Weekly Update - January 11, 2019
Global stocks continued their gains from the previous week, despite easing during Friday’s session and jitters over disappointing holiday sales. Better sentiment carried over as the Federal Open Market Committee’s December meeting minutes reinforced Fed Chair Powell’s signals, that interest-rate policy might be more flexible in light of market conditions. Trade negotiations between the United States and China seemed to make progress, easing fears and boosting optimism.
Oil prices gained on a report that Saudi Arabia plans to cut crude oil exports by 800,000 barrels per day (bpd) to 7.1 million bpd, in a bid to boost prices to $80 per barrel. Gold prices declined modestly as risk assets drew investors back. Bond prices retreated during the week and yields, which move in the opposite direction, rose. The widely watched ten-year U.S. Treasury yield pushed back up to about 2.70%. The U.S. dollar declined slightly on the week.
With 4% of S&P 500 companies reporting fourth-quarter results, 90% have exceeded earnings per share (EPS) expectations, while 65% have beaten sales expectations. As of January 11, 2019, FactSet estimated the S&P 500 index’s fourth-quarter earnings growth rate at 12.3% and its 12-month forward P/E ratio at 16.4, below the five-year average of 16.4 and above ten-year averages of 14.6. Bed, Bath & Beyond, Lennar Corp. and Union Pacific impressed this week, whereas Constellation Brands, Helen of Troy and Macy’s disappointed.
The ISM non-manufacturing index fell to a five-month low in December, registering 57.6 (est. 58.5), down 3.1 points from November. The new orders index of 62.7 was the highest in six months, though business activity fell 5.4 points to 59.9.
NFIB small business optimism fell in December for a fourth straight month to its lowest level since 2016, though the index remains relatively high. There was some press focus on the economic impact of the U.S. government shutdown.
German industrial production unexpectedly fell in November, further darkening the outlook for the Eurozone economy. The possibility of a recession in the continent’s powerhouse bodes ill for the wider Eurozone, which has been hit recently by protests in France and tensions over Italy’s government debt.