The week saw a new type of market risk due to “cyberbulling” — a scenario where retail investors acting together online agree to buy certain stocks, which can create extreme volatility in certain stocks and sectors. Ultimately, the week closed on a sour note for stocks as each of the benchmark indexes lost value last Friday. The Dow, the Nasdaq, and the Global Dow each fell 2.0%. The S&P 500 finished down 1.9%, and the Russell 2000 dropped 1.6%. Treasury yields and the dollar closed up, while crude oil prices dropped. All of the market sectors finished in the red, led by energy, which plunged 3.4%.
Each of the major benchmark indexes lost significant value last week. The Russell 2000, which had gotten off to a very positive start to the new year, suffered the largest drop, falling 4.4%, followed by the Global Dow, the Nasdaq, the S&P 500, and the Dow. The dollar and crude oil prices closed slightly ahead, while gold prices dipped lower. For the third consecutive week, 10-year Treasury yields ended the week where they began. Year to date, the Russell 2000 and the Nasdaq are the only indexes still in the black.
Last Week’s Economic News
- The Federal Open Market Committee met last week and decided to keep the target range for the federal funds rate at 0.00%-0.25%. The Committee indicated that it expects to maintain that target range until labor market conditions have reached levels consistent with the Committee’s assessments of maximum employment, and inflation has risen to 2.0% and is on track to moderately exceed 2% for some time. In addition, the Federal Reserve will continue to increase its holdings of Treasury securities by at least $80 billion per month and of agency mortgage-backed securities by at least $40 billion per month. The Committee indicated that the pace of economic activity and employment has moderated, with weakness concentrated in the sectors most adversely affected by the pandemic. This assessment is scaled back from December, when the Committee noted that economic activity and employment had continued to recover.
- The economy grew at an annual rate of 4.0% in the fourth quarter, according to the initial, or advance, estimate of the gross domestic product. The GDP increased 33.4% in the third quarter after declining 31.4% in the second quarter. Consumer spending rose by 2.5% in the fourth quarter following a 41.0% surge in the third quarter. Consumer prices increased 1.5% in the fourth quarter, compared with an increase of 3.7% in the third quarter. Nonresidential fixed investment (what businesses spend on physical structures and equipment) climbed 13.8%, while residential fixed investment rose 33.5%. In the fourth quarter, exports advanced 22.0% and imports increased 29.5%.
- Consumer prices edged up 0.4% in December. Both personal income and disposable personal income increased 0.6% in December. Consumer spending fell 0.2% in December. For 2020, consumer prices rose 1.3%; personal income increased 6.3%; disposable personal income climbed 7.2%; and personal consumption expenditures (consumer spending) fell 2.7%.
- Durable goods orders increased for the eighth consecutive month in December. New orders advanced 0.2% following a 1.2% increase in November. Machinery, also up eight consecutive months, drove the increase, climbing 2.4% in December. Shipments of manufactured durable goods in December, up seven of the last eight months, increased 1.4%. This followed a 0.4% November increase. Unfilled orders for manufactured durable goods in December, down nine of the last ten months, decreased 0.3%. Inventories of manufactured durable goods in December, down following three consecutive monthly increases, decreased 0.2%. Nondefense new orders for capital goods in December decreased 2.0%.
- Sales of new, single-family homes increased 1.6% in December and finished 2020 up 15.2%. The median sales price of new houses sold in December 2020 was $355,900. The average sales price was $394,900. The estimate of new houses for sale at the end of December was 302,000. This represents a supply of 4.3 months at the current sales rate.
- The international trade in goods deficit was $82.5 billion in December, down 3.5% from November. Exports of goods for December were $133.4 billion, 4.6% more than November exports. Imports of goods for December were $215.9 billion, 1.4% more than November imports. In 2020, the trade in goods deficit increased by $13.2 billion, or 19.1%. Exports fell $3.5 billion, or -2.6%. Imports rose $9.7 billion, or 4.7%.
Eye on the Week Ahead
Sincerely,
Robert G. Carpenter