The Week In Review


The sky fell on Friday. Just kidding. The stock market just had a bad day--which has kind of felt as impossible as the prospect of a falling sky since the start of the year.


The Dow Jones Industrial Average tumbled 2.5%, and the S&P 500 and the Nasdaq Composite lost 2.1% and 2.0%, respectively, but the three major indices still hold year-to-date gains between 3.2% and 4.9%. Equities opened Friday with sizable losses and extended those losses throughout the session, finishing at session lows.


Declining issues outnumbered advancing issues 9 to 1 at the New York Stock Exchange. In terms of S&P 500 sectors, 11 of 11 finished in negative territory, with the energy space (-4.1%) pacing the retreat following fourth quarter earnings from Chevron (CVX 118.58, -6.99) and Exxon Mobil (XOM 84.53, -4.54). Both companies missed revenues estimates; Exxon missed profit estimates as well. In addition, a decline in the price of crude oil also weighed on the sector; West Texas Intermediate crude futures slid 0.8% to $65.30 per barrel.


The top-weighted technology sector (-3.0%) also had a rough outing, with Apple (AAPL 160.37, -7.41), Alphabet (GOOGL 1119.20, -62.39), and Visa (V 120.91, -4.81) losing between 3.8% and 5.3% after releasing their Q4 results. Apple and Visa beat earnings estimates, but Alphabet came up short despite reporting better-than-expected revenues. Apple's iPhone sales were disappointing, and the company lowered its sales forecast for the first quarter.


Dow component Merck (MRK 58.56, -1.30) also reported Q4 results, beating bottom-line estimates, but slid 2.2% nonetheless.


On a positive note, Amazon (AMZN 1429.95, +39.95) jumped 2.9%, touching a new intraday record, after soundly beating earnings estimates for the fourth quarter, thanks in large part to changes in the U.S. tax code. The consumer discretionary sector (-0.9%), which houses Amazon, was among the top-performing groups.


Investors received the Employment Situation report for January on Friday morning. Job growth was solid again with the addition of 220,000 nonfarm payrolls ( consensus +180,000), but the focal point was the 0.3% jump in average hourly earnings. That was in-line with the consensus estimate, but after taking revisions into account, it left average hourly earnings up 2.9% year over year--the highest growth rate since May 2009.


There has been a burgeoning assumption that the strengthening economy and the tight labor market are going to invite higher wages and wage-based inflation pressures that have been dormant for years. The key takeaway, then, is that the January report has given some data-based life to that assumption and has offered a reasonable basis for the Federal Reserve to move ahead with a rate hike at its March meeting.


U.S. Treasuries were weak ahead of the jobs report release, but selling accelerated in the aftermath, pushing yields to multi-year highs; the benchmark 10-yr yield climbed another eight basis points--extending its weekly gain to 19 basis points--to finish at 2.85%, which is its highest level since January 2014. Shorter-dated issues showed relative strength, however, with the 2-yr yield slipping two basis points to 2.14%. Yields move inversely to prices.


In Washington, President Trump authorized the release of a House Intelligence Committee memo that alleges there was an anti-Trump bias at both the FBI and the Justice Department in investigative matters pertaining to Russia's meddling in the 2016 presidential election. The release received some credit for accelerating Friday's sell off given that it creates some political uncertainty in front of next week's spending deadline; Congress will have to pass a new spending resolution by February 8 to avoid another government shutdown.


It's also worth pointing out that the CBOE Volatility Index, often referred to as the "investor fear gauge," spiked about four points, or 29.0%, on Friday to 17.40--its highest level since the U.S. presidential election on November 8, 2016.


Reviewing Friday's batch of economic data, which included the Employment Situation report for January, the final reading of the University of Michigan Consumer Sentiment Index for January, and Factory Orders for December:


Employment Situation

January nonfarm payrolls increased by 200,000 while the consensus expected an increase of 180,000. The prior month's increase was revised to 160,000 from 148,000. Nonfarm private payrolls rose by 196,000 while the consensus expected an increase of 175,000. The previous month's increase was revised to 166,000 from 146,000.

The unemployment rate stayed at 4.1%, as expected.

Average hourly earnings increased by 0.3% ( consensus +0.3%), while the previous month's increase was revised to 0.4% from 0.3%.

The average workweek was reported at 34.3 ( consensus 34.5). The previous month's reading was left unrevised at 34.5.

Michigan Consumer Sentiment

The final reading of the University of Michigan Consumer Sentiment Index for January rose to 95.7 ( consensus 95.0) from 94.4 in the preliminary reading.

Factory Orders

The Factory Orders Report for December showed an increase of 1.7% ( consensus 1.3%), while the November reading was revised to +1.7% from +1.3%.

On Monday, investors will receive the ISM Services Index for January at 10:00 AM ET.


Nasdaq Composite: +4.9% YTD

S&P 500: +3.3% YTD

Dow Jones Industrial Average: +3.2% YTD

Russell 2000: +0.8% YTD


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