the U.S. Japan’s Nikkei 225 jumped 4.2%, while Hong Kong – one of the hottest markets last year – gained 3%. European stocks were also sharply higher. The broad-based Stoxx Europe 600 rose 2.1% but the major indexes in Germany, France, Italy and Spain were all up at least 3%. Sovereign bond prices were mostly lower both in the U.S. and abroad.
The Labor Department’s employment report for December came in below expectations but good enough to show the jobs market is still in growth mode. Nonfarm payrolls increased by a less-than-expected 148,000, about 40,000 below the consensus forecast, but that was somewhat offset by an upward revision of 24,000 in the November number to 252,000. The unemployment rate held steady for the third straight month at 4.1%. For the full year, the economy added 2.1 million jobs.
Several other important economic indicators were released last week. Auto sales fell 1.7% for full-year 2017, the first annual decline since the financial crisis, but sales still made it over the 17 million mark for the third straight year, the first time that’s happened in the industry’s history. The Institute for Supply Management’s two purchasing managers’ indexes for December were mixed. The nonmanufacturing index, which tracks most of the economy, fell 1.5 points to a lower-than-expected 55.9. But the manufacturing gauge ended the year at 59.7, its highest level since September; the average for the full year hit 57.6, the strongest rate since 2004. A separate report from the government showed factory orders for November rising 1.3%. Construction spending rose 0.8%, led by a nearly 2% gain in single-family homes.
The minutes of the Federal Reserve’s December meeting showed a marked difference of opinion among monetary policy voters about how many interest rate increases to expect this year. Six of the 16 voting members said they expect three rate hikes, six others predicted two or less, while the other four expected at least four increases. One of the issues they discussed at the meeting was how much of an economic uplift to expect this year from the Trump tax cuts, and what impact that might have on inflation. “Participants discussed several risks that, if realized, could necessitate a steeper path of increases” in the federal funds rate, the minutes said. “These risks included the possibility that inflation pressures could build unduly…perhaps owing to fiscal stimulus or accommodative financial-market conditions.” The Fed’s next meeting is at the end of January.
Reports/dates/facts/links worth paying attention to over the next week:
1. January 8: Consumer credit for November.
2. January 11: Weekly unemployment claims; producer price index for December.
3. January 12: Consumer price index for December; retail sales for December.