Weekly Wrap-Up

Last Week In Markets: Feb 5 - Feb 9, 2018

Fisher Investments recaps the biggest market, political and economic news from last week, including recent stock market volatility, partial US government shutdowns, eurozone and UK services Purchasing Manager’s Indexes, Chinese trade values and Japanese bank lending.

Market volatility skyrocketed and global stocks ended the week 5.5% lower. In our view, this market movement exhibits classic correction characteristics: a fast, sharp, sentiment-driven market drop. By contrast, bull markets end with a whimper, not with a bang—bear markets don’t announce themselves. While we continue to monitor common bear market indicators, economic, political and sentiment drivers continue to support an ongoing bull market. We don’t know exactly when this correction will end, but they usually end as quickly as they begin and selling out risks missing a fast rebound. While corrections are painful, enduring them is the toll investors pay for bull markets’ stellar longer-term returns. For more, please see our 02/05/2018 commentary, “Steep Selloff Sign of Correction—Not Bear.”

US economic releases were positive. The January ISM non-manufacturing Purchasing Managers’ Index (PMI) surged to 59.9 from 56.0 in December—handily beating expectations (readings above 50 indicate expansion). December imports grew 2.5% m/m while exports rose 1.8% m/m. On Thursday night, the US government briefly entered a partial shutdown. However, Congress passed, and President Trump signed, a two-year budget deal and stopgap spending measure Friday morning—funding the government through March 23. While government shutdowns make for great media fodder, they historically have had a negligible effect on markets or the economy.

European economic releases were mostly positive. The January eurozone Markit services PMI rose to 58.0—above estimates and indicating expansion ahead. December eurozone retail sales fell 1.1% m/m but rose 1.9% y/y. December German trade was robust—exports rose 3.9% y/y and imports rose 5.0% y/y. In German politics, Angela Merkel’s Christian Democratic Union (CDU) announced a coalition deal with the Social Democratic Party (SPD) to form a government. The final deal must be ratified by the SPD but, regardless of the outcome, Germany probably gets more political gridlock—keeping legislative risk low. In the UK, the January Markit/CIPS services PMI fell to 53.0 from 54.2 in December—missing estimates, but still signaling growth. December industrial production fell 1.3% m/m and was flat on a y/y basis. The Bank of England left monetary policy unchanged, as expected.

In Asia, China’s January Markit/Caixin services PMI rose to 54.7 from 53.9 in December—beating forecasts. January consumer prices rose 0.6% m/m and 1.5% y/y. January export values rose 11.1% y/y while import values surged 36.9% y/y—bolstered by China’s decision to increase crude oil import quotas. In Japan, January bank lending increased 2.4% y/y, in line with expectations.

The Week Ahead:

The US releases January retail sales, industrial production and inflation data. The eurozone posts December industrial production, trade data and the second estimate of Q4 2017 GDP. The UK reports January retail sales and inflation data. Japan releases December industrial production and the first estimate of Q4 2017 GDP.

Source for all data cited is FactSet. This update constitutes the general views of Fisher Investments and should not be regarded as personalized investment advice. No assurances are made we will continue to hold these views, which may change at any time based on new information, analysis or reconsideration. In addition, no assurances are made regarding the accuracy of any forecast made herein. Global equities are represented by the MSCI World Index. The MSCI World Index measures the performance of selected stocks in 23 developed countries and is presented net of dividend withholding taxes and uses a Luxembourg tax basis. Past performance is no guarantee of future results. A risk of loss is involved with investments in stock markets.