The U.S. stock market finished the week mostly higher as investors digest a multitude of economic and market data.  Interest rates jumped as the 10-year treasury yield increased 10 basis points to 2.75%.  The spread between the 10-year treasury yield and the 2-year treasury yield widened by 6 basis points to a still narrow 0.21%.  The price of gold fell 2.74% to $1,294 an ounce as the likelihood of a U.S. and China trade deal is getting priced in.  Meanwhile the U.S. dollar index (DXY), which tends to move inversely to gold, actually dropped from 96.55 to 96.46 amid weaker than expected economic data.  The price of crude oil fell 2.48% to $55.75 a barrel amid a surge in U.S. supply and concerns on global economic growth.

Index               Started Week         Ended Week         Change         Change %         YTD %
DJIA 24,815.0425,983.941,168.904.71%11.39%
Nasdaq 7,453.157,742.10288.953.88%16.68%
S&P 500 2,752.062,873.34121.284.41%14.62%
Russell 2000 1,465.491,514.3948.903.34%12.30%

This Week’s Economic Highlights

  • December 2018 housing starts data (which was delayed due to the government shutdown) dropped 11% to an annual rate of 1.08 million, its lowest in two years.  However, housing permits, which are a forward-looking indicator of housing starts, rose 0.30% to an annual rate of 1.33 million.
  • GDP for the fourth quarter of 2018 grew at an annualized rate of 2.6%, down from 3.4% the previous quarter yet still higher than expected.  For the year of 2018, GDP grew at a rate of 2.9%, matching its fastest growth rate since the 2008-2009 recession.
  • The U.S. trade deficit in goods jumped 12.8% in December of 2018 to $79.5 billion as tariff battles between the U.S. and China widens the gap.  More specifically, exports dropped by 2.86% to $135.7 billion and imports rose 2.38% to $215.2 billion.  A larger trade deficit takes away from GDP which could cause a downward revision in fourth quarter GDP numbers previously stated.
  • Durable goods orders for the month of January were scheduled to be reported, but have been delayed as the government plays catch-up from its shutdown in late 2018.
  • Initial unemployment claims rose 8,000 to 225,000 for the week ending February 23rd, however, its less volatile four-week moving average fell 7,000 to 229,000.  Continuing unemployment claims, which lag initial claims by a week, rose 79,000 to 1.81 million.
  • Personal income decreased 0.1% in January after making a 1.0% increase in December, marking its first drop in over three years.  Dragging personal income down were drops in dividend and income payments, however, wages still increased by 0.3%.
  • Despite a 1.0% increase in personal income in December of 2018, consumer spending sank 0.5%, marking its biggest drop since 2009.  More specifically, consumers mostly cutback on purchases of automobiles and recreational goods.  It should be noted that consumer spending accounts for nearly two-thirds of U.S. economic activity (i.e. GDP).
  • The Personal Consumption Expenditures (PCE) price index, a measure of inflation, rose 0.1% in December of 2018.  The core PCE index, which excludes the volatile food and energy prices, rose 0.2%.  Year-over-year PCE has risen a moderately slow 1.7% while the core rate rose 1.9%.

Tidbit

According to the Treasury Inspector General for Tax Administration, the $10,000 tax deduction cap (which was brought on as a part of the Tax Cuts and Jobs Act) is expected to prevent nearly 11 million people from deducting some $323 billion in payments from their federal tax returns.

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