Market Perspective for December 28, 2018

Equities staged a dramatic rally this week, as the Dow Jones Industrial Average gained more than 1000 points in one day. This was the largest point gain increase in the history of the index.

Shares dipped in the abbreviated Christmas Eve trading session and then bottomed on Wednesday. We expect long-term investors allocating 401k and IRA contributions should fuel buying into early January. In addition, pension funds have driven some of the equity buying as they reduce their bonds positions.

The Nasdaq and Russell 2000 achieved returns of 4.04 and 3.55 percent for the week, respectively. SPDR S&P 500 Index and Dow Jones Industrial Average each increased more than 2 percent.

All stock market sectors rallied this week. SPDR Consumer Discretionary (XLY), SPDR Technology (XLK), SPDR Financials (XLF) and SPDR Healthcare (XLV) led with gains of 4.48, 3.73, 3.51 and 3.11 percent, respectively.

SPDR Utilities (XLU) and SPDR Real Estate (XLRE) declined as traders rotated out of defensive positions amid the rebound. They slid 1.86 and 0.03 percent.

Economic data was light due to the Christmas holiday. Weekly jobless claims remain near four-decade lows. Consumer confidence as measured by the Conference Board slipped from a 136.4 reading in November to 128.1 in December. It is very likely falling stock prices impacted short-term sentiment. A reversal in sentiment is likely as holiday sales were the strongest in 6 years. Initial data indicates $850 billion in sales.

Crude oil rebounded this week, finishing at $45 per barrel. SPDR S&P Oil & Gas Production & Exploration (XOP) gained 9.33 percent over three days.

Treasury yields moved lower on the week as bonds rallied. The 10-year yield closed at its lowest level since April at 2.74 percent. The 30-year bond yield rose to 3.04 percent. iShares iBoxx High Yield Corporate Bond (HYG) advanced 1.03 percent this week as credit risk tumbled.

 

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