By Kevin Theissen
Major market indices reached new historical highs in January, highlighted by the Dow Jones Industrial Average breaking the 20,000 milestone.
However, political issues, along with a succession of disappointing earnings reports, trimmed gains in the final days of trading.
For the month, the Dow Jones Industrial Average added 0.5 percent while the Standard & Poor’s 500 Index picked up 1.8 percent. The NASDAQ Composite led the way, advancing 4.30 percent.
Stocks began the year on a positive note following upbeat economic data, and anticipation of stronger corporate earnings. The market quickly turned more mixed as the fourth-quarter earnings reporting season kicked off, and comments by President-elect Trump about drug company product pricing caused markets to whipsaw.
Stocks drifted ahead of Inauguration Day, distracted by the calendar of testimony by Cabinet nominees, before pushing to new highs.
As of Jan. 27, with 34 percent of the companies in the S&P 500 Index reporting actual results for Q4 2016, 65 percent of S&P 500 companies have beat the mean earnings per share estimate.
The blended earnings growth rate for the S&P 500, which combines actual results for companies that have reported and estimated results for companies yet to report, is 4.2 percent. If this trend holds, it will be the first time the index has seen year-over-year earnings growth for two consecutive quarters since Q4 2014 and Q1 2015.
Most industry sectors posted gains last month, with materials (+5.17 percent), industrials (+2.76 percent), technology (+4.07 percent), and consumer discretionary (+4.37 percent) leading the way. Also ending higher were consumer staples (+1.22 percent), financials (+0.90 percent), and health care (+0.68 percent). Prices slipped in the energy (-3.25 percent), real estate (-0.94 percent), and utilities (-0.29 percent) sectors.
Global markets enjoyed healthy gains in January, with the MSCI-EAFE Index rising 2.76 percent.
Several of Europe’s stock markets saw gains, including Germany, Switzerland and the Netherlands. The United Kingdom ended slightly lower.
Pacific Rim countries were mixed with the Hang Seng index posting a solid gain, while Australia’s ASX 200 index slipped.
Gross Domestic Product: The economy slowed down in the final quarter of 2016, posting a weak 1.9 percent annual growth rate. While the fourth quarter experienced healthy consumer demand, business investment and stronger home building, an expansion in the trade deficit dragged down the overall number.
Employment: A mixed employment report indicated a slowdown in job creation with the addition of just 156,000 jobs, but the strongest wage growth since 2009. The unemployment rate crept higher to 4.7 percent, up from 4.6 percent, while wages rose 2.9 percent from a year earlier.
Retail sales: Propelled by auto purchases and online holiday shopping, retail sales rose 0.6 percent in the final month of 2016. It was the eighth monthly increase in the last nine months.
Industrial production: Industrial output increased at the fastest pace since November 2014, rising 0.8 percent, while capacity utilization rose 0.6 percentage points to 75.5 percent.
Housing: Housing starts bounded 11.3 percent higher in December, touching their highest level in nine years and closing out the best year since 2007.
Sales of existing homes, however, slipped 2.8 percent, possibly signaling that rising prices and mortgage rates are pricing some buyers out of the market.
New home sales suffered their steepest decline since March 2015, falling by 10.4 percent. Purchases of new homes represented only ten percent of overall home sales in 2016, well below the 16 percent prerecession average.
CPI: In the clearest sign that price inflation may be gathering steam, the consumer price index rose 0.3 percent in December, and posted an annual jump of 2.1 percent—the biggest 12-month jump since June 2014.
Durable goods orders: Orders for long lasting goods fell 0.4 percent, weighed down by a sharp drop in defense-related orders. Excluding defense, durable goods orders increased 1.7 percent in December.