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  • February 15, 2019

Week in Review

Week Ending: February 15, 2019

Recap & Commentary

Equity markets ended the week higher, with the S&P reaching its highest level in 10 weeks. Markets were buoyed by indications of progress regarding U.S. China talks.

After a week of talks, both the U.S. and China reported signs of progress.  U.S. President Trump said that the U.S. was closer than ever to “having a real trade deal” and that he would be willing to extend the current tariff deadline of March 1, if he believes that the deal is “going in the right direction.” In China, the state news agency reported that the two sides had reached “a consensus in principle” on key issues, without providing any details. Overall, the tone regarding this week’s talks was positive, which helped push markets higher.

Ahead of a second government shutdown, Congress passed, and the President approved, a budget to fully fund the government for the remainder of the fiscal year, ending September 30, 2019.  For the markets, the deal was incrementally positive as it removed a potential source of uncertainty.

Through Friday, 79% of S&P 500 companies have reported fourth-quarter earnings. Thus far, 70% of those companies have beaten their earnings estimates, while 62% have beaten their revenue estimates.  For the full quarter, industry group FactSet is forecasting earnings growth of 13.1%, up from 12.1% at December 31, 2018.

Economic Bullet Points

Inflation–For the third consecutive month, headline consumer prices (CPI) remained unchanged in January due in large part to lower energy prices. Core inflation, however, which excludes volatile food and energy prices, trended higher for the fifth consecutive month, up 0.2%. Y/Y, core inflation is up a modest 2.2%. Overall, consumer prices remain contained and in-line with the Fed’s target. Similarly, headline producer prices (PPI) dipped -0.1% on softer energy prices, but rose an incremental and contained 0.3% at the core level.

Retail Sales dropped an unexpected -1.2% in December. Control group sales, which factor into GDP also declined by -1.7%. While these weak numbers present several concerns about consumer spending, they likely contain a fair amount of unrelated noise considering that the recently ended government shutdown materially altered the data collection process.

Industrial Production fell a weaker-than-expected -0.6% in January, due to a -0.9% drop in manufacturing production.

NFIB Small Business Optimism Index fell -3.2 points in January, the lowest level since 2016, which was likely caused by increased market volatility and the government shutdown.

Consumer Sentiment, conversely, rebounded in February from the January dip as the government reopened.

Jobless Claims rose 4K to 239K, but the 4-week average, reflecting the shutdown effects, rose a sizable 6.8K to 232K. Firming jobless claims could be signaling a moderation in labor market strength.

Of Note

According to the Treasury Department, the national debt surpassed $22T in February, for the first time in history.

Market Indices Week of 2/15

S&P 500                          2.5%

Small Caps                     4.2%

Intl. Developed              1.3%

Intl. Emerging                0.3%

Commodities                  1.1%

U.S. Bond Market           -0.1%

10-Year Treas. Yield         2.66%

US Dollar                          0.3%

WTI Oil ($/bl)                      $56

Gold ($/oz)                     $1,318

The Week Ahead

  • Leading Indicators
  • Existing Home Sales
  • Housing Market Index
  • Durable Goods Orders
  • E-Commerce Retail Sales
  • Consumer Sentiment
  • Jobless Claims

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