Market Dynamics Post-Christmas
On Christmas Eve, the U.S. stock market was showing signs of a bear market, as suggested by econometric analysis utilizing a Hidden Markov model (HMM). However, the start of the new year brought a notable rally. Despite this rebound, the underlying trend indicating a bear market appears to have not only persisted but also intensified.
Key Headlines
Congress prepares to vote on measures to end the partial government shutdown: Politico
U.S. national intelligence chief raises alarm over increasing threats: NY Times
UK trade minister optimistic about reaching a Brexit deal: CNBC
A former U.S. Marine detained in Russia for espionage is denied bail: Newsweek
Three men and a teenager arrested for an alleged bombing plot targeting Muslims in upstate New York: CNN
Los Angeles teachers conclude a week-long strike: USA Today
Brazil’s Bolsonaro delivers a pro-business address at Davos: Reuters
Sales of existing homes fell 10.3% in December compared to the same period last year: MW
U.S. Economic Policy Uncertainty Index reached its highest point in 2.5 years on Tuesday: FRED
U.S. truck shipments experienced a year-over-year decline in December for the first time in two years: Axios
Market Performance Overview
Trading is set to recommence today in the U.S. stock market, where the focus is on value-oriented stocks leading performance for major equity factors, according to a range of exchange-traded funds. A general positive sentiment surrounds stocks as we move further into 2019. However, certain challenges loom on the horizon, including subdued global growth and the ongoing partial government shutdown. As market participants return to work after a long weekend, value assets continue to demonstrate a pronounced performance advantage this year.
Global Developments
Senate unlikely to back Trump’s proposal to reopen the government: WSJ
Taliban assault on Afghan military base results in multiple casualties: NBC
A newly disclosed missile base has been identified in North Korea: USA Today
China cautions the U.S. and Canada regarding Huawei executive extradition: SCMP
UK’s Labour Party takes steps towards a second Brexit referendum: Reuters
Concerns over a possible U.S. recession are increasing: CNN
U.S. public sentiment regarding the economy has soured over the past two months: Gallup
IMF revises 2019 global growth forecasts downwards: IMF
Asset Class Performance
Global equities, real estate, and commodities experienced notable gains last week, effectively mitigating losses seen in bonds. Overall, the performance across the major asset classes was mixed, yet an upward trend notably prevailed.
International Affairs and Economic Signals
China’s economic growth has hit a 28-year low in 2018: CNBC
Israeli forces have conducted attacks against Iranian assets in Syria: NBC
Is the Federal Reserve a key contributor to this year’s stock recovery? NY Times
Senate GOP leadership plans to introduce a bill to reopen the government this week: Politico
The battle between Trump and Pelosi continues regarding the government shutdown: WaPo
Missing U.S. economic data due to the shutdown poses challenges for macroeconomic analysis: MW
The wealthy have significantly increased their fortunes since the financial crisis: Bloomberg
Consumer confidence in the U.S. sharply declined in January: MW
U.S. industrial output saw a rebound in December, yet the annual growth rate eased to 4.0%: CNBC
Book Highlight
The Age of Surveillance Capitalism: The Fight for a Human Future at the New Frontier of Power
By Shoshana Zuboff
Review via Los Angeles Review of Books
In her provocative new book, Harvard Business School professor emerita Shoshana Zuboff reveals how Silicon Valley’s resurgence is bound to a sinister form of capitalism that she dubs “surveillance capitalism.” This practice, initiated by Google and refined by Facebook, exploits human behavior as raw material for profit. Everyday interactions are transformed into data that shape our habits, whether in shopping, social interactions, work, or political engagement.
Zuboff goes beyond typical criticisms of privacy abuses and monopolistic tendencies; she warns that the profound restructuring of the economy by these tech giants threatens personal freedom and undermines democratic values.
US Economic Outlook
The likelihood of a new recession in the U.S. remains low, although economic momentum appears to be waning. While current headwinds are manageable, the possibility of more significant troubles later this year is increasing, particularly due to the effects of the partial government shutdown.
Ongoing Political Tensions
Trump halts Pelosi’s overseas trip, citing the government shutdown: WSJ
The feud between Trump and Pelosi dims hopes for a quick resolution to the government shutdown: Bloomberg
Important dates to monitor regarding the ongoing partial government shutdown: CNBC
Discussions between North Korea and the U.S. on a potential second Trump-Kim summit are underway: Reuters
Optimism regarding some progress in the U.S.-China trade conflict bolsters global stock markets: Reuters
BuildFax reports a decline in U.S. housing starts for December: MW
U.S. jobless claims decreased more than anticipated last week: CNBC
The Philadelphia Federal Reserve Manufacturing Index shows improvement in January: MW
The Global Economic Policy Uncertainty Index surged throughout 2018: Axios
Economic Risks Amid Political Unrest
The ongoing partial government shutdown presents the risk of negatively impacting the U.S. economy over time. Nevertheless, investor sentiment remains relatively buoyant, as significant gains in major equity sectors are observed since the end of last year, except for utilities. As of January 16, the year-to-date returns have been largely positive.
