Good growth, little upside. With 112 S&P 500 Index companies having reported results, fourth quarter earnings growth for the S&P 500 is tracking to a 14.3% year-over-year increase, 1.5% below expectations as of January 1, 2019 on beat rates slightly below recent trends. S&P 500 earnings estimates for the next 12 months have been reduced by 2.1% year to date and may fall further amid slower economic growth, trade tensions, and the government shutdown. Although the lack of upside is a bit disappointing, barely 20% of results are in (mostly financials), the drop in estimates is in line with long-term averages, and growth expectations for 2019 in the 6% range are achievable in our view.
Government reopens, for now at least. After the partial shutdown lasted a record-setting 35 days, a deal was reached on Friday to enable government employees to return to work, if only temporarily. The deal funds government operations through Feb. 15, and lawmakers are now setting to work on finding a longer-term deal that President Trump suggested must include $5.7 billion in funds for a border wall. While the shutdown significantly impacted (and continues to impact) Main Street, investors again shrugged off Washington’s budget squabbles, pushing the S&P 500 up 10.3%, its best return during a shutdown on record.
Pause likely on tap. The Federal Reserve (Fed) meets this week, culminating in its rate decision on Wednesday, January 30. We expect the Fed to pause in response to slower global growth, trend tensions, the government shutdown, and market volatility although we believe at least one, and possibly two more rate hikes are likely before the end of the cycle. At the same time, we recognize the possibility that the Fed may have hiked for the last time in December. In this week’s Weekly Market Commentary, we’ll discuss potential stock market implications if the Fed is done, or nearly done, hiking interest rates.
Policy signals. Fed Chair Jerome Powell’s post-meeting press conference will also be a focal point of this week’s monetary policy meeting. Investors’ tensions remain high as recession fears grow and the Fed nears an exit from accommodative policy. In this week’s Weekly Economic Commentary, we’ll outline our expectations for Wednesday’s rate decision and Powell’s comments.
Jobless claims’ historic print. Initial jobless claims have dropped to a 49-year low. Based on history, that could signal that a U.S. economic recession is further off than many expect. On the LPL Research blog today, we’ll highlight claims’ patterns in the months leading up to past recessions, and why the most recent low shows the U.S. economic expansion has room to run.
Week ahead. Earnings season marches along with 122 S&P 500 companies scheduled to report. The nonfarm payrolls report and the Conference Board’s Consumer Confidence Index will likely garner more attention than normal coming off a 35-day government shutdown, but investors will also be focused on the Fed’s policy meeting (details above). Overseas, fourth-quarter Eurozone gross domestic produce (GDP) is due out, along with a vote on U.K. Prime Minister Theresa May’s Brexit Plan B. In Asia, key data include Chinese Purchasing Managers’ Index. Track these and other important events on our Weekly Global Economic & Policy Calendar.
- S&P CoreLogic Case-Shiller Home Price Index (MoM, Nov)
- Conference Board Consumer Confidence Index (Jan)
- Japan Retail Sales (Preliminary, Dec)
- ADP Employment Report (Jan)
- GDP Report (QoQ, Q4 2018)
- Pending Home Sales (MoM, Dec)
- Federal Reserve Rate Decision (N/A)
- Japan Consumer Confidence Index (Jan)
- Eurozone Consumer Confidence (Jan)
- Germany CPI Report (Preliminary, Jan)
- Japan Industrial Production (Preliminary, Dec)
- China Non-Manufacturing PMI (Jan)
- China Manufacturing PMI (Jan)
- Employment Cost Index (QoQ, Q4 2018)
- Personal Income (MoM, Dec)
- Personal Spending (MoM, Dec)
- Core PCE (YoY, Dec)
- Eurozone GDP Report (Q4 2018)
- Japan Jobless Rate (Dec)
- Nikkei Japan Manufacturing PMI (Jan)
- Nonfarm Payrolls Report (Jan)
- Markit US Manufacturing PMI (Jan)
- ISM Manufacturing PMI (Jan)
- Markit Eurozone Manufacturing PMI (Jan)
- Eurozone CPI Report (Jan)
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Index data obtained via FactSet
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