U.S. stocks continued to rally, posting a fourth-straight weekly gain ahead of a long holiday weekend. Trade optimism added more fuel to the fire amid multiple reports of progress being made regarding U.S.-China talks, joining a relatively upbeat start to earnings season, another gain in industrial production and eased Fed concerns. Stocks shrugged off the prolonged government shutdown, along with mixed results from Dow member American Express and Netflix and a drop in consumer sentiment. Treasury yields, the U.S. dollar and crude oil prices moved higher, while gold dropped.
The Dow Jones Industrial Average (DJIA) rallied 336 points (1.4%) to 24,706, the S&P 500 Index jumped 35 points (1.3%) to 2,671, and the Nasdaq Composite rose 73 points (1.0%) to 7,157. In moderately heavy volume, 1.0 billion shares were traded on the NYSE and 2.4 billion shares changed hands on the Nasdaq. WTI crude oil advanced $1.68 to $54.04 per barrel and wholesale gasoline was $0.02 higher at $1.45 per gallon. Elsewhere, the Bloomberg gold spot price fell $11.09 to $1,280.96 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—increased 0.3% to 96.39. Markets were nicely higher for the week, as the DJIA rose 3.0%, the S&P 500 Index grew 2.9%, and the Nasdaq Composite advanced 2.7%.
The Federal Reserve’s industrial production report showed a 0.3% month-over-month rise in December, compared to the Bloomberg estimate of a 0.2% gain and November’s downwardly-revised increase of 0.4%. The seventh-straight monthly increase was led by the strongest rise in manufacturing output (1.1%) since February 2018, and a solid increase in mining production, more than offsetting a sharp drop in utilities activity (-6.3%) as warmer-than-usual temperatures lowered the demand for heating. Capacity utilization rose to 78.7% from the prior month’s upwardly-revised 78.6% rate, slightly above forecasts of 78.5%. Capacity utilization is 1.1 percentage points below its long-run average.
The January preliminary University of Michigan Consumer Sentiment Index fell to 90.7 from December’s final read at 98.3, and compared to expectations for a decline to 96.8. The consumer expectations and current economic condition components of the survey both were down. The 1-year inflation forecast was unchanged at 2.7%, and the 5-10 year inflation forecast ticked higher to 2.6% from the previous 2.5% rate. The index hit the lowest level since October 2016 and the report noted a host of issues including the partial government shutdown, the impact of tariffs, instabilities in financial markets, the global slowdown, and the lack of clarity about monetary policies.
Treasuries were lower, with the yield on the 2-year note advancing 5 basis points (bps) to 2.61%, the yield on the 10-year note rising 3 bps to 2.78%, and the 30-year bond rate gaining 2 bps to 3.10%. Markets carefully watched earnings season with an eye toward slowing growth and inflation concerns as fewer economic data releases during the government shutdown appeared foster uneasiness that markets may have a limited view of the economy.
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