How will Markets React to This Week’s Flurry of Data?01-29-2019 |
Sources: Sources for data in tables: Equity Market and Fixed Income returns are from JP Morgan as of 01/25/19. Rates and Economic Calendar Data from Bloomberg as of 01/29/19. International developed markets measured by the MSCI EAFE Index, emerging markets measured by the MSCI EM Index. Sector performance is measured using GICS methodology.
The 2019 equities market rally cooled off a bit last week. In the U.S., major averages were mixed as the S&P 500 Index lost 0.21% while the Dow Jones Industrial Average and the NASDAQ Composite gained only 0.12% and 0.11% respectively. International equities fared better than their U.S. counterparts as international developed markets rose 0.48% and international emerging markets rose 1.42% as measured by the MSCI EAFE and MSCI EM indexes.
Markets were closed on Monday, in honor of Martin Luther King Jr. holiday, before opening in the red on Tuesday. Despite the divergence in downward revised global growth forecasts from the IMF and the stock market upward movement referenced in last week’s update, it appears that a renewed global growth concern is what led markets lower last Tuesday. The focus this time was on China’s economy growing at the slowest quarterly pace since 2009. Volatility persisted throughout the week before clawing back on Friday amid strong earnings reports.
This week is full of economic and earnings updates. 126 companies are set to report fourth quarter 2018 earnings and they are not off to a strong start. Stocks were down significantly on Monday led by economically-sensitive companies such as Caterpillar Inc. which reported disappointing results and provided weak forward guidance. This is leading some to question if earnings expectations are still too high with the outlook of slowing global growth. Sentiment could certainly change as we look forward to hearing from a slew of other companies ahead including Apple, Amazon, and Microsoft to name a few. In addition, according to FactSet as of January 18, 2019, with 11% of the companies in the S&P 500 having reported results for the 4th quarter of 2018, 76% of these companies have reported a positive EPS surprise and 56% have reported a positive revenue surprise.
On the economic front, the calendar is also full. The Federal Reserve kicks off their January meeting on Tuesday and it is highly anticipated that there won’t be any movement in the target fed funds rate. Instead, market participants will be focused on the forward guidance and language used by Fed Chairman Jerome Powell with respect to interest rate hikes and balance sheet unwinding. Will any language be further softened as the dovish tone continues from the last meeting? If so, this could be favorable for the equity markets. We’ll also receive updates on jobs, consumer spending and sentiment, inflation, and potentially GDP if there are no delays in reporting stemming from the recent government shutdown. Finally, it’s worth mentioning that a trade delegation from China will meet with U.S. officials starting on Wednesday. Proposals have been made regarding the Chinese purchasing American goods in an attempt to narrow the deficit. However, key issues regarding intellectual property and the enforcement of any deal made will still be a priority.
Asset allocation, diversification, and adherence to a longer term, customized financial plan will be critical in the months and years ahead. We encourage investors to stay disciplined and work with experienced financial professionals to help manage their portfolios through various market cycles within an appropriately diversified framework that is consistent with their objectives, time-frame and tolerance for risk.
Disclosures: Past performance does not guarantee future results. We have taken this information from sources that we believe to be reliable and accurate. Hennion & Walsh cannot guarantee the accuracy of said information and cannot be held liable. This information is provided for informational purposes only and is not a solicitation to buy or sell any of the asset classes or sectors discussed.
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MSCI- EAFE: The Morgan Stanley Capital International Europe, Australasia and Far East Index, a free float-adjusted market capitalization index that is designed to measure developed-market equity performance, excluding the United States and Canada.
MSCI-Emerging Markets: The Morgan Stanley Capital International Emerging Market Index, is a free float-adjusted market capitalization index that is designed to measure the performance of global emerging markets of about 25 emerging economies.
Russell 3000: The Russell 3000 measures the performance of the 3000 largest US companies based on total market capitalization and represents about 98% of the investible US Equity market.
ML BOFA US Corp Mstr [Merill Lynch US Corporate Master]: The Merrill Lynch Corporate Master Market Index is a statistical composite tracking the performance of the entire US corporate bond market over time.
ML Muni Master [Merill Lynch US Corporate Master]: The Merrill Lynch Municipal Bond Master Index is a broad measure of the municipal fixed income market.
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LIBOR, London Interbank Offered Rate, is the rate of interest at which banks offer to lend money to one another in the wholesale money markets in London.
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DJ Equity REIT Index represents all publicly traded real estate investment trusts in the Dow Jones U.S. stock universe classified as Equity REITs according to the S&P Dow Jones Indices REIT Industry Classification Hierarchy. These companies are REITs that primarily own and operate income-producing real estate.