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Week in Review

Week Ending: Friday, March 1, 2019

Recap & Commentary

Equity markets were little changed following a week in which markets traded with little conviction.  The “breather” was not entirely unexpected given the strong run markets have experienced since the start of the year.  Trade talks remained a focal point for investors, but in the absence of any new detailed news, markets seemed to take more of a wait-and-see approach.

Speaking before Congress, Federal Reserve Chair Jay Powell reinforced the idea that the Fed will be “patient” regarding future rate increases. Perhaps the most noteworthy item stemming from his two days on Capitol Hill was that the Fed intends to end it balance sheet reduction program by the end of the year.  Previously it had been expected the program would run for several more years.

Through Friday, 96% of S&P 500 companies had reported fourth-quarter earnings, effectively concluding earnings season. Thus far, 69% of companies have beaten their earnings estimates, while 61% have beaten their revenue estimates.  For the full quarter, earnings growth is expected to be 13%. Looking ahead, 1Q19 earnings growth is expected to decline on a year-over-year basis by ~3%. Regardless of the exact number, 2019 earnings growth rates will be impacted by “optics”. In 2018, earnings growth reflected both organic growth as well as lower tax rates.  In 2019, earnings growth rates will no longer reflect the benefit of the 2017 tax cuts. While corporations will continue to benefit from them, the benefit will not be evident in the year-over-year calculation

Economic Bullet Points

GDP—Real GDP increased at an above-consensus 2.6% annualized rate in Q4, but down from the 3.4% recorded in the third quarter, due in part to the government shutdown and California’s wildfires. The Bureau of Economic Analysis predicts that the shutdown decreased Q4 growth by -0.1%, and that 1Q19 GDP data will also be impacted by the shutdown. Y/Y, real GDP increased 3.1%, and on an average annual basis, grew 2.9% in 2018, up from 2.2% in 2017.

Housing Starts declined -11.2% in December as both single- and multifamily starts struggled at year-end. Building permits rose, however. With mortgage rates now lower, it's expected that sales and starts could rebound.
Manufacturing—ISM manufacturing data softened in February to 54.2, which still signals expansion. However, it marks the slowest pace of factory sector activity since 2016. Factory Orders data, a forward-looking indicator, also came in below consensus.

Consumer Confidence rose to 131.4 in February as more consumers felt optimistic about both present conditions and future job and income prospects.

Jobless Claims came in right at expectations last week up 8K, but at a favorable 225K level. The 4-week average, which was rising because of the government shutdown, has now declined a sizable -7K to 229K, although, it still remains 10K or so above January's levels.

Of Note

Major League Baseball player Bryce Harper signed the richest contract in baseball (and sports) history- 13 years, $330M. According to Action Network, Harper will make ~$45,000 every time he steps to the plate. The annual median household income in Philadelphia, the home of Harper’s new team, is ~$41,500.

Market Indices Week of 3/01

S&P 500                        0.5%

Small Caps                  0.0%

Intl. Developed             0.2%

Intl. Emerging              -0.7%

Commodities                -1.4%

U.S. Bond Market           -0.2%

10-Year Treas. Yield         2.76%

US Dollar                          0.0%

WTI Oil ($/bl)                      $56

Gold ($/oz)                     $1,292

The Week Ahead

  • Employment Situation Rep.
  • ISM/PMI Services Index
  • Housing Starts
  • Consumer Credit
  • International Trade
  • Productivity and Costs
  • Personal Income/Outlays
  • Jobless Claims

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