Week in Review
Week Ending: January 18, 2019
Recap & Commentary
Domestic equity markets continued to rebound from their fourth-quarter slump, with the S&P 500 posting its fourth consecutive week of gains, the longest such stretch since August. Optimism surrounding U.S./China trade talks, and the start to earnings season were the primary drivers.
On Friday, Bloomberg reported that China has proposed a plan to increase its imports of U.S. goods by $1T, to reduce its trade surplus to zero by 2024. Markets rallied sharply on the news. Prior to any definitive trade deal being announced, markets will likely continue to ebb and flow in response to reports regarding trade talks, not all of which will be accurate. Case in point, on Thursday a report emerged that Treasury Secretary Steven Mnuchin had suggested the idea of easing tariffs on Chinese goods as part of ongoing negotiations. A senior administration official later refuted that report. With earnings season now underway, investors will be focused on determining the extent to which trade tensions are impacting corporations. Since August growth estimates for fourth-quarter earnings have been reduced from 21% to ~11%. While the lower number should make it easier for companies to record a “beat,” it also raises the bar on them to do so. Thus far, the lower threshold has proven to be manageable. Through Friday, 11% of S&P 500 companies, had reported earnings, with 76% beating their consensus estimate. Those “beats” are important as they influence investor sentiment.
On Tuesday, UK PM May’s Brexit plan was soundly defeated in Parliament leaving the country’s withdrawal process from the EU in chaos. The UK now risks “crashing out” of the EU without any formal plan. Thus far, the EU has shown no willingness to renegotiate the plan which Parliament just rejected.
Economic Bullet Points
Business Inflation- The headline Producer Price Index (PPI) reading ticked down -0.2% M/M in December due to lower input costs resulting from a decline in oil prices. However, core PPI, which excludes volatile food, energy, and trade services costs, was flat in December, but up 2.8% Y/Y. In sum, input cost pressures look to be contained but continue to run ahead of selling prices.
Housing- The NAHB/Wells Fargo Housing Market Index rose two points in January, as a significant decline in mortgage rates helped to reverse the prior two months' 12-point plunge. Mortgages applications have also rebounded.
Industrial Production rose 0.3% in December, driven by a 1.1% jump in manufacturing, largely due to increased auto production. Regional data, however, suggest that the factory sector has slowed in January.
Consumer Sentiment plunged to 90.7, far below the consensus estimate of 95.5 estimates and back to pre-Presidential election levels. Concerns about the government shutdown weighed heavily on the number. In addition, the report cited concerns about tariffs and recent market volatility, among other issues.
**Housing Starts and Retail Sales data were delayed due to the ongoing government shutdown.
Jack Bogle, the founder of The Vanguard Group, and widely considered to be the godfather of passive index funds, passed away at the age of 89.
Market Indices Week of 1/18
S&P 500 2.9%
Small Caps 2.4%
Intl. Developed -0.2%
Intl. Emerging 0.8%
U.S. Bond Market -0.1%
10-Year Treas. Yield 2.79%
US Dollar 0.7%
WTI Oil ($/bl) $54
Gold ($/oz) $1,280
The Week Ahead
- Leading Indicators
- Existing Home Sales
- New Home Sales
- Durable Goods Orders
- Jobless Claims
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