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Weekly Update

Market Summary

U.S. equities were mixed last week as concerns that the new year bull rally in prices could be a bit premature weighed on trading early in the week while strong corporate earnings announcements and encouraging reports on the future of Federal Reserve monetary policy helped to spark a late-week rally. For the week, the S&P 500 notched a 0.2% loss while the Dow and NASDAQ each inched 0.1% higher, marking five consecutive weeks of gains for the two indices. A temporary deal to reopen the U.S. government for three weeks on Friday also helped end the week on an optimistic note, though President Trump is not optimistic about reaching a border security deal in that period, pegging the odds of an accord at less than 50%.

A report from the Wall Street Journal on Friday that helped to lift investor sentiment discussed how the Federal Reserve might end its process of gradually shrinking its mortgage and Treasury portfolio sooner than anticipated, which would theoretically support market liquidity and ease pressure on long-term interest rates. Fed Chairman Jerome Powell is expected to comment on the future direction of the Fed balance sheet policy on Wednesday.

Despite U.S. equity’s hot start to the year, investors are still dealing with several headwinds, including slowing global economic growth and how that will affect the earnings of U.S. multinational companies. This week several major technology and industrial companies that generate a significant portion of revenue from overseas will announce fourth quarter earnings results and give insight to U.S. investors on whether or not tariffs and slowing foreign growth are beginning to hit home.

The week ahead is shaping up to be an eventful and potentially market-moving week with a confluence of major corporate, geopolitical, and economic news and events to take place including the Federal Reserve meeting, trade negotiations between the U.S. and China, and release of employment and manufacturing data and the first preliminary reading of U.S. GDP growth in the fourth quarter.

Economic Highlights:

Gold: Gold prices rose 1.2% last week partially on the increase in demand from China. China has added gold to its foreign reserves over the last month for the first time in two years, a sign that (combined with a continued paring in U.S. Treasury's) points to continuing work to cut dependence on the dollar. Gold held by China increased by about 10 tons to 1,852 tons, even as Treasury holdings dropped for the fifth straight month.

Housing: Existing home sales continued to fall last month by 6.4% to just under 5 million from 5.3 million in November.

US Economy – The Week Ahead

Tuesday 1/29/2019

  • S&P/Case-Shiller Home Price Index Year-over-Year Growth – Consensus Estimate: 5.0%, Prior Month: 5.0%

Wednesday 1/30/2019

  • Federal Open Market Committee (FOMC) Meeting – No rate hike expected
  • U.S. Fourth Quarter GDP Growth Year-over-Year (First Preliminary) – Consensus Estimate: 3.0% (2.6% QoQ), Prior Quarter: 3.0% (3.4% QoQ)
  • Pending Home Sales Index – Consensus Estimate: 101.8 (0.4% MoM), Prior Month: 101.4 (-0.7% MoM)

Thursday 1/31/2019

  • Initial Jobless Claims – Consensus Estimate: 210,000 (5.5% WoW), Prior Week: 199,000 (-6.1% WoW)
  • Personal Consumption Expenditure (PCE) Index Year-over-Year – Consensus Estimate: 1.7%, Prior Month: 1.8%

Friday 2/1/2019

  • Hourly Earnings Growth Year-over-Year – Consensus Estimate: 3.2%, Prior Month: 3.2%
  • U.S. Unemployment Rate – Consensus Estimate: 3.9%, Prior Month: 3.9%
  • ISM Manufacturing PMI – Consensus Estimate: 54.1 (0% MoM), Prior Month: 54.1 (-8.8% MoM)
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