Market Insights 1/13/2020

U.S. equities started the week off finishing higher and adding to last week’s advance, as expectations that the U.S. and China will sign a “phase one” trade deal on Wednesday, as well as a report that the U.S. will take China off of the “currency manipulator” list that it instilled on the nation five months ago, boosted sentiment.

Treasury yields were higher and the U.S. dollar was little changed amid a dormant economic calendar that will begin to heat up tomorrow, while crude oil and gold prices traded to the downside.

The Markets…

The Dow Jones Industrial Average rose 83 points (0.3%) to 28,907

The S&P 500 Index added 23 points (0.7%) to 3,288

The Nasdaq Composite gained 95 points (1.0%) to 9,274

In moderate volume, 834 million shares were traded on the NYSE and 2.5 billion shares changed hands on the NASDAQ

WTI crude oil dropped $0.96 to $58.08 per barrel and wholesale gasoline was flat at $1.66 per gallon

The Bloomberg gold spot price was down $13.49 to $1,548.85 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was unchanged at 97.36

Treasury yields higher ahead of a busy week

Treasuries were lower with the economic calendar quiet today, as the yields on the 2-year and 10-year notes increased 2 basis points to 1.58% and 1.84%, respectively, while the 30-year bond rate ticked 1 bp higher to 2.30%.

The financial sector will be in focus this week as some major players in the group are set to deliver results, and financials is one of five sectors predicted to post y/y earnings growth. Net interest margin and revenues from equity and fixed income trading activity are likely to get the lion’s share of scrutiny, but attention will likely also be paid to metrics gauging the health of the U.S. consumer, which was a bright spot noted by several financial companies in Q3. Analysts are expecting earnings growth to return in 2020 and the S&P 500 to post a 9.4% y/y rate.

As we enter earnings season tomorrow many feel most valuation metrics—including P/Es—are stretched relative to history; and now likely require earnings growth to “catch up” to where equities are trading. The historically-wide spread between S&P 500 performance and corporate profits suggests either profits will eventually need to catch up to the market; or stocks may have to correct to move more in line with earnings.

Europe mixed, Asia mostly higher with data eyed as busy week commences

European equities finished mixed, with the markets anticipating this week’s signing of a “phase one” trade deal between the U.S. and China, while a host of global economic data is in the offing and Q4 earnings season is expected to unofficially begin. The euro was modestly higher versus the greenback and bond yields outside the U.K. gained ground.

The U.K. FTSE 100 Index was up 0.4%, France’s CAC-40 Index was little changed, Germany’s DAX Index and Switzerland’s Swiss Market Index declined 0.2%, Spain’s IBEX 35 Index fell 0.3%, and Italy’s FTSE MIB Index decreased 0.5%.

Stocks in Asia finished mostly higher, with lingering trade optimism helping start the busy week, as the U.S. and China are expected to sign a “phase one” trade deal this week, while volume was lighter than usual as markets in Japan were closed for a holiday. The markets also awaited the unofficial start to Q4 earnings season as well as a host of key economic data out of China, headlined by the nation’s lending statistics, trade data and Q4 GDP.

China’s Shanghai Composite Index rose 0.8% and the Hong Kong Hang Seng Index gained 1.1%, while South Korea’s Kospi Index moved 1.0% to the upside. India’s S&P BSE Sensex 30 Index advanced 0.6%, maintaining gains even as the country reported, just as the markets were closing, a much larger-than-expected acceleration in consumer price inflation for last month. However, with crude oil prices recently giving back a brief spike that was seen as U.S. and Iran tensions increased in early January, the energy sector weighed on Australian stocks, as the S&P/ASX 200 Index declined 0.4%.