Last Week:

  • U.S. equities finished positive for the week: On the week, the Dow Jones Industrial Average (Dow) gained 149 points, or rose 0.57%, to 26,032. The Standard & Poor’s (S&P500) index increased 17 points, or rose 0.62% to 2,793. The Nasdaq closed 0.74% higher at 7,528 while the 10-year Treasury ended the week at 2.66%.
  • Fourth Quarter Earnings: According to FactSet, 89% of the companies in the S&P 500 index have reported actual results for the fourth quarter of 2018 with 69% reporting earnings above analyst expectations. The earnings growth rate for companies that have reported so far is 13.1%, compared to the fourth quarter of 2017, while revenue growth for the quarter is 6.6%, a deceleration from the 8.2% growth we saw during the same period in 2017. On FactSet consensus estimates, the forward 12-month Price-to-Earnings (P/E) ratio for the S&P is now 16x. This P/E ratio is below both the 5-year average of 16.4x but above the 10-year average of 14.7x.
  • U.S. Leading Economic Indicators (LEI): The Conference Board’s Leading Economic Indicators Index for the U.S. declined 0.1% in January, following no change in December and November’s 0.1% increase. According to the Conference Board, strength in the financial components was offset by weakness in the labor market components, driving the modest decline we saw. At this point, the U.S. LEI has essentially been flat since October 2018, and the Conference Board is forecasting a deceleration in U.S. GDP growth to about 2% by the end of 2019. The Board’s Coincident Economic Index (CEI), a measure of current economic activity, increased 0.1%, with the Lagging Economic Index also increasing 0.5% during the month.

U.S. Composite Leading Economic Indicators Index (2016 = 100)

Source: The Conference Board (February 2019)

Look Ahead:

  • Fourth quarter earnings season will continue this week, with expected earnings releases from Home Depot, Macy’s, AutoZone, American Tower Corp, Campbell Soup, Lowe’s, L Brands, TJX Companies, and Gap Inc., among others.  There will also be a number of broker conferences during the week.
  • On the economic calendar, domestically we will see housing and consumer confidence data out in the beginning of the week, S&P Case Shiller index on Tuesday, Preliminary Q4 GDP and Chicago Purchasing Managers Index (PMIs) out on Thursday, Personal Income, University of Michigan Consumer Confidence and Vehicle Sales on Friday. Outside the U.S., we could see some news flow generate from UK Brexit plans deliberations early in the week. In Asia, we will see Trade balance from Japan early in the week, with China PMIs in the back half of the week.