Market Update | January 13th - January 17th

The What

If you remember from our previous market update post, at the end of last week, inflation worries sparked concerns for a potential lack of interest rate cuts, prompting a major selloff. However, this week, aided by reassuring inflation data on Wednesday and positive earnings reports from big banks like JPMorgan Chase and Goldman Sachs, the market rebounded.

First, let's look at the S&P 500 which is made up of 500 of the largest companies traded on either the NYSE, Nasdaq, or CBOE! Rising about 3.7% this past week, the S&P now has gone up 2.18% in total since the start of the year. Next, The Dow Jones Industrial Average, made up of 30 of the most actively traded companies, also gained 3.7 % this past week. That puts it up almost 2.6% this year. Finally, The Nasdaq Composite, made up of 100 innovative tech companies, slightly outpaced the others, adding even more value at slightly over 3.8%! That brings its yearly total up to 1.8%.

Now let's look at some common commodities. Oil prices fell about 2.3% this week making gas a little less expensive. Additionally, the price of gold jumped almost 1.5%.

The Why

The Labor Department’s December inflation report on Wednesday can be thanked for most of this week's market growth. Let's break the most important parts and why they matter. For starters, in December, prices for most things (except food and energy) went up by just 0.2%, which was a smaller increase than what we saw in November and the smallest rise since July. Additionally, "Year-over-year core inflation," which compares the price increase from last December to this December, was 3.2%. This is slightly lower than the 3.3% increase from last November to this November. That was really important for investors because remember, last week, the main driver of the selloff was inflation concerns. This report showed the inflation concerns were slightly overblown, prompting investors to buy back into the market, which contributed to the rebound in stock prices.

While it was reassuring, the inflation data did not convince investors that rates would be cut at the meeting this January. The optimism is more so centered around potential cuts later in the year. Remember that the Federal Reserve, commonly referred to as the "Fed," typically meets 8 times a year to discuss monetary policy, which included interest rates. Interests rates determine the cost of borrowing money, with higher rates discouraging borrowing (and thus spending), while lower rates encourage borrowing and spending. Generally speaking, lower rates are better for markets as there is more money circulating boosting spending and investment.

While positive inflation data was indubitably the main driver to growth, Wells Fargo, Goldman Sachs, JPMorgan Chase, and Citigroup all beat lofty expectations which added to the overall bullishness.

In summary, this week, the market showed strong recovery, with major indexes bouncing back after last week's dip. Remember what we told you last week? “When in doubt, zoom out." Had you panicked and pulled out all investments after the selloff last week, you would've missed out on sizeable gains this week. That's why its important to remember over time, the market tends to grow, even though it may experience some bumps along the way. Looking ahead, next week holds key events and data that will offer more clues, so let's discuss the future!

What's Next

Let’s take a look at what YOU can be looking forward to next week.

The weekend is a long one, with U.S. markets closed on Monday to celebrate Dr. Martin Luther King, Jr.'s birthday. Because of this, there might be less trading activity today, which can sometimes cause bigger change in opening prices when the markets reopen on Tuesday.

Most importantly however, Monday marks the inauguration of President Donald Trump. It could be important for investors to pay attention to any hints about new laws or changes, especially about things like trade and immigration. Some big changes are expected, including plans for tariffs and more action on immigration and border security. These new policies could have a big effect on the economy and the stock market.

Last but not least, important earnings reports are expected from credit card company American Express (AXP), consumer goods powerhouse Procter & Gamble (PG), healthcare leader Johnson & Johnson (JNJ), and streaming giant Netflix (NFLX).