The year started with a screaming market… Just screaming in the wrong direction… That screaming has left us looking for some Advil and volatility under 20.
The week began with weak data out of China and falling oil prices. The market response was decidedly bearish as the S&P 500 shed 5.96% and the Dow Jones was down 6.19% for the week. Not to be out-done, the tech heavy NASDAQ was down 7.26%.
US data was not as decidedly negative as you would expect given market performance:
- ISM Manufacturing 48.2 from 48.6 (Dec)
- API Crude Stock -5.6M
- Initial Jobless Claims 277K
- Nonfarm Payrolls 292K
- Participation rate 62.6%, up from 62.5%
ISM Manufacturing was clearly a dark spot on the week for US data. The continued contraction of the industrial sector is definitely reason for concern. However the divergence between that and services is large. ISM Non-Manufacturing came in at 55.3, well into expansionary territory. Crude inventories fell well beyond expectations, but this was not enough to change oil sentiment.
In all, the jobs report succeeded at slowing the bleeding on Friday. A high number of additions, the continued low level of initial claims, and an increasing participation rate all helped the cause. Employees are showing signs that they are encouraged by the current job market.
The Eurozone was heavily impacted by events in China. They were also hit hard by the rising tensions between Saudi Arabia and Iran. Economic data was favorable, with Manufacturing coming in at 53.2 and Services at 54.2. Core CPI, subtracting food and fuel, came in at 0.9% for the year.
The Nikkei 225 shed 7% last week, giving back most of the gains they had from 2015 (9.1%).
The driver of much of the turmoil last week, China managed to trip newly established circuit breakers not once, but twice. China had recently implemented the tool as a way to calm over-reacting markets. Instead of calming markets, they acted like a magnet, drawing values down to the 7% trigger. First triggering on Monday and then again on Thursday. After Thursday, China scrapped the program.
There is a saying, ‘the year goes as January goes.’ If that is the case the hangover could get worse. Here is the thing… In the last 35 years, 14 years had negative January performance. Of those 14 years, 8 years had positive annual performance. So sometimes sayings are just sayings…
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