Market Summary
A relatively quiet week with few notable economic and geopolitical developments ended with slight gains for U.S. equities. For the week, the S&P 500, Dow Jones, and NASDAQ eked out returns of 0.2%, 0.3%, and 0.5%, respectively. The key areas of focus for investors continue to be corporate earnings reports, monetary policy, the Federal government debate on border wall funding, and progress in geopolitical disputes including the U.S.-China trade conflict and Brexit.
U.S. fourth quarter corporate earnings results continue to come in generally to the upside of expectations and bolster investor sentiment, with reported earnings growth over the prior year for S&P 500 constituents of 14.5% to date compared to expectations of 12.8% at the start of the year, according to FactSet. However, there has been increasing attention on expected year-over-year earnings growth for the first quarter of 2019, which has fallen into negative territory for the first time in three years. The 2019 full-year consensus earnings growth expectation remains positive at 5.1% per FactSet.
As of Monday evening, U.S. lawmakers have reached an “agreement in principle” to avoid a further government shutdown ahead of the Friday deadline. The compromise entails $1.38 billion of border wall funding, compared to $5.7 billion sought by President Trump, but Republicans blocked a measure sought by Democrats to put a cap on Immigration and Customs Enforcement detention beds. The deal still has a long way to go before making it to the President’s desk for approval, but the pressure to get a deal done is high as the latest shutdown is estimated to have cost the American economy about $11 billion by various sources.
At the same time, the Trump Administration is also focusing on getting a trade deal done with China, with the two nations to resume trade negotiations this week in Beijing. The primary discussion point will be structural issues, such as forced intellectual property transfer, on which the two nations remain at odds.
In addition to the United States’ own political tensions, concerns of the spillover from Brexit have also begun to spread across the Atlantic. With less than seven weeks to go before the U.K. is due to leave the European Union, several S&P 500 companies have spoken out on concerns that a depressed British pound could make American goods more expensive in Britain, while the costs of imported British goods and production inputs could rise. There’s also a fear about the broader effect of Brexit on global political and economic stability.
Economic Highlights:
Oil: Crude oil prices in the U.S. (WTI) fell by 4.6% to $52.74 per barrel as a result of declining analyst price forecasts on worries of slowing global growth.
Employment: Initial jobless claims, a measure of U.S. layoffs, fell by 19,000 to 234,000 for the week ended February 2. The figure was temporarily inflated as a result of the initial federal government shutdown.
US Economy – The Week Ahead
Tuesday 2/12/2019
- NFIB Small Business Optimism Index – Consensus: 103.2 (-1.1% MoM), Prior Month: 104.4 (-0.4% MoM)
- Job Openings & Labor Turnover Survey – Consensus: 6,916K (0.4% MoM), Prior Month: 6,888K (-3.4% MoM)
Wednesday 2/13/2019
- U.S. Consumer Price Index (CPI) Year-Over-Year – Consensus Estimate: 1.5%, Prior Month: 1.9%
Thursday 2/14/2019
- Initial Jobless Claims – Consensus Estimate: 228,000 (-2.6% WoW), Prior Week: 234,000 (-7.5% WoW)
- U.S. Producer Price Index (PPI) Year-Over-Year – Consensus Estimate: 2.1%, Prior Month: 2.5%
Friday 2/15/2019
- U.S. Import Price Index Year-over-Year Growth – Consensus Estimate: -2.1%, Prior Month: -0.6%
- U.S. Export Price Index Year-over-Year Growth – Consensus Estimate: 0.3%, Prior Month: 1.1%
- Industrial Production (Month-over-Month) – Consensus Estimate: 0.10%, Prior Month: 0.35%
- University of Michigan Consumer Sentiment Survey (Preliminary) – Consensus Estimate: 93.7 (2.7% MoM), Prior Month: 91.2 (-7.2% MoM)
