Weekly Market Commentary

16 Feb

No shutdown and positive progress on a trade deal with China fueled a rally this week extending the market gains for an eighth week.  U.S. and developed market international stocks saw substantial gains while emerging markets had slight declines.  Saudi Arabia announced it will cut production another 400,000 barrels next month which helped to fuel gains in oil prices.

This week’s rally happened despite some weak data, namely December retail sales and January industrial production.  However, we are taking the retail sales number with a grain of salt as other indicators showed black Friday through Christmas eve sales as higher.  We don’t know how much of the retail sales and industrial production declines were due to the partial government shutdown.  Weak inflation numbers were seen as a positive as it reduces the probability of FED rate hikes.

While the strong rally since December 26th is welcomed, we encourage folks to keep things in perspective.  We believe the December plunge was mainly due to a perfect storm of Federal Reserve uncertainty, trade uncertainty and a government shutdown right before the holidays.  The Federal Reserve is indicating they will be patient as they look at inflation data.  Analysts are predicting only one rate hike in the second half of this year.  The shutdowns are over and the trade situation, at least with China, appears to be headed towards a resolution.  Before getting too giddy here, we would stress, U.S. growth is likely to be slower but still positive this year.  Earnings growth which was stellar last year will be much slower but likely still positive.  Europe is seeing a significant slowdown.  It is unknown at this point what will happen but a hard Brexit could be a big hit to the U.K. and a significant hit to Europe as a whole.  We anticipate a positive market in 2019 but volatility will not be low like it was in 2017.

The 10-year Treasury yield rose to 2.665%.  The U.S. dollar gained against a basket of currencies and gold gained as well.

In the numbers this week:

  • The Treasury Department reported that U.S. Tax Revenue declined 0.4% in 2018 as growth in the economy helped offset tax cuts.  On the other hand federal spending rose 4.4% with the deficit growing to $873 billion dollars.
  • The Federal Reserve reported that industrial output fell 0.6% in January from December.  From the 12 months through January, industrial production has risen 3.8%.  A large drop in vehicle production was attributed to the magnitude of the decline.  Factory output fell 0.9% while mining output rose 0.1% and utility output rose 0.4% due to cold weather.
  • China surprised with a 9.1% increase in exports in January from last January.  This follows a 4.1% decline in December.
  • The Commerce Department reported that retail sales fell 1.2% in December.  This includes stores, restaurants, gas stations and online shopping.  All categories except motor vehicles and building materials declined.  From a year earlier retail sales rose 2.3%.  Excluding gasoline, retail sales fell 0.9%.  Unknown is how much of the decline was related to the partial government shutdown.
  • The Labor Department reported:
    • First time claims for unemployment rose 4,000 to a seasonally adjusted 239,000.  The four week moving average of claims rose 7,000 to 231,750.
    • The consumer-price index was unchanged in January as declining oil prices offset increases in other prices.  Excluding volatile food and energy, prices were up 0.2% in January.  From a year earlier prices were up 1.6% and core prices were up 2.2%
    • The producer-price index fell 0.1% in January.  Excluding volatile food and energy producer prices rose 0.2%.  From a year earlier producer prices rose 2.0% and excluding food and energy were up 2.5%.
  • The Energy Information Administration weekly report is  here wpsrsummary.  Also, the EIA reported
    • U.S. Crude oil production remained at 11.9MM barrels per day.
    • Storage of natural gas fell 78BN cubic feet.
    • Baker Hughes reported in the past week that the number of active oil rigs rose 3 to 857 and the number of active gas rigs fell 1 to 194.
  • Factset reported with 79% of S&P 500 companies reporting earnings, the blended earnings growth rate in the 4th quarter was 13.1%.  70% of companies reporting had positive earnings surprises and 62% had positive revenue surprises.  19 companies (correction as this number was misstated last week) have issued positive earnings guidance and 59 had issued negative earnings guidance for Q1.

Please call us if you have any questions.

Best Regards,

Loren C. Rex, CFP®, AIF®, MA                                                         Erik A Smith

President                                                                                                 Managing Partner

Generations Financial Planning & Wealth Management              269-441-4143

77 E. Michigan Ave, Suite 140

Battle Creek, MI  49017

Tel 269-441-4090

Carrie Fuce, Assistant 269-441-4091

Toll Free: 800-513-8180

Fax 866-381-2301

Visit our Website:  www.genfinplan.com

Registered Representative of and securities offered through Cambridge Investment Research, Inc., a Broker/Dealer, Member FINRA/SIPC.  Investment Advisor Representative, Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor.  Cambridge and Generations Financial Planning & Wealth Management are separate companies and are not affiliated.

These are the opinions of Loren Rex and Erik Smith and are not necessarily those of Cambridge, are for informational purposes only, and should not be construed or acted upon as individualized investment advice.  The Indices mentioned are unmanaged and cannot be invested into directly.