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  • January 25, 2019

Week in Review

Week Ending: January 25, 2019

Recap & Commentary

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%.

Economic Bullet Points

The Leading Economic Index (LEI), declined -0.1% in December due to the steep selloff in the stock market in the closing days of 2018. Three of the 10 total categories in the index softened, and many others that were flat or only slightly higher; which may be a sign of slower economic growth ahead. It’s worth noting, however, that the index provider had to estimate a few series, including factory orders and several building components, due to the government shutdown.

Existing Home Sales fell -6.4% to a 4.99 million-unit pace in December, breaking a two-month string of positive gains. On a year-over-year basis, sales were down -10.3%. December’s report caps a year in which rising home prices and higher mortgage rates weighed considerably on home buying conditions.

Jobless Claims-Despite a significant rise in claims by furloughed workers, initial jobless claims fell a very sharp 13,000 in the January 19 week and are under 200,000 at 199,000. This is the lowest showing in nearly 50 years when the labor force was half the size it is now.

Data for Durable Goods Orders and New Home Sales during the month of December were postponed due to the partial government shutdown.

Of Note

President Trump and Congressional leaders reached a deal to reopen the government while talks about border security continue. The deal funds the government until February 15.

Market Indices Week of 1/25

S&P 500                        -0.2%

Small Caps                     0.0%

Intl. Developed             -0.5%

Intl. Emerging                0.1%

Commodities                -0.4%

U.S. Bond Market            0.4%

10-Year Treas. Yield         2.75%

US Dollar                          -0.6%

WTI Oil ($/bl)                      $54

Gold ($/oz)                     $1,302

The Week Ahead

  • Chicago Fed National Activity Index
  • Intl Trade in Goods
  • Case-Shiller Home Price Index
  • Consumer Confidence & Sentiment
  • GDP
  • Personal Income & Outlays
  • Employment Situation
  • ISM Manufacturing

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