Weekly Market Update — January 18, 2019
- The major U.S. Stocks rose for the fourth consecutive week, which happens to be the longest streak since August of last year
- While bombarded with news of the government shutdown, investors seemed to shift their attention to the beginning of earnings season, as several of the big banks reported quarterly results to kick off the season
- Taken as a group, earnings were better than many had feared and the commentary from the big banks was generally positive, which helped push the Financials sector to handily outpace the market on the week
- According to FactSet, the forward 12–month P/E ratio of the S&P 500 companies stands at 15.3, which is below the five–year average but above the 10–year average
- The DJIA led the way with a 3.0% jump on the week, followed closely by the S&P 500's gain of 2.9% and NASDAQ's move of 2.7%
- The large–cap, developed international markets, as measured by the MSCI EAFE Index, were down 0.2% for the week
- In Europe, the Brexit saga drags on, as the U.K. Parliament rejected Prime Minister Theresa May's deal to leave the European Union, although May did survive a vote of no confidence
- Tesla made headlines again by announcing plans to reduce its staff by about 7% and its stock prices cratered by 13% following the news
Weekly Market Performance
Stocks Continue Their Hot Streak
The major U.S. stock markets recorded their fourth consecutive week of positive returns and keep building on a very positive start to 2019 – similar to what we saw at the beginning of 2018. With another modestly positive week, investors will be right back to recognizing the market cresting that psychological 25,000–point barrier – although it remains to be seen if there will be as much fanfare the second time around.
Within the S&P 500, the Financials sector led the market, due to some better–than–expected earnings reports from the big banks. Utilities were the worst performer, hampered by a bankruptcy announcement from Pacific Gas and Electric, which has massive liabilities from the recent California wildfires.
Sector Changes in 2019?
On the week, 10 of the 11 S&P 500 sectors finished positive, with only the Utilities sector declining by about 0.74%. Financials led the way with a 4.52% weekly gain, followed by Real Estate’s 2.03% move and Health Care's jump of 1.64%. The performance of the sectors on a Year–to–date basis, however, paints a different picture.
Year–to–date, all 11 S&P 500 sectors are positive, but the leaders are surprising. Energy leads all sectors with a whopping 9.08% gain YTD, followed by Communication Services (up 7.35%), Financials (up 7.19%) and Consumer Discretionary (up 7.02%). Utilities are the worst performer YTD, with a paltry gain of 0.31%. Last year's sector winner – Healthcare – is up “only” 2.94%. Granted we are not very far into the year, but it's interesting nonetheless.
Oversees Performing Decently
The two major stories overseas seemed to keep investors in check as one was received well whereas the other adds to the worry–list. On the positive side, investors are encouraged that the U.S. and China might resolve their trade disputes soon. On the worry–list is that Brexit will likely be delayed, at best, and chaotic, at worst, after Prime Minister Theresa May’s proposal was soundly defeated in Parliament.
- MSCI EAFE was down slightly on the week with a 0.2% loss, but is still up 3.7% YTD
- The Nikkei 225 Stock Average gained 1.5% for the week and is up 3.3% YTD
- The large–cap TOPIX Index and the TOPIX Small Index were also both up on the week and YTD are up 4.3% and 3.1%, respectively
- The Shanghai Composite Index added 1.7% this week
- The BIST 100 Index – representing Turkish stocks – surged a staggering 7.4% on the week
Earnings Season Kicks Off
It's not exactly a complete summary of earnings reports as only 11% of the companies in the S&P 500 have reported actual results for Q4 2018, but the results are encouraging. According to research firm FactSet, here is what has been reported so far:
- More companies are reporting actual EPS above estimates (76%) compared to the five–year average
- In aggregate, companies are reporting earnings that are 3.2% above the estimates, which is below the five–year average
- In terms of sales, fewer companies (56%) are reporting actual sales above estimates compared to the five-year average
- In aggregate, companies are reporting sales that are equal to estimates, which is below the five–year average
FactSet further reports that:
- This season could mark the fifth straight quarter of double–digit earnings growth
- Ten of the 11 sectors are reporting (or are predicted to report) year–over–year earnings growth
- Six sectors are reporting (or are expected to report) double–digit earnings growth, led by the Energy, Industrials, and the Communication Services sectors
Data This Week
This week brought a few data points, including:
- Industrial production increased 0.3% in December
- The preliminary University of Michigan Index of Consumer Sentiment for January moved down significantly to 90.7 from 98.3 in December, marking the lowest level since President Trump was elected
instituteforsupplymanagement.org; sca.isr.umich.edu; factset.com; sec.gov; federalreserve.gov; dol.gov; msci.com; standardandpoors.com; nasdaq.com; dowjones.com; morningstar.com; edwardjones.com; bloomberg.com