Markets: It was an up week for the market, with US-China trade talks ending on an upbeat note, giving investors hope for an eventual end to the trade war. Even government dysfunction couldn’t hold the market back this week.
Going by history, the 16 percent decline in the S&P 500 between Sept. 20 and Jan. 3 reflected investors pricing in better-than-even odds of an economic recession in 2019 and a 9 percent decline in earnings, JPMorgan (NYSE:JPM) strategists led by Nikolaos Panigirtzoglou wrote in a note. Another approach, the dividend discount model, suggested markets anticipate annual profit growth of 3.7 percent through 2023, according to Goldman strategists led by David Kostin.
Either is a far cry from the consensus estimate of individual stock analysts, who as of Friday predict earnings in the benchmark will rise 7.7 percent this year. And both are a major downshift from the 20 percent-plus increase companies will post for all of 2018. The divergence is raising the urgency of the upcoming reporting season, which begins next week.
And with sales warnings rising among firms like Apple Inc (NASDAQ:AAPL). and Delta Air Lines Inc (NYSE:DAL)., analyst estimates may have nowhere to go but down. Over the past three months, expected profits for 2019 have fallen 2.7 percent to $172 a share, data compiled by Bloomberg showed.
To Mike Wilson, chief U.S. equity strategist at Morgan Stanley (NYSE:MS) who predicts a 50 percent chance for two consecutive quarters of negative profit growth to occur in 2019, the market has reflected that call. Once analysts are done with downgrades, stocks will be able to stage a sustained rally, he said. (Bloomberg)
High Dividend Stocks: These high yield stocks go ex-dividend next week – AJX, ARR, CNSL, CODI, CMRE.
Volatility: The VIX fell 15%% this week, ending at $18.19.
Currency: The US reversed course this week, and the dollar fell versus most major currencies, except the yen, as Fed notes revealed that the Fed will not rush into further rate hikes in 2019.
Market Breadth: 25 DOW 30 stocks fell this week, vs. 28 rising last week. 90% of the S&P 500 rose this week, versus 73% rising last week
Economic News:
U.S. consumer prices fell for the first time in nine months in December amid a decline in gasoline prices, but underlying inflation pressures remained firm as rental housing and healthcare costs rose steadily. Excluding the volatile food and energy components, the CPI increased 0.2 percent, advancing by the same margin for a third straight month. In the 12 months through December, the so-called core CPI rose 2.2 percent, matching November’s increase. (Reuters)
Week Ahead Highlights: The Q4 ’18 earnings season begins next week, with 5 DOW 30 stocks reporting, including JPM, IBM, UNH, GS, and ACP. Other major banks reporting include WFC, C, BAC, PNC, USB, BBT and KEY.
“Corporate Profit growth is expected to average a strong 14.7% for Q4 ’18, but the test for the market will be what type of news companies have on the current quarter and the rest of 2019.
Next Week’s US Economic Reports: Some of the economic reports due out next week may be delayed, due to the government shutdown.
Sectors: Real Estate and Industrials led the pack this week, with defensive Utilities and Consumer Staples trailing.
Futures:
WTI Crude rose 7.8% this week, finishing the week at $51.70, while Natural Gas rose 3.7%. Mark Waggoner, president of Oregon brokerage Excel Futures Inc said,
'Crude futures rose this week, as the U.S. and China made progress in trade talks and Saudi Arabia reaffirmed its commitment to head off a supply glut. Money managers have turned alternately bullish and bearish on the rally in recent weeks, but the evidence for a sustained move higher is getting harder to ignore...'
