Stocks continued higher last week, as the S&P 500 rose by 2.87 percent to 2,670.71. That was the fourth weekly gain in a row and it left the benchmark index up 6.54 percent 2019-to-date, and just 8.87 percent below the all-time high hit last September. There are a few reasons why equities have so far been able to overlook the still unresolved, and already longest in U.S. history, partial shutdown of the government. For example, there is growing optimism that some sort of accord will be reached with China that ends the trade war or at least greatly reduces tensions and results in the rollback of several tariffs. The latest evidence of this occurred on Friday when stocks jumped after officials in Beijing reportedly offered a multi-year purchasing plan that would help eliminate America’s trade imbalance with China.
Another factor behind the recent run-up in stock valuations is the corporate earnings season for the fourth quarter of 2018. Indeed, last month we noted that analysts’ predictions had perhaps become overly pessimistic and therefore created the potential for a lot of upside surprises. Although it is still early, incoming profit data for the previous quarter have generally supported that outlook. In fact, of the 11 percent of S&P 500 companies that have already reported their Q4 results, 76 percent have beat their average earnings per share estimate, according to FactSet. That is above the 5-year average and overall the S&P 500 remains on track for its 5th consecutive quarter of double-digit earnings growth. Despite these encouraging developments, there are lots of unknowns (risks) left for the market to overcome, all of which could become excuses for traders to take profits (sell) after such a sharp rebound in stock prices. Any retail investors unsure how to navigate this possibly volatile 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 home purchase applications jumped, the 30-year mortgage rate held at a 9-month low, homebuilder sentiment rebounded, industrial production rose, capacity utilization increased, initial jobless claims fell, and both wholesale and trade-related inflation pressures moderated. As for the negatives, gauges of regional manufacturing activity continued to send mixed signals, and consumer confidence plunged to the worst level since the Presidential election. This holiday-shortened week the pace of economic data slows down considerably but there are still a few important reports on housing and manufacturing scheduled to be released. Several reports, though, may continue to be delayed as a result of the ongoing government shutdown.
**A more detailed snapshot of the U.S. economy can be found here.**
What To Watch:
- US Holiday: Martin Luther King Jr. Day
- Existing Home Sales 10:00 AM ET
- MBA Mortgage Applications 7:00 AM ET
- FHFA House Price Index 9:00 AM ET
- Richmond Fed Manufacturing Index 10:00 AM ET
- Jobless Claims 8:30 AM ET
- EIA Natural Gas Report 10:30 AM ET
- Kansas City Fed Manufacturing Index 11:00 AM ET
- EIA Petroleum Status Report 11:00 AM ET
Sources: Econoday, FactSet, Bloomberg, Twitter, FRBSL
Post author: Charles Couch