U.S. stocks finished flat, digesting January's gains, while international stocks underperformed on worries of a European slowdown. The European Commission cut its forecasts for Eurozone economic growth to 1.3% from 1.9% in 2019 amid trade tensions and domestic challenges. While not surprising, the downgraded outlook confirms the soft patch in the region's economy. News that President Trump will not be meeting with China’s President Xi before the March 1 deadline, when another round of tariff increases is scheduled, unnerved markets, but the negotiations are still ongoing, and both sides seem willing to reach a trade deal. As a result of the revived global growth concerns, the U.S. dollar rose and crude oil fell. On the corporate front, with two-thirds of the S&P 500 companies having already reported earnings, approximately 72% of them have beaten earnings per share expectations, which is better than feared and in line with the historical averages. We continue to expect elevated volatility stemming from trade negotiations and global concerns, but we believe lower valuations and slowing but still-solid economic fundamentals can support rising stock prices.
A Fast Start to 2019: What Does It Mean for the Finish?
It was an up-and-down week – in that order -- for the market. Early gains led by encouraging corporate earnings announcements and the Fed's more patient approach to further rate hikes were sapped by renewed concerns over trade and global growth. The European Commission cut its outlook for growth in Europe as data have shown sluggishness in Germany and other core euro markets. This, combined with a lack of notable progress in the most recent U.S-China trade negotiations, led to a flat week for U.S. stocks and a decline in global markets. The market has now risen in all but one week this year, as U.S. stocks have staged an impressive rally to start 2019. Stocks rose an impressive 7.9% in January alone, rebounding to within 8% of their all-time highs1.
So what do fast starts tell us about the finish line? We learned as children that "slow and steady wins the race" as the Hare's blazing takeoff (and a healthy dose of hubris) ended in a loss because the Tortoise's measured pace proved more successful. For investors, we think the Tortoise is a better role model. A planned, disciplined approach with a focus on a long-term pace is a successful strategy for reaching the finish line (your financial goals). Fortunately, this means you don't have to measure your progress on a clock or the arbitrary confines of the calendar. Nevertheless, with the stock market kicking off 2019 with a big head start, some January performance perspective can be useful in setting expectations for the track ahead.
Sources: 1. Bloomberg, performance measured by the price return of the S&P 500 index. 2. Bloomberg, Factset, measured by the S&P 500 index.
Craig Fehr, CFA
|Dow Jones Industrial Average||25,106||0.2%||7.6%|
|S&P 500 Index||2,708||0.0%||8.0%|
|10-yr Treasury Yield||2.63%||-0.05%||-0.05%|
Source: Bloomberg, 02/08/19. Bonds represented by the iShares Core U.S. Aggregate Bond ETF. Past performance does not guarantee future results.
The Week AheadThe earnings season will start to wind down as 63 companies from the S&P 500 are expected to report earnings next week. In economic news, the inflation report will be released on Wednesday, and retail sales, along with industrial production and consumer sentiment, will be released on Friday.
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