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Weekly Market Update – January 8, 2016

The Dow tumbled a further 168 points Friday despite a better-than-expected December jobs report.  For the week the Dow was down 6.2% and for the year the index is down the same.

The December jobs report surprised to the upside, showing the addition of 292,000 jobs in the month versus expectations of approximately 210,000.  For 2015 in full, 2.65 million jobs were added, the second-highest total since 1999.  The unemployment rate remained at 5% and hourly earnings were flat from November’s reading.  The strong jobs report helped to quell talk of the US entering a recession while the flat wage growth gives the Fed leeway to postpone another interest rate hike as inflation concerns remain a non-issue.  The Fed initially hinted at four interest rate increases this year, but given the poor start to the year for US and global markets, odds are now in favor of fewer.

Much of the market trouble can be attributed to China.  The world’s second-largest economy continues to devalue its currency (eight consecutive days of gradual “softening”) in an effort to stimulate its economy and increase exports, which have declined for nine consecutive months.  Worries of slowing economic growth in China and emerging markets in general (of note, Brazil is currently in a recession and Russia’s economy continues to struggle as energy prices remain low) have caused markets worldwide to stumble out of the 2016 gate to their worst week-one returns in decades.  Falling oil prices also contributed to the malaise – the price of oil closed at $33.16 per barrel Friday, down over 10% for the week on continued oversupply.
The yield on the 10-year Treasury fell 2 basis points (bps) Friday to 2.13%, down 14 bps for the week and the same for the year. Trust preferred shares have held up well amidst the market turmoil, down slightly through yesterday, Thursday, January 7 vs. almost -5% for the S&P 500 Index.

Next week’s economic calendar highlights include weekly jobless claims on Thursday and December retail sales, inflation and industrial production (factory output) on Friday.  Expect weekly jobless claims to settle in the 280-290,000 range (from 277,000 this week), retail sales to show a slight increase from November, the December inflation data to show a slight decline in average prices (fueled in part by the continued fall in energy) and December factory output to decline from November.  Fourth quarter earnings reports will start soon.


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