Despite some weak economic reports, equity markets continued to cline the ‘wall of worry’ last week. The Fed pivot, an open Federal government, and trade tailwinds outweighed the worst retail sales report miss in 10 years, downward forward earnings guidance, and Amazon pulling the plug on NYC. Yields, commodities, and the USD joined equity markets in the move higher.
- FactSet reported that, with 79% of S&P 500 companies reporting, blended earnings and revenue growth are 13.1% and 7% respectively with an earnings beat rate of 70%.
- The Bespoke FedSpeak Monitor Index has turned from dovish to more neutral over the past two weeks. WSJ reported Fed Governor Brainard suggesting balance sheet normalization should cease this year and that bank reserves have fallen from $2.8t to $1.6t.
- Constructive POTUS tweets and reports that U.S. and China are working toward a MoU have markets expecting the framework for a Trump-Xi deal is close to taking shape. The news sent Chinese equity markets up over 5% for the week.
- The POTUS declaration of a unique national state of emergency triggered lawsuits and what is expected to be a highprofile balance of powers conflict between branches of government.
- The S&P 500 has been up 7 of the past 8 weeks. Market technicals are reflecting strength. The S&P 500 closed above its 200 dma last week, the 50 dma has turned back up, MACD (12,26) is rising, and market breadth has improved significantly.
- Many investors are watching this rally from the sidelines with money market fund assets at their highest levels since March 2010.
- Bespoke points out how 2019 gains are happening during market hours (+10.2%), a mirror image of 2018 where open market hours (-17.2%) vastly underperformed after hours returns (+13.1%).
- Bespoke also noted that forward earnings guidance has continued to trend downward with negative guidance outpacing positive guidance by a 2 to 1 margin.
- The decline in retail sales was the biggest 1mo fall since September 2009, equal to a draconian 14% annualized fall in consumer spending. However, consumer confidence, jobless claims, labor income, auto sales, and Redbook data are not painting a similar picture.
- Aramaco shutting down its largest offshore oil field, voluntary OPEC production cuts, and Venezuela/Iran/Nigeria/Libya geopolitical forces have all factored into the recent rise in oil prices which climbed over 5% last week.
- Reports from LA and Long Beach ports had MoM imports -5% and exports +8% which is a mirror image to the past several months - a possible inflection marker of U.S. versus non-U.S. growth.
Economic Release Highlights
- December retail sales of -1.2% MoM (-1.4% ex auto/gas) was a significant drop and missed consensus of +0.1% by a wide margin.
- January’s NFIB Small Business Confidence reading of 101.2 marked a fifth consecutive monthly decline now back at November 2016 levels and closer to a long-term normalized range. Quality of labor, taxes, and uncertainty (trade/shutdown) were the drivers in order of importance.
- QoQ GDP (Germany 0.1%, Italy -1%, France 1.1%, EZ 0.8%), EZ industrial production (-0.9%), and EZ PMI 50.5 suggest a low/no growth European economy.
- NY Fed report on Consumer Credit showed a drop in ‘hard credit’ inquiries to their lowest level since the beginning of the data set in 2000.
- The January JOLTS report showed record high job openings (7.335mm) increasing at a faster pace (3.1%) than hiring (1.6%) leaving a gap of 1.041mm more openings than those actively seeking work, the second highest gap on record next to Novembers 1.098mm.
- Last week’s economic report misses pushed the Citi ESI back into negative territory. Thursday was the largest one-day decline (-31.1) since January 2016.
- January CPI came in straddling the Fed’s 2% target with headline and core registering 1.6% and 2.2% respectively. Headline CPI was unchanged for a third straight month, with energy prices keeping a lid on price changes.
- A positive indicator from China was a report showing growth in exports of 9.1% versus expectations of a -3.3% decline