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Market Summary

Rising optimism on developments in the trade dispute between the U.S. and China fueled stock returns for the fourth straight week of gains. For the week, the Dow posted a 3.0% gain followed by the S&P 500 and NASDAQ indices with returns of 2.9% and 2.7%, respectively. Trading volume was relatively light last week, indicating that some traders may be waiting on the sidelines for more clarity on the trade dispute and the government shutdown, which is continuing without resolution after House Democrats quickly rejected President Trump’s offer of temporary protection for some undocumented immigrants in exchange for $5.7B in border wall funding.

The latest reports on U.S.-China trade negotiations from Bloomberg noted that China has offered to initiate a six-year program to increase imports from the U.S. by more than $1 trillion to reduce the trade surplus toward zero by 2024. Pressure to reach a resolution has grown as China has marked its slowest pace of economic growth in the past 30 years and the IMF has downgraded its global GDP growth forecast again to 3.5% from 3.7% with the trade dispute as a notable factor. The Trump administration remains divided on whether to pursue a hardline approach or a more accommodative and diplomatic approach with China on working toward structural reforms.

Adding to the fuel last week, of the 10% of S&P 500 companies that have posted fourth quarter results thus far, about 75% beat expectations, according to FactSet. The beats come after recent downward revisions in earnings expectations have set a low bar for corporations to clear of about 11% growth from the prior year, which would be down from the 20+% growth from the first three quarters of 2018. Earnings announcements will remain a key focus in the weeks ahead.

Those items seemingly overshadowed the ongoing government shutdown that has begun to weigh on consumer sentiment but has yet to have a real impact on financial markets, despite increasing concern of the potential negative impacts on economic growth. In fact, the expected negative impact has more than doubled according to the White House, who had initially estimated the shutdown would cost the economy 0.1 percentage point in growth every two weeks, but updated figures suggest it is now costing 0.13 percentage points each week.

Economic Highlights:

Consumer Sentiment: The preliminary reading of the University of Michigan Consumer Sentiment survey dropped off by 7.6 points to 90.7 for the month of January, well below consensus expectations of 96.7. It is the lowest index level since Trump was elected in 2016. The primary detractors to sentiment that were cited include the government shutdown, tariffs, financial market volatility, the global slowdown in economic growth, and uncertainty around monetary policy. Fortunately, consumer financial standing remains strong to support consumption in 2019.

US Economy – The Week Ahead

Tuesday 1/22/2019

  • Existing Home Sales – Consensus Estimate: 5,200K (-2.3% MoM), Prior Month: 5,320K (1.9% MoM)

Wednesday 1/23/2019

  • No Data

Thursday 1/24/2019

  • Initial Jobless Claims – Consensus Estimate: 217,500 (2.1% WoW), Prior Week: 213,000 (-1.4% WoW)
  • Leading Economic Indicator Index (Month-over-Month) – Consensus Estimate: 0.0%, Prior Month: +0.2%

Friday 1/25/2019

  • U.S. Durable Goods Orders Month-over-Month Growth – Consensus Estimate: 1.8%, Prior Month: -1.7%
  • New Home Sales – Consensus Estimate: 630K (0.5% MoM), Prior Month: 627K (-0.6% MoM)
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