Stocks bounced back from 2 weeks of losses with the S&P 500 managing strong gains the first 2 trading days of the holiday-shortened week. All major indexes were in the green with the Dow Jones Industrial Average rising 418 points to 16391, up 2.6%. Small caps and technology indexes led the way as the large cap S&P 500 index rose 2.85%, the mid cap S&P 400 gained 3.47%, and the small cap Russell 2000 surged 3.9%. The overall Nasdaq composite added 166 points to 4505, up 3.85%, while the Nasdaq 100 rose 3.6%.
In international markets, Canada's TSX rose 3.49% on the heels of strong gains in the oil sector. Major European and Asian markets were strong across the board as the United Kingdom's FTSE surged 4.25%, Germany's DAX jumped 4.69%, and France's CAC 40 rallied 5.7%. In Asia, China's Shanghai Stock Exchange rose 3.49%, Japan's Nikkei surged 6.79%, and Hong Kong's Hang Seng enjoyed a 5.7% gain.
In commodities, the industrial metal copper gained 2.29%, but precious metals declined slightly as Gold declined -$11.90 an ounce to $1226.60. Silver, the more volatile of the two, declined -2.75% to $15.36 an ounce. Oil had a big week as rumors circulated that Saudi Arabia, Russia, and Venezuela had agreed to freeze oil output and Iran might support the plan. Oil rallied over 10%, up $2.94 to $31.96 a barrel.
In economic news, initial claims for jobless benefits fell 7000 to 262,000 last week, the lowest since November and a rate consistent with a healthy job market, according to the Labor Department. The smoothed four week average fell 8000 to 273,250. However, analysts at TrimTabs Investment Research have dug deeper into a different metric, and what they have found is concerning. The growth of federal income and employment tax withholdings has been dropping at an alarming rate. For most of last year, tax withholdings had been rising at a rate of 5% versus the year ago period. Revenue inflows to the Treasury Department began to steadily decline through last fall, bringing the annual growth rate to just below 4% by the beginning of this year. From the beginning of this year, growth has been just 1.8%, far less than the 5% gains a year ago. "The slower pace of year over year gains in tax withholdings has pointed to a significantly slower pace of hiring since September," says TrimTabs Investment Research, which estimates that 820,000 jobs were added from September to January. In contrast, the Labor Department estimates 1.137 million new jobs were added over that span, or almost 40% more.
The National Association of Home Builders reported single-family home construction starts fell 3.9% in January to an annualized 731,000. This is an increase of 3.5% versus a year ago. Multi-family starts were down 2.5% for the month and down 3.8% annualized. Homebuilder sentiment slipped to a nine month low. On a positive note, building permits were up 13.5% from year ago. Single-family permits were down 1.6% last month, but remain 9.6% above year ago levels.
Housing starts fell more than expected in January, declining 3.8% to an annualized 1.099 million according to the Commerce Department. Housing permits, an indicator of future building activity, beat expectations by declining only 0.2% to 1.202 million.
The Mortgage Bankers Association reported that mortgage applications rose 8.2% last week following a 9.3% rise the previous week. Refinancing activity surged 16% as mortgage rates fell for a sixth straight week. The 30 year fixed-rate mortgage stands at 3.83%, the lowest since last April.
Confidence among homebuilders faded as they were slightly less upbeat this month. The National Association of Home Builders/Wells Fargo housing market index declined to 58, down three points to the lowest since last May. Prospective home buyer traffic fell to a nine month low of 39 despite lower mortgage rates. Current sales declined slightly, but remained strong at 65.
Core consumer prices, which exclude food and energy, rose 0.3% in January, up 2.2% from year ago. This is the fastest annual rise since June 2012 according to the Labor Department. Overall prices were unchanged for the month and up 1.4% from year ago. Core prices were driven by gains in the cost of medical care, health insurance and housing. Health insurance costs rose 1.1% for the month and up 4.8% from year ago, the largest increase since April 2013.
Industrial production recovered much stronger than expected in January, up 0.9%, according to the Federal Reserve. The gain was led by a 5.4% jump in utilities output. Manufacturing activity returned to growth up 0.5% after falling the two previous months. Factory activity was led by auto production as General Motors and Ford continued to report strong sales. Mining output, which includes oil drilling was flat last month, and down 9.8% versus a year earlier.
The Labor Department reported that the producer price index rose 0.1% in January. Ex-food and energy, the PPI gained 0.4%, the most since fall of 2014. Overall, prices rose due to a 0.7% gain in services costs offsetting a 0.5% drop in goods prices.
Manufacturing continues to contract according to the New York Federal Reserve's Empire state manufacturing index. The index improved less than expected from January's worst reading Since the Great Recession. Overall business conditions improved to -16.6 from -19, however this is still the second worst reading since 2009. The six month outlook also improved to 14.48, but it was the worst reading since 2011. New orders and shipments remained firmly in negative territory signaling contraction.
Consistent with the Empire State Manufacturing Index, the Philadelphia Fed Manufacturing Index remains in contraction but improved to -2.8 from -3.5. Shipments increased, however, new orders fell 4 points to -5.3 signaling a faster decline. The employment index fell to -5 from -1.9, the lowest since May 2013. The inventory gauge fell further, suggesting that manufacturers continue to destockpile. The business outlook index fell to its lowest level since November 2012.
This past week Boston Federal Reserve President Eric Rosengren gave a speech signaling a break from the Feds plan to gradually increase interest rates in anticipation of inflation. He stated that he wants to wait for confirmation that inflation is trending higher before further action.
In Canada, the Canadian dollar's sharp drop over the past year is beginning to stoke inflation. The consumer price index rose 2% in January from the same time last year, according to Statistics Canada. It's at its highest level since November of 2014. The jump in prices puts the Canadian central bank in a difficult position as it has been attempting to shore up growth with low borrowing costs.
In the Eurozone, an interesting event transpired last week. The United States became the top destination for German exports last year, overtaking France for the first time since 1961. Analysts believe that an upturn in the U.S. economy and a weaker euro led to the change. In France, Christine Lagarde who managed a tumultuous first term as Managing Director of the International Monetary Fund was officially named to a new term at the global emergency lender. Lagarde's second five years is not anticipated to be any quieter than her first term.
Finally, this week we look at GDP growth rates of 2 different Presidents that come from 2 vastly different regions of the political spectrum.
President Ronald Reagan took office in 1980 in the midst of high inflation and a deep recession. Likewise, President Barack Obama took office in 2008 in the epicenter of the global financial crisis. However, there are a few notable distinctions in the GDP numbers following the taking of office of each of the 2 men. The GDP under President Ronald Reagan never had a negative year, and the weakest GDP under Reagan beats the strongest GDP numbers under Obama.