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And Down We Went

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Becoming Fed Chair is a tough job, especially when the stock market has its largest point drop in history on your first day at work. Jerome Powell was faced with this wake-up call on Monday, when the Dow fell almost 1,600 points during the day. Ironically, the plunge was prompted by the very thing the Fed has been hoping for – a 2.9 percent increase in wages. The wage increase signaled the first real step toward the Fed's two percent inflation target. The reality that inflation may actually be on the move up spooked stock investors, because with inflation, comes higher interest rates. Higher interest rates, in turn, make bonds more attractive than stocks. The gyrations in the stock market were exacerbated by an unwinding of bets against the stock market volatility index, the VIX. For a market that has had virtually no volatility for months, the burst of action created chaos and fear. Many experts suggest the up and down moves this week were just a correction that needed to happen in an otherwise long-term bull market. While the Dow and S&P indices have given up the gains in 2018, they are still up over 19 and 12 percent, respectively, from a year ago. Stay calm, and take a long-term view.

Other Key Indicators this Week:

JOLTS – The number of job openings declined by 167,000 in December to the lowest level in seven months. At the same time, the highest number of workers since 2001 willingly quit their jobs. There were 1.1 unemployed people available for every opening in December, compared to 1.9 people in 2007. The combination of these factors suggests a tightening job market. Employers are reluctant to let employees go, for fear of not finding suitable replacements, whereas workers continue to feel confident about finding other jobs.

Trade Deficit – The trade deficit in December was the widest since 2008, both on a monthly and a yearly basis. The deficit increased 5.3 percent to $53.1 billion for the month and was up 12 percent for the year. The story is the same ‐ imports are rising faster than exports. Imports rose 2.5 percent, and exports grew 1.8 percent. Exports to Mexico and China in 2017 were the highest on record, but so were imports.

ISM Non-Manufacturing – Activity in the service sector increased to a 10-year high in January. The ISM non-manufacturing index rose to 59.9 percent, up from 56 percent the prior month. There were significant gains in new orders and the employment components of the index. The gains reflect growing confidence that the tax overhaul will boost business investment.

Strategically for Credit Unions:

The 10-year Treasury is trying to move closer to 3.0 percent, after falling back to 2.70 percent earlier this week. The yield curve steepened to 73 basis points, the widest since November 2017. Yields at the short end of the curve moved lower, as uncertainty grew regarding the Fed's next rate move, while the 10-year began to adjust to rising inflation levels.

Sarina Freedland ‐ Senior Investment Officer

Although this information has been obtained from sources we believe to be reliable, we do not guarantee its accuracy, and it may be incomplete or condensed. This is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. All herein listed securities are subject to availability and change in price. Past performance is not indicative of future results. Changes in any assumption may have a material effect on projected results.