Category Archives: Daily Insights

Market Insights 1/21/2020

Equities around the world sold off a bit today on the heels of a reduction in the global growth outlook from the International Monetary Fund and confirmation from the Center for Disease Control of the first U.S. case of coronavirus.

The disease has already sickened hundreds of people in the Wuhan region of China and killed six.

Interest rates around the world fell amid the weakness in equities. The U.S. dollar was flat as safe-haven flows likely offset the pressure from substantially lower Treasury yields. Crude oil prices and gold also finished lower.

The Markets…

The Dow Jones Industrial Average fell 152 points (0.5%) to 29,196

The S&P 500 was down 9 points (0.3%) to 3,321

The NASDAQ shed 18 points (0.2%) to 9,371

1 billion shares were traded on the NYSE and 2.7 billion shares changed hands on the NASDAQ

WTI oil shed $0.20 to $58.38 per barrel and wholesale gasoline was flat at $1.64 per gallon

The Bloomberg gold spot price shed $2.40 to $1,557.90 per ounce

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

Treasury yields see pressure as economic calendar remains on break

Treasuries were higher and the curve flattened, with the yield on the 2-year note decreasing 3 basis points (bps) to 1.53% and a 5 bps decline on the yields of the 10-year note and the 30-year bond to 1.77% and 2.23%, respectively.

The economic calendar was quiet today following yesterday’s holiday break. It will heat up tomorrow, delivering more housing data in the form of existing home sales, which will be followed by Markit’s preliminary January reads on manufacturing and services activity, while jobless claims will likely continue to garner attention and the Leading Index will bring a timely read on the economy.

The U.S. economy split sharply in 2019—manufacturing activity lagged services, corporate profits lagged stock performance—while investor sentiment surged. How long will these divergences continue in 2020? The global economy is showing signs of stabilization, but global stocks priced in much of that improvement last year. This could mean weaker global stock market performance in 2020 than in 2019, despite a better economy.

Global Markets struggle along with U.S.

European equities finished mixed and Asian markets were lower. A negative tone was set by a global growth forecast reduction out of the International Monetary Fund (IMF), while a deadly virus outbreak in China appeared to cause some uneasiness in the markets.

The euro was flat versus the dollar and the British pound rose. The yen led the pack today, boosted by safe-haven flows and after the Bank of Japan kept its monetary policy stance unchanged, as was anticipated. Global bond yields were lower.

The U.K. FTSE 100 Index, France’s CAC-40 Index and Spain’s IBEX 35 Index all declined 0.5%, and Italy’s FTSE MIB Index fell 0.7%, while Germany’s DAX Index ticked 0.1% higher and Switzerland’s Swiss Market Index gained 0.3%.

China’s Shanghai Composite Index dropped 1.4% and South Korea’s Kospi Index traded 1.0% to the downside. Japan’s Nikkei 225 Index declined 0.9%. Australia’s S&P/ASX 200 Index dipped 0.2% and India’s S&P BSE Sensex 30 Index decreased 0.5%.

Random Thoughts

Even though the leisurely tempo of the holidays was being enjoyed just a few short weeks ago, the frenetic pace of business and political activity swiftly reemerged.

In last week alone, an agreement was reached on both the USMCA and China/US Phase-One trade accords. Plus, the Q4 2019 earnings reporting period began in earnest, with most of the big banks widely outpacing expectations.

U.S. economic data confirmed ongoing strength that was accompanied by nonthreatening readings for both consumer and producer price inflation. In response, global equities gained 1.6% for the week ending January 17, bested by the U.S large-cap advance of 2.0% that was outdone by U.S. mid-caps (+2.2%) and small-caps (+2.8%).

10 of 11 sectors in the S&P Composite 1500 Index rose in price, along with 86% of its 148 sub-industries. This week’s performance commonality saw the greatest gains largely exhibited by the groups with the weakest rolling 52-week relative strengths (vs the broader market), while the worst returns came from the heretofore relative strength leaders.

Therefore, despite elevated valuations, one might infer that this rally has further to run, due to the underlying rotation.

Market Insights 1/17/2020

U.S. equities moved modestly higher and posted weekly gains for the second week in a row.

The rally came courtesy of a host of relatively favorable December reports out of China and a surge in U.S. housing starts.

Treasury yields were higher and took the greenback with them. Oil prices fell and gold was higher on the day.

The Markets…

The Dow Jones Industrial Average added 50 points (0.2%) to 29,348

The S&P 500 was up 10 points (0.3%) to 3,327

The NASDAQ rose 32 points (0.3%) to 9,389

Volume was brisk with 988 million shares were traded on the NYSE and 2.5 billion shares changed hands on the NASDAQ

WTI oil rose $0.02 to $58.54 per barrel and wholesale gasoline fell $0.01 to $1.64 per gallon

The Bloomberg gold spot price rose $9.80 to $1,560.30 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—added 0.3% to 97.62

For the week, the Dow was up 1. 8%, the S&P 500 added 1.9% and the NASDAQ was up 2.3%

This week saw the unofficial start to Q4 earnings season, and per data compiled by Bloomberg, of the 45 S&P 500 companies that have reported thus far, roughly 62% have beat revenue forecasts, with the aggregate y/y growth rate at about 3.9%. Approximately 63% of the companies have topped earnings estimates, though the aggregate y/y profit growth rate is roughly -2.7%.

Housing construction surges, industrial production and consumer sentiment dip

Housing starts for December jumped 16.9% month-over-month to an annual pace of 1,608,000 units—the highest level since the end of 2006—well above the Bloomberg forecast of 1,380,000 units. Construction for single-unit and multi-unit structures both rose solidly, with the former in the Midwest surging to overshadow declines in single-family housing starts in the Northeast and West. November starts were revised higher to an annual pace of 1,375,000.

The January preliminary University of Michigan Consumer Sentiment Index dipped to 99.1 versus expectations to match December’s 99.3 level. The index remained elevated despite the dip, with the current conditions portion of the report ticking higher but the expectations component nudging lower.

The Labor Department’s Job Openings and Labor Turnover Survey (JOLTS), a measure of unmet demand for labor, fell to 6.80 million jobs available to be filled in November, from October’s upwardly-adjusted 7.36 million figure and below forecasts calling for 7.25 million. This was the first sub-7.0 million figure since March 2018 as the largest decreases were seen in retail trade and construction sectors, while job openings fell in the South and Midwest regions. The hiring rate remained at October’s 3.8% level and the separation rate held at the prior month’s 3.7% rate.

Treasuries were mostly lower; the yield on the 2-year note was little changed at 1.57%, while the yield on the 10-year note added 2 basis points (bps) to 1.82% and the 30-year bond rate increased 3 bps to 2.28%.

Global markets rally alongside U.S.

Global equities finished out the last session of the week higher, with the Stoxx Europe 600 Index touching record high territory. International markets digested some relatively favorable Chinese economic data.

Meanwhile, the Eurozone construction output rebounded in November. U.K retail sales came in lower than expectations for December. The euro and British pound saw pressure versus the U.S. dollar, while the yen posted modest gains.

The U.K. FTSE 100 Index was up 0.9%, France’s CAC-40 Index rose 1.0%, Germany’s DAX Index gained 0.7%, Italy’s FTSE MIB Index was 0.8% higher, Spain’s IBEX 35 Index advanced 1.1%, and Switzerland’s Swiss Market Index increased 1.4%.

China’s Shanghai Composite Index ticked 0.1% higher and the Hong Kong Hang Seng Index advanced 0.6%, while Australia’s S&P/ASX 200 Index moved 0.3% higher. South Korea’s Kospi Index edged 0.1% to the upside, and India’s S&P BSE Sensex 30 Index finished little changed. Japan’s Nikkei 225 Index gained 0.5%.

Stocks up for second-straight week

U.S. stocks posted a second week of gains, extending a solid advance thus far in 2020, with trade worries fading after the “phase one” U.S.-China deal was signed and the revamped North American trade agreement passed through the Senate. Also, the financial sector unofficially kicked off Q4 earnings season with mostly upbeat results headlined by Dow member JPMorgan/Chase but Wells Fargo & Company was a standout disappointment.

U.S. data showed inflation remained tame, manufacturing growth accelerated more than expected in key regions of New York and Philadelphia, jobless claims fell sharply, retail sales grew solidly, and the Fed’s Beige Book showed continued growth, all preceding Friday’s surge in housing starts.

All but one of the eleven major market sectors rose, led by utilities, real estate, materials and technology, but energy issues declined as crude oil prices continued to retreat from the geopolitical-fueled spike seen as 2020 kicked off.

Market Insights 1/16/2020

U.S. equities finished higher, tacking onto a recent run, courtesy of global trade optimism following yesterday’s signing of a “phase one” U.S.-China agreement and today’s passing of the U.S., Mexico Canada trade agreement (USMCA) by the U.S. Senate.

Upbeat economic data also added to sentiment, as retail sales rose solidly, jobless claims dropped and regional manufacturing activity jumped.

Treasury yields, the U.S. dollar and crude oil prices were higher, while gold was lower.

The Markets…

The Dow Jones Industrial Average was up 267 points (0.9%) to 29,298

The S&P 500 Index rose 28 points (0.8%) to 3,317

The Nasdaq Composite advanced 98 points (1.1%) to 9,357

In moderate volume, 827 million shares were traded on the NYSE and 2.3 billion shares changed hands on the Nasdaq

WTI crude oil gained $0.71 to $58.52 per barrel and wholesale gasoline increased $0.02 to $1.66 per gallon

The Bloomberg gold spot price fell $3.21 to $1,553.04 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—shed 0.1% to 97.31

Retail sales rise, jobless claims drop, and regional manufacturing jumps

Advance retail sales for December rose 0.3% month-over-month, matching the Bloomberg forecast and November’s upwardly-revised gain. Last month’s sales ex-autos moved 0.7% higher m/m, compared to expectations of a 0.5% gain and November’s negatively-revised flat reading. Sales ex-autos and gas rose 0.5% m/m, compared to estimates of a 0.4% gain, and November’s flat reading was adjusted to a 0.2% decline.

Weekly initial jobless claims fell by 10,000 to 204,000, versus estimates of 218,000, with the prior week’s figure being unrevised at 214,000. The four-week moving average dropped by 7,750 to 216,250, while continuing claims declined by 37,000 to 1,767,000, north of estimates of 1,750,000.

The Philly Fed Manufacturing Index in January jumped to 17.0, from the upwardly-revised 2.4 level posted the month prior, versus expectations of a rise to 3.8, moving further into expansion territory (a reading above zero). Growth in new orders, shipments and employment all accelerated in January.

Treasuries were lower, as the yields on the 2-year and 10-year notes rose 2 basis points to 1.57% and 1.81%, respectively, while the 30-year bond rate ticked 1 bp higher to 2.26%.

The week’s economic calendar will culminate tomorrow with housing starts and building permits, forecasted to show starts fell 3.2% m/m during December to an annual rate of 1,375,000 units and permits lost 1.9% m/m to a pace of 1,468,000 units, as well as the Federal Reserve’s industrial production and capacity utilization reports, with economists projecting a 0.2% m/m decline in production and for utilization to move slightly lower to 77.1%.

The preliminary January University of Michigan Consumer Sentiment Index will round out the docket, expected to remain at December’s final reading of 99.3.

Europe mixed on data and trade, Asia mostly higher

European equities were mixed, with the global markets remaining buoyed by continued easing of trade concerns after yesterday’s signing of a “phase one” U.S.-China agreement and as the U.S. Senate voted to pass the U.S., Mexico, Canada trade agreement (USMCA), sending it to President Donald Trump’s desk for his signature.

The euro dipped versus the U.S. dollar, despite data showing the region’s new car registrations jumped last month, and bond yields in the region were mixed. The British pound recovered slightly from recent pressure that had increased amid speculation that the Bank of England may announce a rate cut later this month.

The U.K. FTSE 100 Index was down 0.4% and Germany’s DAX Index was little changed, while Switzerland’s Swiss Market Index rose 0.2%, France’s CAC-40 Index ticked 0.1% higher, Spain’s IBEX 35 Index increased 0.6% and Italy’s FTSE MIB Index rose 0.7%.

Stocks in Asia finished mostly to the upside on the heels of yesterday’s signing of a “phase one” trade deal by the U.S. and China, which helped keep sentiment buoyed, while the markets digested some data in the region and abroad as earnings season heats up in the U.S.

Japan’s Nikkei 225 Index ticked 0.1% higher, with the yen dipping despite data showing the nation’s core machine orders—a gauge of capital spending—rose at a much stronger-than-expected rate in November.

South Korea’s Kospi Index gained 0.8% and Australia’s S&P/ASX 200 Index moved 0.7% to the upside, and India’s S&P BSE Sensex 30 Index ticked 0.1% higher.

The Hong Kong Hang Seng Index advanced 0.4% though China’s Shanghai Composite Index declined 0.5%.

Random Thoughts

History reminds us that the first two quarters of a presidential election year have been positive for stock prices.

Since WWII, the S&P 500 gained an average 1.2% in Q1 and 2.3% in Q2, rising in price 61% and 67% of the time, respectively.

YTD, the S&P 500 is up more than 2% and higher by about 12% since early October, while 2020 EPS estimates have come down.

Even though valuations don’t make a good market-timing tool, one can’t help but wonder if the ongoing equity advance is discounting too much of an anticipated upward revision to 2020 EPS and that a digestion of recent gains might be appropriate.

Indeed, the S&P 500’s P/E on next-12-month (NTM) EPS is now 19.4x, surpassing the P/E just prior to the 13-day decline of 10.2% in early 2018.

Despite today’s 1.8% 10-year yield vs the 2.70% rate in early 2018, the sum of NTM P/E and rates are similar at 21.2 today versus 21.9 in 2018.

Market Insights 1/15/2020

U.S. stocks were higher today as the U.S. and China signed a highly-anticipated “phase one” trade agreement.

Treasury yields were lower and took the U.S. dollar with them. Crude oil fell on the day, while gold rallied.

The Markets…

The Dow Jones Industrial Average was up 91 points (0.3%) to 29,030

The S&P 500 rose 6 points (0.2%) to 3,289

The NASDAQ rose 7 points (0.1%) to 9,259

Volume was average with 872 million shares were traded on the NYSE and 2.4 billion shares changed hands on the NASDAQ

WTI oil fell $0.42 to $57.81 per barrel and wholesale gasoline shed $0.02 to $1.64 per gallon

The Bloomberg gold spot price rose $9.40 to $1,554.00 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—shed 0.2% to 97.22

Wholesale price inflation mostly cooler than expected, mortgage apps jump

The Producer Price Index (PPI) showed prices at the wholesale level in December ticked 0.1% higher month-over-month, below the forecast calling for a 0.2% gain and versus November’s unrevised flat reading. The core rate, which excludes food and energy, also gained 0.1% m/m, versus an expected 0.2% increase and November’s unadjusted 0.2% decline. Y/Y.

The MBA Mortgage Application Index rose sharply by 30.2% last week, following the prior week’s 13.5% gain. The jump came as a 42.7% surge in the Refinance Index was met with a 15.5% gain for the Purchase Index. The average 30-year mortgage rate fell 4 basis points to 3.87%.

Treasuries were higher, with the yield on the 2-year note dipping 1 bp to 1.56%, while the yields on the 10-year note and the 30-year bond declining 3 bps to 1.78% and 2.24%, respectively.

Tomorrow will offer some key data on the U.S. consumer. December Retail Sales are expected to show a healthy 0.3% increase over November with sales ex-autos increasing 0.5% month-over-month. The Bloomberg Consumer Comfort Index will also be released after setting a 19-year high last week.

Mixed day for global markets

European equities finished mixed. The Bank of England may be leaning toward a rate cut later this month, following another dose of subdued inflation statistics. The British pound fell versus the U.S. dollar. The euro traded higher versus the greenback and bond yields in the region were lower.

The U.K. FTSE 100 Index was up 0.2%, Switzerland’s Swiss Market Index ticked 0.1% higher, France’s CAC-40 Index was down 0.1%, Germany’s DAX Index and Spain’s IBEX 35 Index decreased 0.2%, and Italy’s FTSE MIB Index fell 0.8%.

Stocks in Asia finished mostly lower. Japan’s Nikkei 225 Index declined 0.5%, with the yen nudging higher and a report showing the nation’s machine tool orders continued to drop in December. China’s Shanghai Composite Index decreased 0.5% and the Hong Kong Hang Seng Index traded 0.4% to the downside.

South Korea’s Kospi Index descended 0.4% and India’s S&P BSE Sensex 30 Index moved 0.2% to the downside ahead of data after the closing bell that showed the country’s exports declined last month. Australia’s S&P/ASX 200 Index bucked the trend, rising 0.5% with most major sectors gaining ground.

Market Insights 1/14/2020

Stocks around the globe posted a mixed day of performance ahead of tomorrow’s expected signing of a “phase one” trade deal by the U.S. and China.

Q4 earnings season unofficially began with the major banks kicking it off. JPMorgan Chase & Co and Citigroup posted good results, but Wells Fargo saw some pressure after missing expectations.

Treasuries were higher, but the lower yields didn’t prevent the dollar from gaining ground. Gold lost modest ground. Crude oil prices were higher.

The Markets..

The Dow Jones Industrial Average added 33 points (0.1%) to 28,940

The S&P 500 shed 5 points (0.2%) to 3,283

The NASDAQ was down 23 points (0.2%) to 9,251

Volume was brisk with 916 million shares were traded on the NYSE and 2.5 billion shares changed hands on the NASDAQ

WTI oil added $0.15 to $58.23 per barrel and wholesale gasoline was flat at $1.65 per gallon

The Bloomberg gold spot price fell $6.00 to $1,544.60 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was flat at 97.38

Consumer price inflation slightly cooler than expected, small business optimism dips

The Consumer Price Index (CPI) rose 0.2% month-over-month in December, below the Bloomberg estimate calling for a match of November’s unrevised 0.3% gain. The core rate, which strips out food and energy, was 0.1% higher m/m, south of expectations to match November’s unadjusted 0.2% rise. Y/Y, prices were 2.3% higher for the headline rate, below forecasts calling for a 2.4% gain and compared to November’s unadjusted 2.1% increase.

The National Federation of Independent Business (NFIB) Small Business Optimism Index for December declined to 102.7, from November’s unrevised 104.7 level, and compared to expectations of a slight dip to 104.6. 25% of employers think it is a good time to expand, and the net percentage of firms expecting a better economy, anticipating higher selling prices and better sales all increased, while the net percentage of employers anticipating job creation fell.

Treasuries were higher, with the yield on the 2-year note down 2 basis points (bps) to 1.57%, the yield on the 10-year note dropping 4 bps to 1.81%, and the 30-year bond rate declining 3 bps to 2.27%.

Tomorrow will bring more inflation data from the Producer Pricing Index (PPI), which is expect to show a subdued, 1.3% year-over-year increase. The Empire Manufacturing survey is expected to show expansion and MBA Mortgage Applications will be released.

Europe mixed ahead of U.S.-China trade signing and as earnings season heats up

Global equities finished mixed, despite the global markets anticipating tomorrow’s signing of a “phase one” trade deal between the U.S. and China and some upbeat December trade data out of China. The euro declined versus the U.S. dollar, and the British pound paused from a recent decline that has come from some soft economic data and continued dovishness from members of the Bank of England.

The U.K. FTSE 100 Index, France’s CAC-40 Index and Italy’s FTSE MIB Index ticked 0.1% higher, Germany’s DAX Index was little changed, Spain’s IBEX 35 Index declined 0.2%, and Switzerland’s Swiss Market Index gained 0.3%.

Japan’s Nikkei 225 Index rose 0.7% in a return to action following yesterday’s holiday break, with the yen losing some ground, while Australia’s S&P/ASX 200 Index advanced 0.9%. South Korea’s Kospi Index moved 0.4% higher and India’s S&P BSE Sensex 30 Index nudged 0.2% higher. China’s Shanghai Composite Index declined 0.3% and the Hong Kong Hang Seng Index dipped 0.2%.

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%.

Random Thoughts On Earnings

Even though the calendar now reads 2020, Wall Street will soon be revisiting 2019, in general, and the fourth quarter, in particular, at least from an earnings per share (EPS) growth perspective.

The reporting period for Q4 2019 EPS ramps up in earnest on Monday January 13. Wall Street analysts currently predict that Q4 S&P 500 EPS will decline 2.0% from the level reported for Q4 2018, according many wall street estimates.

At first glance, investors understandably might be a bit unnerved, as it would represent the second consecutive quarterly decline in S&P 500 EPS. What’s more, it would also meet the definition of an earnings recession, which historically preceded economic recessions. Yet investors shouldn’t get too worked up just yet, because Q3 was the 31st consecutive quarter in which the reported EPS change exceeded the estimated EPS change.

In addition, in those prior 31 quarters, actual results outpaced forecasts by an average 3.8 percentage points. So should history repeat itself in Q4, and there’s no guarantee it will, EPS growth may come in closer to a 2.0% advance than a 2.0% shortfall.

Digging a bit deeper, Wall Street consensus estimates point to the strongest growth coming from the financials, health care and utilities sectors, while consumer discretionary, energy, materials and real estate are slated to record double-digit declines.

Market Insights 1/10/2020

U.S. equities finished lower today, after the U.S. announced fresh sanctions on Iran, which brought back some uneasiness surrounding the peace between the two adversarial nations.

A somewhat disappointing non-farm payrolls report also dampened the mood. In December, the U.S. economy added 145,000 compared to expectations of 160,000 and the slight miss was made a bit more disappointing as expectations seemed like they would be easily met following a blowout ADP payroll report. The unemployment rate stayed at the historically low level of 3.5%. Average hourly earnings rose, but not as much as expected.

Treasuries rose on the disappointing report and the U.S. dollar fell. Gold was higher amid lower rates and oil continued its recent slide.

The Markets…

The Dow Jones Industrial Average fell 133 points (0.5%) to 28,824

The S&P 500 shed 9 points (0.3%) to 3,266

The NASDAQ fell 25 points (0.3%) to 9,179

779 million shares were traded on the NYSE and 2.4 billion shares changed hands on the NASDAQ

WTI oil shed $0.52 to $59.04 per barrel and wholesale gasoline rose $0.01 to $1.66 per gallon

The Bloomberg gold spot price was up $5.80 to $1,560.10 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was down 0.1% to 97.36

For the week, the Dow was up 0.7%, the S&P 500 rose 1.0% and the NASDAQ rose 1.8%

December Labor Report misses the mark

Non-farm payrolls rose by 145,000 jobs month-over-month (m/m) in December, compared to the Bloomberg forecast of a 160,000 increase. The rise of 266,000 seen in November was revised to a gain of 256,000 jobs. Excluding government hiring and firing, private sector payrolls increased by 139,000, versus the forecasted gain of 153,000, after rising by 243,000 in November, revised from the 254,000 increase that was initially reported.

The unemployment rate remained at November’s 3.5% rate, matching forecasts, while average hourly earnings were up 0.1% m/m, below projections of a 0.3% increase, though November’s initially-reported 0.2% rise was adjusted higher to a 0.3% gain. Y/Y, wage gains were 2.9% higher, marking the first sub 3.0% rate since 2018, versus estimates to match November’s unrevised 3.1% increase.

Although job growth and wages were both below expectations, the report appears to not be severe enough to change Fed policy expectations, bolstered by the most leading indicator of employment, weekly initial jobless claims, remaining at historically low levels after retreating in the past few weeks to give back the spike we saw in early December.

Treasuries were higher following the employment data and the curve flattened, with the yield on the 2-year note dipping 1 basis point (bp) to 1.56%, the yield on the 10-year note dropping 4 bps to 1.82% and the 30-year bond rate decreasing 5 bps to 2.28%.

Global markets mixed amid renewed geopolitical worries

European equities traded slightly lower after the U.S. announced fresh sanctions on Iran. Asia was mostly higher on the day. Japanese household spending fell more than expected. The euro ticked higher, while the British pound and Japanese yen lost some ground versus the U.S. dollar.

The U.K. FTSE 100 Index, Germany’s DAX Index, France’s CAC-40 Index, Switzerland’s Swiss Market Index and Spain’s IBEX 35 Index all ticked 0.1% lower, while Italy’s FTSE MIB Index was little changed.

Japan’s Nikkei 225 Index rose 0.5%. South Korea’s Kospi Index gained 0.9% and Australia’s S&P/ASX 200 Index traded 0.8% to the upside. China’s Shanghai Composite Index dipped 0.1% and the Hong Kong Hang Seng Index increased 0.3%. India’s S&P BSE Sensex 30 Index rose 0.4%, and just as the markets were closing the nation reported a much larger-than-expected rise in industrial production for November.

Stocks post weekly gain, rally back to all-time highs

U.S. stocks registered a solid weekly gain in the first full week of trading for 2020, rallying back to all-time highs and the Dow flirting with 29,000. The markets showed some resiliency in the face of elevated geopolitical tensions that rose late last week following U.S. airstrikes in Iraq that claimed the life of a top Iranian military official, with Iran’s decidedly measured response that resulted in no U.S. casualties and did not target key oil facilities appearing to calm global sentiment.

Next week, we will see the unofficial start to Q4 earnings season. Per data compiled by FactSet, Q4 S&P 500 earnings are estimated to decline 2.0%, which would be the first time of four straight quarters of y/y declines since Q3 2015 through Q2 2016. The financial sector will be in focus next 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. Analysts are expecting earnings growth to return in 2020 and the S&P 500 to post a 9.4% y/y rate.