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Weekly Market Update — February 22, 2019

  • Stocks inched up this week, pushing the DJIA to its 9th week of gains, its longest such streak in almost 25 years
  • The DJIA (+0.6%), S&P 500 (+0.6%) and NASDAQ (+0.7%) are all healthily in double–digit YTD gains, with returns of 11.6%, 11.4% and 13.4%, respectively
  • International developed markets fared better this week, with MSCI EAFE gaining 1.5% and closing in on double–digit YTD gains with a robust 8.6% gain YTD
  • Volatility was muted and traders noticed that the S&P 500 has not experienced a decline of 1% or more for the last 20 trading days
  • The main drivers of the markets this week seemed to be positive developments in the trade negotiations between the US and China, the Fed's willingness to be measured with respect to rate hikes in 2019 and a better–than–expected and generally positive earnings season
  • All 11 S&P 500 sectors finished higher on the week, led by Materials (+3.6%); Utilities (+2.65%) and Information Technology (+2.20%)
  • The Real Estate sector performed the worst, gaining 0.69% on the week
  • Markets were closed Monday in observance of Presidents' Day

Weekly Market Performance

The Fed is Split?

On Wednesday, the Federal Reserve released the minutes of the January meeting and it appears that Fed officials are in one of two groups with respect to future interest rate hikes.

One group of officials argued that rate increases might be needed only if inflation outcomes were higher than expected. However, another group of officials suggested that it would make sense to raise rates if the economy evolves as expected. The market read those minutes as indicative of the Fed being patient and many Fed watchers are suggesting that the remainder of the first half of 2019 will not see rate increases.

In addition to short–term rates, the Fed also stated that they would spell out a plan to stop moving their $4 trillion in bonds and other assets and “almost all” officials agreed to this course of action.

Very Mixed Economic Data

The week's economic data was mixed, and maybe leaned toward the negative side.

  • Core (excluding aircraft and defense) durable goods orders fell in December, following a recent pattern of slowing business investment
  • A more current gauge of factory activity in the mid–Atlantic also fell
  • Existing home sales in January fell to their lowest level in over three years
  • Weekly jobless claims fell more than expected
  • The Conference Board announced that its leading economic index declined 0.1% in January

Housing Weakness?

From the National Association of Realtors:

  • Existing home sales in January declined 1.2% to a 4.94 million pace and are now at a 3–year low
  • In the past 12 months, existing home sales have declined by 8.5%
  • Median home prices rose by 2.8% to $247,500 in January, which is the slowest annual growth rate since 2012
  • Existing homes are now on the market for 49 days, up from 42 days a year ago

Earnings Season is Almost Over

As of Friday, almost 90% of the companies in the S&P 500 have reported actual results for Q4 2018. As reported Friday from research firm FactSet:

“In terms of earnings, the percentage of companies reporting actual EPS above estimates (69%) is below the five–year average. In aggregate, companies are reporting earnings that are 3.5% above the estimates, which is also below the five–year average.

In terms of revenues, the percentage of companies reporting actual revenues above estimates (61%) is slightly above the five–year average. In aggregate, companies are reporting revenues that are 1.1% above the estimates, which is also above the five-year average.

The blended (combines actual results for companies that have reported and estimated results for companies that have yet to report), year–over–year earnings growth rate for the fourth quarter is 13.1% today, which is slightly above the earnings growth rate of 13.0% last week.

Ten of the 11 sectors are reporting year–over–year earnings growth. Five sectors are reporting double–digit earnings growth, led by the Energy, Communication Services, and Industrials sectors.”