U.S. equities broadly posted more gains last week with the S&P 500 and Nasdaq Composite closing at new all-time highs amid strong corporate earnings results, despite continued increases in the number of coronavirus cases in China. For the week, the S&P 500 returned 1.7%, while the Dow and Nasdaq gained 1.0% and 2.2%, respectively. High dividend paying sectors yielded some of the best returns last week with the S&P 500 real estate sector returning 4.9% as investors hunt for income alternatives in an environment of low bond yields. The 10-year Treasury yield barely budged last week as it closed at 1.59% compared to 1.58% in the week prior.
As of Monday, the death toll from the coronavirus has climbed to more than 1,800 globally and the number of confirmed cases in China has reached over 72,000. Despite the mounting toll, many market participants are still anticipating a rebound in global growth following the first quarter, which has allowed equity markets to continue powering higher. However, not all stocks have participated in the rise, according to a report from the Wall Street Journal, as an index of 68 U.S. companies with substantial revenue exposure to China compiled by Goldman Sachs has fallen by -5.4% year-to-date compared to the S&P 500’s 4.6% gain.
The coronavirus has also weighed on U.S. corporate earnings expectations for the year ahead, as the consensus forecast for S&P 500 earnings growth in 2020 has fallen to 8.1% from 9.6% to start the year. Despite the downward revisions, fourth quarter corporate earnings reports generally continued to surpass expectations last week. Of the 80% of S&P 500 companies that have reported earnings to date, 71% have exceeded their consensus earnings forecasts, and the index overall is on track for a 0.9% earnings growth rate over the prior year after three consecutive quarters of negative growth.
Corporate earnings season will start to taper off over the next two weeks with another 52 S&P 500 companies on the docket to report in the week ahead. The week will be relatively light from an economic data perspective, but market participants will get an update on the condition of the U.S. housing market in addition to the release of the meeting minutes from the Federal Reserve’s January meeting.
- Inflation: The U.S. Consumer Price Index (CPI) rose from 2.3% to 2.5% year-over-year last month, although much of the upward increase was based on energy prices that rose 6.2% year-over-year. Core CPI (excluding food and energy) remained unchanged at 2.3% year-over-year.
- Retail Sales: U.S. retail sales growth in January was in-line with expectations with 0.3% growth over the prior month, though December’s retail numbers were revised down to 0.2% growth compared to the initial report of 0.3%, indicating a weaker than expected holiday season. Consumer confidence remains on solid footing as the University of Michigan’s Consumer Sentiment index increased to 100.9 this month from 99.8 at the end of January.
US Economy - The Week Ahead
U.S. Producer Price Index (PPI) Year-over-Year – Consensus Estimate: 1.6%, Prior Month: 1.3%
Housing Starts – Consensus Estimate: 1,400K (-12.9% MoM), Prior Month: 1,608K (16.9% MoM)
Federal Open Market Committee (FOMC) January meeting minutes released
Initial Jobless Claims – Consensus Estimate: 206,500 (0.7% WoW), Prior Week: 205,000 (1.0% WoW)
Leading Economic Indicator Index (Month-over-Month) – Consensus Estimate: 0.2%, Prior Month: -0.3%
Existing Home Sales – Consensus Estimate: 5,410K (-2.4% MoM), Prior Month: 5,540K (3.6% MoM)