In a surprise move, The Bank of Japan joined last week’s action by the European Central Bank in setting its key short-term interest rates below zero as it tries to rescue its flagging economy. The news sent U.S. stock prices sharply higher on Friday, but failed to undue the worst January of trading since 2009. Economic data following last month’s interest rate hike by the Fed was not good. To wit, the domestic economy had sputtered in the final months of the year as GDP – the broadest measure of economic output – grew by just 0.7% in the fourth quarter, owing in part to shrinking exports and business investment. Durable goods orders in December tumbled 5.1%. Although consumer confidence rose in January to a three-month high as salaries rose, gas prices fell and the employment picture brightened, retail spending has been sluggish. And on Wednesday, the Federal Reserve signaled concerns about the global economy in its policy meeting saying that it is “closely monitoring global economic and financial developments”. However, there was no indication that the central bankers have backed away from the expected four rate hikes suggested this year.
For the second consecutive week, crude oil scored a gain closing out at $33.62 per barrel, up 4.4%. The energy move, as it has signaled of late, sent stock prices higher for the week with the Dow Industrials gaining 373 points, or 2.3% and the S&P 500 by nearly 2%. The NASDAQ, however, managed only a .5% advance as biotechnology stocks weighed on the index. Despite the robust gains over the past two weeks, equities on average are still 5% below where they ended 2015. Bonds and gold also advanced on the week, with the 10-year Treasury yield falling to 1.9% and gold climbing $19.20/oz. to $1,116.40. With the exception of healthcare, down an average of 2%, all other sectors were in the green, led by telecommunications and energy-related issues ahead by nearly 4.5%. Utilities were also strong advancing around 3.7%.
Earnings season is in full bloom and the results so far have been a bit better than expected, thanks to share buybacks, reduced guidance by companies and lower expectations by analysts. This week we will see what LyondellBasell will report, with prospects of $2.14 for the fourth quarter vs. $2.48 a year ago. We will also hear from beaten-down and politically volatile Gilead Sciences ($2.99 compared to $2.43); Dow Chemical ($0.70 vs. $0.85); and United Parcel Service ($1.42 vs. a disappointing $1.25 in 2014). The markets will continue to be precarious in the weeks and months ahead, as bankers continue to tweak monetary policies in attempts to boost their economies.
Here is the answer to last week’s trivia question: Many box-office observers suggest Walt Disney’s “Star Wars: The Force Awakens” will ultimately gross $2.2 billion to $2.4 billion worldwide. Disney inherited the Star Wars franchise with its purchase of? Pixar; DreamWorks SKG; Lucas Films; or Marvel Studios. Answer: Lucas Films, purchased by The Walt Disney Company for $4.05 billion in October, 2012.
Today’s Trivia Question: Vanguard Group signaled it is on pace to break a record set in 2014 for the largest inflow for a mutual fund firm. How much investor money did it take in through the ten months ending October, 2015? $565 billion; $85.05 billion; $278.1 billion or $196 billion.