Weekly market update
The major averages finished mostly flat last week after several solid weeks of performance, but I had said that it wouldn’t be a surprise if stocks took a pause and digested the gains we have seen since the December 24th lows. Last week resembled a lot of sideways chops, which is okay. It is healthy for the averages to digest some of the year’s gains.
We were going along quite well and then last Monday happened. First, China reported growth continues to slow in their economy and then the U.S. turned down preparatory trade talks with China…making stocks go swoosh. And then many talking heads were saying we had just gone too far too fast, maybe that’s why the selloff.
Thanks to some decent earnings reports (76% have posted positive surprises) and some decent economic data, stocks stabilized and finished the weak flattish. The Q4 earnings season is only roughly 20% finished but enough large “macro” companies (including nearly all the large banks) have posted numbers and held calls to provide investors comfort around the performance of Corporate America last quarter.
Around the globe; however, the headlines were all about growth forecasts cuts, trade frictions and weakening trade sentiment data out of Japan and Germany, respectively. We know that will impact those very same companies.
But, right now, trade with China has moved to the top of the leaderboard for market worries. The FED, in my opinion, is done raising rates and are moving to the flexible camp on balance sheet reductions. And on Wall Street, the shutdown will become known as the Immaculate Interruption: long enough to cement the FED’s patience, reveal the economy’s resilience, temper investor sentiment and grant Q1 data a blanket mulligan. Yet, not long enough for lasting damage to companies or consumers.
And the calls for a recession—here’s your recession—first-time unemployment claims fell below 200,000…199,000 to be exact—this is the lowest since the late 1960s. The last time jobless claims were this low, millions were protesting the Vietnam War. This is not something you see in a recession.
Across the pond, The European Central Bank Chief, Mario Draghi said: “Risks have now moved to the downside.” So, they are concerned about a slowdown in the economy and with a stall in Brexit negotiations, Europe is not looking so hot right now. We already know China and remaining Asia aren’t look spiffy either, so we are best off to take the risk in the U.S. markets.
This week we will close the books for January, which has started out gangbusters again this year and I would like to see the markets hold those gains. It is a busy week ahead of us. This will be the busiest week on the earnings calendar for this quarter, about one-fifth of the S&P 500 are reporting.
We also have a 2-day FED meeting—they won’t be raising rates, but their comments on the balance sheet will be the story. We will get the first read of Q4 GDP, this will also be a large report, although it is backward looking.
So, stay tuned and we’ll keep you posted. As always, if you have any questions, comments or concerns about how the markets are impacting your specific situation, please let us know so we can address as soon as possible.
Make it a great week!
Todd Day, MBA
Portfolio Manager
Horizon Financial Services, LLC
January 28, 2019
