Week In Review 1.25.2019

Markets ended the holiday-shortened week largely unchanged as investors weighed a slew of earnings reports against concerns about global slowing.

China reported 4Q18 GDP growth of 6.4%, the slowest pace since the global financial crisis. The full-year GDP growth of 6.6%, was the weakest pace since 1990. In the context of current trade tensions, those headlines were enough to send markets lower. However, it is important to remember that even before the current trade dispute with the U.S. erupted, Chinese economic growth was already slowing. First, as the world’s second largest economy, the law of large numbers is preventing China’s economy from growing at the same pace it did 10-15 years ago. Second, the current government is intentionally slowing growth as it transitions the economy from being led by exports and large government projects to being led by consumers.

Adding to concerns about global growth, the IMF revised downwards its 2019 global growth forecast to 3.5%, from 3.7%. While the Fund isn’t calling for a recession, Managing Director Christine Lagarde said: “the risk of a sharper decline in global growth has certainly increased.”

The European Central Bank (ECB) maintained the current monetary policy, leaving in place language suggesting that the central bank could begin raising rates in 2H19. However, it also conceded that the Euro Zone’s economic risks have “moved to the downside.” Markets do not expect an increase before 2020.

Through Friday, 22% of S&P 500 companies have reported fourth-quarter earnings. Thus far, 71% have beaten their earnings estimates, while 59% have beaten their revenue estimates. According to industry group FactSet, earnings growth is currently tracking at 10.9%.