Last Week:
U.S. equities finished negative for the week: Markets remained volatile during the week, with the Dow Jones Industrial Average (Dow) shedding 772 points (or down 3.05%) to close the week at 24,538, following rate hike comments from new Fed Chair Jerome Powell and steel tariff comments by President Trump. The Standard & Poor’s (S&P500) index lost 56 points, or fell 2.04%, to 2,691. The Nasdaq closed 1.08% lower at 7,258, while the 10-year Treasury ended the week at 2.85%.
S&P500 Earnings Update: According to FactSet, 97% of the companies in the S&P 500 index have reported actual results for the fourth quarter of 2017 with 77% reporting earnings above analyst expectations. The blended earnings growth rate for companies that have reported so far is 14.8%, compared to the same period last year, above analyst forecasts of 11.0% for the quarter. The blended sales growth for the quarter is 8.2%, the highest reported since the third quarter of 2011. The main drivers being tax reform, the solid global macroeconomic backdrop, and higher oil among others.
On FactSet consensus estimates, the forward 12-month Price-to-Earnings (P/E) ratio for the S&P is now 17x. This P/E ratio is above both the 5-year average of 16.0x and the 10-year average of 14.3x.
Look Ahead:
Fourth quarter earnings continues to wind down this week, with earnings releases expected from Target, Costco, Dollar Tree, and Ross Stores among others. There will also be an uptick in analyst meetings during the week as companies exit their quiet period.
On Friday, investors will be closely watching the February Jobs report from the Bureau of Labor Statistics. Expectations are for payrolls to come in at 195,000 with the average workweek recovering as the impact of bad weather and the flu lessens. After last month’s +2.9% increase in wages, which was faster than expected prompting inflation fears, investors will be looking at the February numbers to see if the wage pressures continue. Consensus estimates for wage growth for the month is +0.3% and +2.8% y/y.
On the economic calendar, we will see Euro-zone purchasing manager’s index (PMI) and U.S. Institute of Supply Management (ISM) data and PMI on Monday. On Wednesday, we will see U.S. trade balance data, ADP employment data, Non-farm productivity numbers, Consumer credit as well as Euro-zone Gross Domestic Product (GDP) for the fourth quarter, and Chinese currency reserves. On Thursday morning, China will release trade numbers, European Central Bank will issue a policy decision and Germany factory orders data will be released. The week will end with the Bank of Japan policy meeting, German Industrial production and trade balance, and Chinese Consumer Price Index/Producer Price Index numbers on Friday.
