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  • February 23, 2019

Week in Review

Week Ending: February 22, 2019

Recap & Commentary

Markets ended the week higher on continued signs of progress regarding a trade deal between the U.S. and China. The release of the Feds’ January FOMC meeting minutes also helped support the markets. The Fed’s January FOMC minutes revealed an in-depth discussion of recent market volatility. Part of the discussion focused on the market’s interpretation of Fed communications regarding interest rates and the bank’s balance sheet reduction program, and how that may have exacerbated volatility. In general, the minutes reinforced the current notion that the Fed will be patient regarding future rate increases.

All signals from the U.S./China trade talks continued to suggest that the two sides are making progress; however, details remained scarce. With U.S. tariffs on $200B of Chinese goods set to increase from 10% to 25% on March 1, time is of the essence. However, the date is arbitrary and could be delayed should President Trump so chooses, something he has suggested he might do if he believes progress is being made. On Friday the two sides agreed to continue their talks through the weekend, another anecdotal sign of progress.

Through Friday, 89% of S&P 500 companies have reported fourth-quarter earnings. According to industry group FactSet, thus far 69% of companies have beaten their earnings estimate, while 61% have beaten their revenue estimate. Currently, overall earnings growth is tracking at 13%. Should that be achieved, it would mark the 5th consecutive quarter of double-digit earnings growth.

Economic Bullet Points

Economic Indicators—the index of leading economic indicators (LEI) fell a below-consensus -0.1% in January as economic data, outside of labor markets, continued to soften. While December data was revised higher by one-tenth of a percent to 0.0%, the final result supported the weakening trend. Notably, the LEI had posted solid gains in the 0.5% range through much of last year, so the turn lower may be signaling slower economic growth ahead.

Existing Home Sales posted a third consecutive monthly decline in January, as total sales fell -1.2% to a 4.9 million-unit pace. While the winter months are generally more volatile, and difficult to interpret, due to large seasonal factors, the recent softness reflects deteriorating affordability, low inventories, rising home prices, and higher mortgage rates. Y/Y, overall sales are down -8.5%.

Durable Goods Orders rose 1.2% in December, just shy of the 1.7% consensus expectation. However, core capital goods orders (ex. aircraft), a key leading indicator of future business spending tends, were down another -0.7% in December and has now fallen in four out of the past five months.

Jobless Claims turned higher at the start of the year, largely due to the government shutdown. With the shutdown now over, more recent claims data suggests continued strong demand for labor. Initial claims for the week fell a sharp -23K to the 216K level, which was 4K below estimates for the week ending February 16th.

Of Note

For the week, the Dow Jones Industrial Average was up 0.6%, capping its 9th consecutive week of gains, the longest such streak since 1995.

Market Indices Week of 2/22

S&P 500                          0.6%

Small Caps                     1.3%

Intl. Developed               1.5%

Intl. Emerging               2.0%

Commodities                  1.4%

U.S. Bond Market           -0.1%

10-Year Treas. Yield         2.65%

US Dollar                           -0.4%

WTI Oil ($/bl)                      $57

Gold ($/oz)                     $1,329

The Week Ahead

  • GDP
  • Housing Starts
  • Factory Orders
  • Manufacturing Data
  • Personal Income/Outlays
  • Consumer Confidence
  • Jobless Claims

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