Markets were little changed over the last week as earnings got under way. Mid-week turbulence was barely noticeable as the markets pulled back gains from earlier highs.
There was little economic data, causing the focus to shift to a speech mid-week by President-Elect Trump. The speech called for reforms in the prescription drug industry. This created a storm in that area of the market.
Data
Job openings expanded by 71K as they came in at 5.522M for November according to the JOLTs report. Increased openings are a good sign of employment opportunity, even in an environment where the unemployment rate sits as low as 4.7%. Initial jobless claims increased by 10K to 247K. While it is an increase, it still represents a low level of job losses. Retail sales increased by only .6% for December. This information was not encouraging for 4th quarter GDP as we look to consumer spending as a driving force in GDP during the 4th quarter. Consumer sentiment decreased .1 to 98.1 for January[1]. Barely a move, and actually a very healthy level.
When the week started, markets were awaiting earnings results from major US banks to see how they fared in the 4th quarter. Financials have performed well since the election, but for reasons unrelated to current quarter earnings. They have strengthened on hopes of future reforms to current regulations and improved profitability as interest rates rise (projected). The results that will more likely reflect this logic will likely come a year from now.
Conclusion
While financials started the week as a focal point President-Elect Trump stole the show mid-week. There was much hope from market spectators that his press conference would detail either replacement information for the Affordable Care Act or details regarding infrastructure spending. Neither occurred. Rather, the press conference took aim at the pharmaceutical industry and bloated pricing of prescription drugs. It is estimated that this targeting caused approximately $25B in market cap losses for the top 9 pharmaceutical companies[2].
The concern looking ahead is a growing dollar with little guarantee of government investment. Strength in the dollar occurs because of the perception of a strong economy. Details around the infrastructure bill were hoped for with good reason. Government spending has been lacking while the government was in gridlock. Capital expenditures by large corporations slows during a strong dollar environment to preserve earnings as profitability slips. Infrastructure improvements would help our economy battle the drag that a strengthening dollar causes on capital expenditures. Government spending will be important to sustain the expansion in that environment.
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[1] www.investing.com – economic calendar
[2] www.troweprice.com – global markets weekly update