Markets, Economy

Weekly Kickstart (01/13/2020-01/17/2020)

1/13/20 8:00 AM

iStock-626627280.jpgStocks continued higher last week, as the S&P 500 rose by 0.94 percent to 3,265.35. That left the benchmark index up 1.07 percent 2020-to-date, and just 0.29 percent below the new all-time closing high hit on Thursday. Despite the solid gain it has been a choppy start to trading in the new year, with rising tensions in the Middle East driving much of the recent volatility. Specifically, an airstrike by the U.S. in the region earlier this month sparked concerns about the possibility of a larger military conflict with Iran that, among other things, could severely disrupt the supply of oil, e.g. a shutdown of the Strait of Hormuz. Although it is unclear after last week’s developments whether any more escalations will actually occur, lingering uncertainty could add a premium to the price of oil and exacerbate the swings in stock prices for companies sensitive to energy costs. As for the U.S. consumer, America’s transformation into the world’s largest oil producer could help soften any blow at the pump.


Another issue that investors will likely be paying close attention to over the next few weeks is the corporate earnings season for the fourth quarter of 2019. Indeed, the latest estimates suggest the S&P 500 will experience an aggregate profit decline of 2.0 percent in Q4, which if true would be the first time the index has seen four straight quarters of year-over-year earnings declines since 2016. Further, roughly twice as many S&P 500 companies issued negative EPS guidance than positive guidance for Q4. None of this may sound particularly encouraging but such pessimism can sometimes create the possibility for a lot of upside earnings surprises, similar to what has helped fuel the rally in the stock market over the past few years. However, it is still early so the way this earnings season will ultimately play out remains largely unknown, and there are many other potential volatility catalysts left for equities to overcome in the near-term, all of which could become excuses for traders to take profits (sell) after the significant run-up in prices. Any regular investors unsure how to navigate this environment should consider consulting with a professional financial advisor and as always, we are here to help with any questions you may have.


To recap a few of the things we learned about the economy last week, the positives included that the nation’s trade deficit narrowed, home purchase applications rose, service sector activity expanded at a faster rate, small business job creation jumped, the unemployment rate held at a half-century low, and the number of Americans making first-time claims for unemployment benefits fully retraced the December spike. As for the negatives, nonfarm payrolls growth moderated, average hourly earnings disappointed forecasts, and revolving credit (credit card) utilization unexpectedly fell ahead of the holiday shopping season. This week the pace of economic data picks up with several important reports on factory output, housing, small business, consumers, and employment scheduled to be released, along with a handful of speeches from Federal Reserve officials.


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Sources: Econoday, FactSet, FRBSL

Post author: Charles Couch