Weekly Investment Perspective January 10, 2020

Market Summary:

U.S. equities continued to mark new record highs this past week with the Dow Jones crossing the 29,000 milestone for the first time ever. The surge was aided by improving investor sentiment following easing U.S.-Iranian tensions and China’s confirmation of January 15th as the signing date for the phase-one trade deal between the U.S. and China. For the week, the tech-laden Nasdaq Composite index notched the highest return with a 1.8% gain, while the S&P 500 and Dow had solid increases of 1.0% and 0.7%. Bond yields also edged higher on easing geopolitical tensions with 10-year U.S. Treasury yield ending at 1.83% from 1.79% in the week prior.

Last week’s employment report fell slightly short of expectations but continued to fall in the sweet spot wherein concerns of the labor market overheating remain low and the U.S. consumer remains on strong footing. The U.S. economy added 145,000 new jobs in December, slightly below the consensus forecast of 160,000 new jobs, and the unemployment rate stayed steady at its 50-year low of 3.5%. Meanwhile, hourly wages increased by 2.9% in 2019, marking the first time since 2017 that wage gains have fallen below 3.0% year-over-year, but wage growth remains above the rate of inflation.

Fourth quarter corporate earnings season will kick off in earnest in the week ahead with several large financial institutions leading the way. The earnings growth rate for the constituents of the S&P 500 is expected to be in negative territory for the fourth straight quarter, according to FactSet, with the consensus forecast for a -2.0% decrease in earnings compared to the last quarter of 2018. However, many analysts remain optimistic for earnings growth to rebound in 2020 with the consensus forecast for the full year sitting at 9.6%.

Additionally, market participants will get an updated reading on inflation in the week ahead, and they will be paying close attention to the expected signing of the U.S.-China phase-one trade deal on Wednesday. While both sides remain far apart on some of the key structural issues underlying the trade dispute, the initial deal is expected to make incremental progress in relieving tariffs, increasing China’s purchases of U.S. goods, and improving intellectual property protections for foreign companies doing business in China.

Economic Highlights:

  • Service Sector: The U.S. non-manufacturing index notched a higher than expected gain in December with the index rising to 55.0 from 53.9 in November, exceeding the consensus forecast of 54.5.
  • Oil: Crude oil prices logged their worst week since last July as WTI crude plunged 6.4% following de-escalation of the U.S.-Iran conflict that eased concerns of disruption to the global oil supply. Data on U.S. oil stockpiles also came in much higher than expected last week, which further weighed on oil prices.

US Economy – The Week Ahead

Tuesday, 1/14/2020

  • U.S. Consumer Price Index (CPI) Year-over-Year – Consensus Estimate: 2.3%, Prior Month: 2.1%
  • NFIB Small Business Optimism Index – Actual: 103.1 (-1.5% MoM), Prior Month: 104.7 (2.3% MoM)

Wednesday, 1/15/2020

  • U.S. Producer Price Index (PPI) Year-over-Year – Consensus Estimate: 1.3%, Prior Month: 1.1%

Thursday, 1/16/2020

  • Initial Jobless Claims – Consensus Estimate: 215,000 (0.5% WoW), Prior Week: 214,000 (-4.0% WoW)
  • Retail Sales (Month-over-Month growth) – Consensus Estimate: 0.4%, Prior Month: 0.2%

Friday, 1/17/2020

  • Housing Starts – Consensus Estimate: 1,380K (1.1% MoM), Prior Month: 1,365K (3.2% MoM)

  • Industrial Production (Month-over-Month growth) – Consensus Estimate: 0.0%, Prior Month: 1.1%

  • Job Openings & Labor Turnover Survey – Consensus: 7,268K (0.0% MoM), Prior Month: 7,267K (3.3% MoM)

  • University of Michigan Consumer Sentiment Survey (Preliminary) – Consensus Estimate: 99.3 (0.0% MoM), Prior Month: 99.3 (2.6% MoM)