Market Commentary - Week ending December 7

In the markets:

Market Data 12-10

U.S. Markets:  U.S. stocks fell sharply this week, with the technology-heavy NASDAQ Composite and smaller-cap indexes faring the worst.  The Dow Jones Industrial Average plunged almost 1150 points ending the week at 24,388, a decline of -4.5%. The NASDAQ Composite shed 361 points, or -4.9%, to end the week at 6,969.  By market cap, the large cap S&P 500 declined -4.6%, the mid cap S&P 400 fell -5.2%, and the small cap Russell 2000 brought up the rear by plunging -5.6%.

International Markets:  Canada’s TSX retreated -2.6%, while the United Kingdom’s FTSE shed -2.9%.  On Europe’s mainland, France’s CAC 40 ended down -3.8%, Germany’s DAX fell -4.2%, and Italy’s Milan FTSE retreated -2.3%.  In Asia, Japan’s Nikkei fell -3.0o%, but China’s Shanghai Composite finished up 0.7%, making it the one and only major international market to end the week in positive territory.  As grouped by Morgan Stanley Capital International, developed markets fell -3.2%, while emerging markets fell -2.9%.

Commodities:  Precious metals were bid higher amidst the market turmoil.  Gold finished up for a fourth consecutive week, adding 2.2% to close at $1252.60 an ounce, while Silver rose 3.4% to $14.70 an ounce.  Likewise, energy managed a second week of gains with oil rebounding 3.3% to close at $52.61 per barrel of West Texas Intermediate crude oil.  The industrial metal copper, viewed by analysts as a barometer of global economic health due to its variety of uses, finished the week down -1.0%.

In the U.S. economy:

In economic news, the number of Americans seeking new unemployment benefits fell by just 4,000 last week to 231,000 vs analyst expectations of a decline of 10,000.  The decline broke a string of three consecutive increases that had pushed the claims number up to its highest level since the end of March. The more stable monthly average of new claims rose by 4,250 to 228,000.  That number is at its highest level in eight months. Still, readings below 300,000 have historically been associated with a strong economy, and readings below 250,000 are considered exceptional. Continuing claims, which counts the number of people already receiving benefits, fell by 74,000 to 1.63 million.

Private payrolls processor ADP reported the U.S. added 179,000 private sector jobs last month.  The increase was a three-month low and below the consensus forecast of 190,000 new positions. In addition, October’s gain was revised down slightly to 225,000 new jobs versus the previously estimated 227,000.  Still the trend in hiring remained strong. In the details of the report, small firms added 46,000 positions while medium-sized businesses added 119,000 and large companies added 13,000. Services continued to lead the hiring with the professional and business sector adding 59,000 jobs, education and health adding 49,000, and leisure and hospitality adding 26,000.  Manufacturing added just 4,000 new jobs—the fewest in two years.

The Bureau of Labor Statistics’ monthly Non-Farm Payrolls report showed growth in jobs may have peaked as nonfarm payrolls expanded by 155,000, more than 40,000 fewer than economists had expected.  In addition, payrolls were revised down by an additional 12,000 over the prior two months. Overall, however, the unemployment rate remained near a 49-year low of 3.7%. And although hiring fell short of expectations, the increase in new jobs was still double the number of people entering the labor force each month.  Senior U.S. economist Eric Winograd of AllianceBernstein noted, “None of the information released today represents a paradigm change for the economy—the labor market is strong and continues to get stronger.” The increase in jobs was concentrated in health care, manufacturing, transportation, and white-collar businesses.  

Sentiment among the nation’s consumers remains upbeat according to the latest data from the University of Michigan.  U of M’s Consumer Sentiment Index remained unchanged at 97.5, holding on to the gains achieved over the last two years.  Economists had expected a 0.2 point decline to 97.3. In the details, consumers were slightly more optimistic on current conditions, but a bit more pessimistic of the future.  The University of Michigan said the last time the sentiment index was consistently above 90 was between 1997 and 2000, when it recorded a four-year average of 105.3. Including December’s report, the sentiment index has averaged 97.5 over the last two years.

Looking ahead:

Trade concerns continue to weigh on the markets, with the bail hearing of Huawei executive Meng Wanzhou set to continue Monday morning. Wanzhou is the current CFO of Huawei, a Chinese telecom company, and daughter of Ren Zhengfei, the company's founder. The arrest has only deepened trade tensions. The U.S. and its allies are boycotting Huawei products, with AT&T and Verizon backing out of deals to distribute their phones, and Australia banning the company from distributing 5G technology inside the country. On Friday, China summoned U.S. and Canadian ambassadors, demanding Wanzhou's immediate release. Continued conflict will overshadow strong labor markets and a growing economy, dousing consumer sentiment.

 

 

Nathaniel Hoskin

Written by Nathaniel Hoskin

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