Weekly market update
The way we started February and where we are now are polar opposite. We went through an 11% downturn that bottomed on February 9 and have gone back to the way things were in January – led by technology, financials and industrials.
The Dow and S&P 500 are about 3% from their all-time highs, while the NASDAQ is only about 1% from its all-time high. What a month!!
We did get a big drop last week after the Federal Reserve (FED) minutes from the January meeting. The minutes reflected the idea that the FED was expecting faster economic growth because of an organically improving economy assisted both tax reform and proposed fiscal stimulus and that they remained on high alert over what that means for the inflation monster. They did say they only see 3 rate hikes in 2018, and this is now DOVISH – or less aggressive than the 4 hikes that have permeated the talking heads on the street. While that may be true of the actual minutes – the REALITY is that 4 is still very much a possibility and that’s when the markets turned tail and yields soared.
STOCKS
Earnings season is winding down and with about 90% of companies reported, S&P 500 operating earnings are up 23% YoY, the highest growth rate in 7 years. Revenue growth is the highest in 9 years.
ECONOMY
Last week was a quiet week on the economic front.
The latest read on existing home sales – DOWN! Analysts were expecting about 1% growth, but they got a DOWN 3.2%. What’s the problem? According to Diana Olick from CNBC – there’s nothing to sell. The existing home supply dropped to its lowest level since they began tracking it in January of 1999.
U.S. jobless claims dropped another 7,000 falling back to 45-year lows.
PMI services and manufacturing came in strong – the Services PMI was 55.9 versus expectations were 53.7. This is the highest level it has hit in 40 months!
Finally, the index of Leading Indicators beat expectations and posted the third straight month of gains in January. This says there are no signs of a recession on the horizon…
THIS WEEK
With just three trading days left in February, the major averages are still trading in negative territory, but that may and probably will change if the rally this morning will hold and rally into Wednesday.
Our new FED Chair, Jerome Powell is set to testify before the House of Representatives’ Committee on Financial Services in the Federal Reserve’s Semiannual Monetary Policy Report to the Congress. This will be our first comments from Powell and this is a formal address of just what the FED is thinking about in terms of inflation, rates and growth expectations. This will be the biggest game in town this week.
We will also get fresh data on consumer sentiment, durable goods, a host of regional reports and new/pending home sales. Plus, we get the second read on Q4 GDP which is a little bit of history – Q4 2017 – we’re going into the last month of Q1 2018.
So, stay tuned and we’ll keep you posted.
Todd Day, Portfolio Manager
Horizon Financial Services, LLC
February 26, 2018
