-Darren Leavitt, CFA

Markets started 2019 in the same manner it left off in 2018, with extreme volatility.  A preannouncement from Apple, a much stronger than anticipated jobs report, and a more measured tone out of Fed Chairman Powell, provided investors plenty to contemplate in the first few trading session of the New Year.  The S&P 500 gained 1.73% for the week, the small-cap Russell 2000 led markets increasing 3.2%, the NASDAQ was up 1.73%, and the Dow rose 1.27%.   Treasuries, which have been exceptionally well bid for the last couple of months, had a very volatile week as well.  Gains in Tresuries seen early in the week were essentially erased by the week’s end.  The 2-year yield closed on Friday at 2.48% while the 10-year closed at 2.66%.  Oil continued to bounce last week with WTI gaining nearly $3.00, closing at $48.03.  Gold inched a bit higher too, up $5.00 for the week to close at $1285.60 an ounce.  It is also worth mentioning the volatility seen in the currency markets this week, notably the extreme move seen in the Yen early in the week.  The move was considered to be kind of a “Flash Crash”- trading desks were light in Japan due to holiday which allowed algorithmic trading to take control of the wheel as markets transitioned in overnight sessions.   The move may portend something more significant for the currency markets, and undoubtedly continued strength in the Yen is something to watch.

A negative preannouncement from Apple on Wednesday night led to sharp declines in the markets on Thursday. Markets were able to shrug off weak economic data out of Asia during the Wednesday session, but Apple’s announcement reinforced economic growth concerns particularly within the Chinese economy.  Apple lowered Q1 revenue to $84 billion from a range of $83-$93 billion versus a consensus estimate of $91.37 billion.  The revenue miss was attributed almost entirely to a shortfall in iPhone sales within China.  The announcement echoes statements from some of Apple’s key supply chain vendors and will most likely led to more preannouncements in the coming weeks from multinationals doing business in China.

As I mentioned, markets opened back up on Wednesday to the news that Chinese manufacturing is in contraction for the first time since May of 2017.  On Thursday, the US ISM Manufacturing Index for December was released and showed a decrease to 54.1% versus an expectation of 57.8% and a November reading of 59.3%.  These two indicators fueled more growth concerns.  However, on Friday the Employment Situation report contradicted these growth concerns with a solid set of numbers.  Nonfarm payrolls came in at 312,000 versus expectations of 180,000.  November and October nonfarm numbers were also revised higher.  December private payrolls increased to 301,000 versus expectations of 175,000 and November and October numbers for this indicator were also revised higher.  The unemployment rate ticked a bit higher to 3.9% versus consensus estimates of 3.7%.  The December average workweek came in line at 34.5 hours, but December hourly earnings continued to increase with a rise of 0.4% month over month versus a 0.3% estimate.  There is no wonder why there is so much confusion in the markets right now.

On the back of a great jobs report, Fed Chairman Powell’s comments at the American Economic Association annual meeting on Friday helped to spark a massive rally.  Specifically, the Chairman backed off his “autopilot” statement related to the normalization of the balance sheet and indicated that the Fed would not hesitate to change the current path if needed.

We had a few changes to our models at year end.  We added exposure to international Real Estate with the ETF, RWX.  We reduced some exposure to Gold and slightly reduced our exposure to the S&P 500. Additionally, we introduced our FIA Lite models that aim to service accounts between $10,000 and $25,000.  These models combine passive and tactical elements and were added to address some of the issues that face smaller sized accounts.  Please let us know if you have any questions regarding these changes, we are happy to discuss in more detail if you have any questions.  Happy New Year!

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