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  • February 1, 2019

Week in Review

Week Ending: February 1, 2019

Recap & Commentary

Equity markets ended the week higher thanks in large part to an unexpectedly more dovish stance from the U.S. Federal Reserve.
As expected, the Fed left rates unchanged following its January meeting on Wednesday. What was not expected, however, was the Fed’s more dovish tone in its accompanying statement, as well as Fed Chair Powell’s comments at his press conference. A further surprise was the release of a separate statement focused entirely on the Fed’s current balance sheet reduction plan.

In its post-meeting statement, the Fed struck a more dovish tone by stating that the “Committee will be patient as it determines” future rate increases. That stood in contrast to the December statement indicating the need for “further gradual increases” to the Fed Funds rate.

Speaking at his press conference following the meeting, Fed Chair Powell stated that “The case for raising rates has weakened somewhat.” He also indicated that he would want to see inflation move higher before raising rates again. Taken at face value, that suggests an extended pause on further rate hikes, given the lack of sustained upward pressures on inflation.

The Fed’s unexpected statement regarding its balance sheet normalization plan stressed that the primary, and preferred, means for controlling short-term rates is through changes to the Fed fund rate. However, the Fed would consider altering its balance sheet normalization plans if warranted by economic or financial developments. That marked a rather significant change in tone from prior suggestions that the balance sheet normalization plan was on “auto-pilot.”

Through Friday, 46% of companies within the S&P 500 had reported fourth-quarter earnings. Thus far 70% have beaten their consensus estimates.

Economic Bullet Points

Employment- Similar to December, January non-farm payroll data easily surpassed expectations with the addition of 304K new jobs, nearly double the predicted 158K. December, however, was revised down 90K to 222K. Unemployment rose 0.1% to 4.0% as furloughed workers were counted, but it shouldn’t alarm the Fed given higher the labor force participation rate.

Manufacturing—After posting the single-largest monthly decline since 2008 in December, January factory data rebounded across several indexes. However, survey details continue to show signs of slowing.

Housing—After the delay due to the government shutdown, the Census Bureau reported a 16.7% jump in new home sales in November. With higher interest rates, builders are offering more substantial discounts to hesitant buyers, which showed in the price data. The Case-Shiller Home Price Index came in one tenth lower M/M and three tenths lower Y/Y.

Consumer Sentiment—fell to its lowest level in over two years in January. The government shutdown weighed on overall sentiment, the underlying trend in consumer confidence appears to be moderating.

*GDP, International Trade in Goods, Personal Income and Outlays data was not yet available due to the government shutdown.

Of Note

For the month of January, the S&P 500 returned 7.9%, its single best month since October 2015, and best start to a year since 1987.

Market Indices Week of 2/01

S&P 500                         1.4%

Small Caps                     1.2%

Intl. Developed              1.0%

Intl. Emerging               1.7%

Commodities                -0.1%

U.S. Bond Market            0.8%

10-Year Treas. Yield         2.69%

US Dollar                          -0.2%

WTI Oil ($/bl)                      $55

Gold ($/oz)                     $1,318

The Week Ahead

  • Factory Orders
  • ISM/PMI Services Index
  • International Trade
  • Productivity and Costs
  • Consumer Credit
  • Jobless Claims

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