Week in Review

Week in Review: January 14, 2019

An Auspicious Beginning

U.S. equities closed higher for a third consecutive week, as a combination of positive news including dovish commentary from the Fed suggesting a pause in rates, signs of the U.S. and China making progress towards a trade deal, and robust domestic employment data all collectively helped lead a broad-based rally. As a result, the S&P 500 closed the week 2.6% higher while the NASDAQ Composite gained 3.5% (see Figure 1). 

Despite the improvement in market sentiment, the U.S. government shutdown became the longest on record on Sunday. While the economic damage from the shutdown remains at benign levels, the number of Americans facing hardship as a consequence continues to rise. Furthermore, the blow to investor confidence could reignite market volatility, while also delaying government spending and investment as policy uncertainty lingers. Further, the government shutdown could have a larger impact on the economy if it extends much longer and begins impacting business and consumer confidence. 

In spite of the U.S. federal government shutdown, financial markets got off to a strong start supported by comments from Fed Chairman Powell stating that the central bank will be patient raising interest rates further. The dovish tone from the Fed was well-received by market participants, who became increasingly concerned that the pace of hikes seen in 2018 could constrict economic growth if sustained into 2019. Reports of lower than expected headline inflation added further leeway to the Fed’s wait-and-see approach. Lower oil prices helped drive the consumer price index 0.1% lower in December, marking the first decline in the inflation gauge in over six months. Despite the lower energy prices, the core consumer inflation index, which excludes more volatile categories such as energy and food, rose 0.2% for the third consecutive month. The recent uptick in wage growth and the tight labor market are expected to continue driving inflation in the future.

International equities also rose driven by increased optimism of a possible trade deal between the U.S. and China. Trade officials from both nations held negotiations in Beijing last week, followed by comments from both camps signaling that efforts in bilateral talks are likely to yield results. The increased willingness of both countries to reach a trade deal encouraged investor risk taking, helping the MSCI Emerging Markets index close the week 3.8% higher.

On the fixed income front, investment-grade bond issuers took advantage of a robust market backdrop to resume external issuance, benefitting from strong interest and demand. The recent spike in market volatility led to a decrease in bond issuance, as borrowers halted their plans to issue debt. Credit spreads also narrowed, retracting some of the widening experienced during the latter part of 2018. Meanwhile, U.S. government bond prices rose on Friday, following the CPI inflation readings.

Figure 1: YTD Performance of U.S. Equities

Year to Date Performance of US Equities 

Source: Bloomberg, January 11, 2019.

Market Returns (USD)





Global Equities

MSCI All Country World

2.9% 3.9% 3.9% -8.9%

S&P 500

2.6% 3.6% 3.6% -4.3%

Dow Jones Industrial Average

2.4% 2.9% 2.9% -4.0%


3.5% 5.1% 5.1% -2.3%

Russell 2000

4.8% 7.4% 7.4% -7.6%


2.9% 3.9% 3.9% -13.1%

MSCI Emerging Markets

3.8% 3.7% 3.7% -14.3%

Fixed Income

ICE BofAML Municipals 1-10 Year A-AAA 

4.9% 4.4% 4.4% 2.8%

Bloomberg Barclays Intermediate Government/Credit

0.0% 0.1% 0.1% 1.3%

Bloomberg Barclays High Yield Bond

1.9% 3.1% 3.1% 0.3%

JPMorgan GBI Emerging Markets Global Diversified

0.8% 2.4% 2.4% -5.6%

Market Levels


Week Ago

Year End

Year Ago

S&P 500

2596.26 2531.94 2506.85 2767.56

Dow Jones Industrial Average

23995.95 23433.16 23327.46 25574.73

10-Year U.S. Treasury Yield (Constant Maturity)

2.71% 2.67% 2.69% 2.54%

Gold ($/oz)

$1,290.25 $1,286.05 $1,282.49 $1,322.44

Crude Oil ($/barrel)

$51.59 $47.96 $45.41 $59.68

U.S. Dollar / Euro ($/)

1.15 1.14 1.15 1.20

U.S Dollar / British Pound ($/£)

1.28 1.27 1.28 1.35

Japanese Yen / U.S. Dollar (¥/$)

108.48 108.51 109.69 111.26
What's Important

U.S. equities extended a strong start to the year driven by dovish comments by the Fed, renewed optimism of a trade deal, and robust employment data

U.S. headline inflation readings cooled in December driven by lower energy prices despite core inflationary pressures holding firm