Investment Commentary –January 15, 2019

Year to Date Market Indices as of Market Close January 15, 2019
Dow 24,045 (3.16%)
S&P 2,610 (4.13%)
NASDAQ 7,023 (5.86%)
Gold $1,289 (-5.48%)
OIL $52.10 (-13.10)
Barclay Bond Aggregate (0.12%)
Fed Funds Rate 2.50% (last increase was 12/19/18)

Stocks gain as China stimulus, Netflix-led tech rally offset disappointing JPMorgan results

U.S. stocks gained Tuesday, with the S&P 500 flirting with the closely watched 2,600 level, as news of fresh stimulus measures out of China and a tech rally offset lackluster results from major U.S. banks, including Dow component JPMorgan Chase & Co.

Analysts have suggested that if the large-cap index manages to gain a foothold above 2,600, it is a sign that the market has successfully digested the bulk of the selling pressure that contributed to a sharp December selloff for equities.

How are major benchmarks faring?

The Dow Jones Industrial Average DJIA, +0.65% rose 90 points, or 0.4%, to 24,000, while the S&P 500 index SPX, +1.07% gained 20 points, or 0.8%, to 2,602. The Nasdaq Composite Index NQH9, +2.07% advanced 95 points, or 1.4%, to 7,001. If the tech-centric Nasdaq maintains altitude, it would be on track for the index’s first finish above 7,000 since Dec. 13.

What’s driving the market?

An announcement from the People’s Bank of China that it would increase efforts to spur their economy by improving credit availability for smaller companies and a pledge by the Chinese Ministry of Finance to cut taxes and ramp up infrastructure spending helped to buoy market sentiment.

The comments come a day after China’s trade data came in weaker than expected, underlining worries that the country’s economy was locked in a downturn that could weigh on global expansion amid a protracted tariff spat between China and the U.S.

Both the tech and communications services sectors were in rally mode, rising around 1.5%. Netflix Inc. NFLX, -0.04% shares were up more than 6% after the video-streaming company said it would raise U.S. prices by 13% to 18%, the biggest rise since launching its streaming service 12 years ago.

In the U.K., Prime Minister Theresa May’s plan to leave the European Union by a March 29 deadline was rejected overwhelmingly by the parliament, triggering more uncertainty as the country struggles to find an orderly exit from the bloc. In a crushing defeat, 432 members voted against May’s proposal while 202 voted in favor.

British Parliament rejects Prime Minister May’s Brexit deal

The U.K. Parliament voted against Prime Minister Theresa May’s Brexit deal on Tuesday, leaving Britain with further uncertainty. 432 members of Parliament voted against it, while 202 voted in favor. May’s government now has three days to present an alternative plan in Parliament. That said, the opposition Labor Party leader Jeremy Corbyn will bring a vote of no-confidence in the government, which will be debated in Parliament on Wednesday. If May’s government loses the vote, fresh elections would be triggered. The option of a so-called hard Brexit, where the U.K. crashes out of the European Union without a result, is also still on the table now. The British pound GBPUSD, +0.0078% which was sharply lower versus the U.S. dollar ahead of the vote, retraced some of its losses but remained solidly in the red in response to the vote. Sterling last bought $1.2760, down 0.8%, according to FactSet. The euro-sterling pair EURGBP, -0.4825% was meanwhile slightly lower, with one euro buying £0.8909, down 0.1%.

Around the web

Earnings outlook: Major banks will begin reporting results next week as quarterly earnings season gets under way. Economic and trade uncertainties have recently caused analysts to scale back their profit estimates, and fourth-quarter earnings for companies in the S&P 500 are now expected to rise about 12% compared with the same quarter a year ago, according to FactSet.

Shutdown stagnation: The latest week’s stock market gains came despite the lack of a resolution to the partial government shutdown, which became the longest in U.S. history on Saturday. As the shutdown entered its fourth week, there was no immediate sign of a break in the impasse between President Trump and Democratic leaders in the House over spending and border security.
Baby steps: December’s surge in market volatility has given way to incremental gains entering the new year. Stocks rose modestly in six of the first eight trading days of 2019, and Friday’s small decline snapped a five-day string of positive days in a row.

Missing data: Many U.S. economic reports that were expected to be released have been delayed indefinitely as a result of the shutdown’s impact on government agencies, introducing a new element of uncertainty into financial markets. One notable exception is the Department of Labor’s Bureau of Labor Statistics, which has continued to release employment and inflation data because it—unlike other key agencies—is funded through September 2019.

Market Performance since 10 Years Ago
DOW (+193%)
S&P 500: (+209%)
Nazdaq: (+365%)

Other Notable Indices (YTD)
Russell 2000 (small caps) 6.28
EAFE International 3.50
Emerging Markets 2.80
Shiller Annuity Index 1.29

The views presented are not intended to be relied on as a forecast, research or investment advice and are the opinions of the sources cited and are subject to change based on subsequent developments. They are not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investments.