Market Commentary, 1/25/19

Greetings:

The “January Effect” continued last week with US stocks reporting their fourth consecutive week of gains, which is the longest stretch in five months. The Dow closed last week up 3.0%, the S&P 500 gained 2.9%, and the Nasdaq was up 2.7%.

All three indices closed this week relatively flat: with the Dow up slightly (0.1%), the S&P 500 off 0.3% and the Nasdaq gaining 0.11%.

The advance in stocks late in the week was partially due to potential progress in trade negotiations between the US and China. Among other things, China said they would increase their US imports in an effort to reduce the trade deficit. Last year we bought $505 billion in goods from China and they bought $130 billion from us, resulting in a $375 billion trade deficit. Last week the Chinese said they would increase purchases of US goods by $1 trillion over the next six years, theoretically reducing the deficit to zero by 2024. (www.bloomberg.com)

As of last Friday, with 11% of companies reporting, corporate earnings helped the market as 76% of companies reported earnings that were above estimates (in aggregate earnings were 3.2% above estimates). This week 59 S&P 500 companies will report 2018 Q4 earnings (www.factset.com).

Current Signs of a Strong Economy Are:

  1. Unemployment rate continues to hover near a 50-year low and we expect it to move slightly lower this year.
  2. Over the past four years the household savings rate has averaged 6.8%, compared with 3.6% from 2004 to 2007. This suggests that consumers have a financial buffer and that they will continue spending (70% of our GDP comes from consumer spending).
  3. Last year saw faster wage growth than in recent years.
  4. Lower gasoline prices encourages consumer spending            (Source: Federal Reserve Economic Data)

As the government shutdown wears on, many are speculating that an agreement is coming soon. It is likely that an agreement to end the shutdown, regardless of what it is, would send the stock market up.

President Trump announced that they have reached an agreement to end the shutdown and issue back pay to all those affected. The bill is to keep the government open until February 15th. The expectation is that the agreement, once approved, should cause the market to go up.

Keep in mind that while the market has started the year with strong gains, we are still feeling the effects of the extreme volatility in the 4th quarter. In fact, it is likely that the decline in stock prices, in conjunction with an increase in earnings, is making the market more attractive for investors.

Regards,
Jeremiah Patterson, CFP®

Copelin Financial Advisors
514 Brooks Street
Sugar Land, TX 77478
Phone: 281 240-2902
Fax: 281 240-2856
jeremiah@copelinfinancial.com

Securities offered through ProEquities, Inc., a Registered Broker-Dealer and Member FINRA & SIPC Advisory Services offered through Harvest Investment Services, LLC., a Registered Investment Advisor Copelin Financial Advisors, Inc and Harvest Investment Services, LLC are independent of ProEquities, Inc.

 

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