Landscape Image [Size 960 x 300]

economics-stock-market_960x300

Portrait Image [Size 620 x 415]

economics-stock-market-6_600x450

Short Description (Double click to edit..)

January passed the baton to February in style last week, as stock prices manifested concurrent themes.



Weekly Market Overview | February 4, 2019

February 4, 2019
By Peter Sorrentino, Chief Investment Officer

January passed the baton to February in style last week, as stock prices manifested concurrent themes. Energy and industrial stocks rallied as one might expect in a late cycle advance, with the former rising 3.11%, while the latter added 2.58%. But with the same degree of conviction, we witnessed a decidedly defensive advance, as telecoms gained 3.07%, along with consumer staples’ +2.88% and utilities’ +2.3%. Among domestic companies, there was a slight edge in the performance of the large cap names, as the Russell 1000® Index edged out the Russell 2000® Index by a margin of 1.66% to 1.29%, for the year so far. The Russell 2000® Index still retains the lead at +11.38% to the Russell 1000® Index gain of 8.41%. Again, another week of mixed messages as the late cycle theme favors smaller over larger and the defensive theme tilting to larger over smaller. In the growth versus value contest, last week was a draw, as both added 1.7%. Energy prices were mixed, thanks to a series of events starting off with a larger-than-forecast drawdown of gasoline stockpiles that sent the price of regular unleaded up 9.85% last week. This is attributable to additional sanctions against Venezuela whose heavy, high sulfur crude is the feedstock for much of the U.S. Gulf Coast refineries. On the flip side was the 6.63% decline in natural gas prices, as a warm-up was forecast for much of the U.S. great plains and eastern seaboard, reducing heating demand. Elsewhere in commodity prices, we saw copper and iron ore reversing recent declines, while U.S. grain prices surrendered fractional losses, following what had been a constructive start to 2019. Very quietly in the background, even as global markets rise, there is a flight to safety – or risk off bias – in the overall financial market. Evidence of this can be seen in the U.S. Treasury rates where, even in the face of a partial shutdown, the term structure has been pulling back with yields from one to thirty years to where they started the year after edging higher during the month. Despite the back up in energy prices and the 1% gain for the U.S. dollar, both developed and emerging markets posted gains last week as the MSCI EAFE® Index added 1.37%, and the MSCI Emerging Market Index added 1.73%.

As earnings reporting season ends, the most telling change was the number of companies that reported negative surprises and those for whom forward estimates were reduced. This follows 2017 and 2018, where the opposite was true, and analysts were finding they were consistently too conservative in the forward outlook. Some of this was attributable to margin improvements that reversed the decline experienced in 2015 and 2016. This points out the complexity and limitations of forecasting as the interactions of multiple variables in a complex system can produce unforeseen results. It was this shortcoming that led to a study by the CFA Institute that was published in the early 1990s. The authors looked retrospectively at company stock prices versus the underlying economic value of the enterprise. What the study concluded after looking at forty years’ worth of data, was that roughly 20% of the time, the price of a company was roughly comparable to its economic value; the balance of the time, the share price was either below or above the economic value. On a graph, it looked like a sine wave with roughly an equal distribution of time above and below the gradually upward sloping band that represented the economic value. While we can see this clearly in the rearview mirror, the ability to do so looking forward continues to elude us. The lesson in all of this is that despite advances in financial analysis and market simulation, much of the time, the market is either too cheap or too expensive. Given the rather spectacular failures in attempts to time the market or create portfolio insurance, the best course of action is to be appropriately invested based upon your financial objectives and risk tolerance. Price matters primarily on two occasions – when you buy and when you sell.

For a PDF version of this publication, click here: 02.04.2019_WeeklyMarketOverview

 

NOTE: IMPORTANT INFORMATION
Source: Unless otherwise noted, all statistics herein obtained from Bloomberg.
This is not a complete analysis of every material fact regarding any company, industry or security. The information and materials herein has been obtained from sources we consider to be reliable, but Comerica Wealth Management does not warrant, or guarantee, its completeness or accuracy. Materials prepared by Comerica Wealth Management personnel are based on public information. Facts and views presented in this material have not been reviewed by, and may not reflect information known to, professionals in other business areas of Comerica Wealth Management, including investment banking personnel. The views expressed are those of the author at the time of writing and are subject to change without notice. We do not assume any liability for losses that may result from the reliance by any person upon any such information or opinions. This material has been distributed for general educational/informational purposes only and should not be considered as investment advice or a recommendation for any particular security, strategy or investment product, or as personalized investment advice. Diversification does not ensure a profit or protect against a loss in a declining market. Past performance is no guarantee of future returns. The performance of an index is not an exact representation of any particular investment, as you cannot invest directly in an index. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The investments and strategies discussed herein may not be suitable for all clients. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Comerica Wealth Management consists of various divisions and affiliates of Comerica Bank, including Comerica Bank & Trust, National Association; World Asset Management, Inc.; Comerica Securities, Inc.; and Comerica Insurance Services, Inc. and its affiliated insurance agencies. World Asset Management, Inc. and Comerica Securities, Inc. are federally registered investment advisors. Registrations do not imply a certain level of skill or training. Comerica Bank and its affiliates do not provide tax or legal advice. Please consult with your tax and legal advisors regarding your specific situation. Non-deposit Investment products offered by Comerica and its affiliates are not insured by the FDIC, are not deposits or other obligations of or guaranteed by Comerica Bank or any of its affiliates, and are subject to investment risks, including possible loss of the principal invested. Past performance is not indicative of future results. Information presented is for general information only and is subject to change.

The S&P 500® Index, S&P MidCap Index, S&P 600 Index and Dow Jones Wilshire 5000 (collectively, “S&P® Indices”) are products of S&P Dow Jones Indices LLC or its affiliates (“SPDJI”) and Standard & Poor’s Financial Services, LLC and has been licensed for use by Comerica Bank, on behalf of itself and its Affiliates. Standard & Poor’s® and S&P® are registered trademarks of Standard & Poor’s Financial Services LLC (“S&P”) and Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”). The trademarks have been licensed to SPDJI and sublicensed for certain purposes by Comerica Bank, on behalf of itself and its Affiliates. Nothing herein is sponsored, endorsed, sold or promoted by SPDJI, Dow Jones, S&P, any of their respective affiliates (collectively, “S&P Dow Jones Indices”) or Standard & Poor’s Financial Services LLC. Neither S&P Dow Jones Indices nor Standard & Poor’s Financial Services, LLC make any representation or warranty, express or implied, to the owners of the content herein, or any member of the public regarding the advisability of investing in securities generally or in particular strategies or the ability of any particular strategy to track general market performance. SPDJI and Standard & Poor’s Financial Services, LLC only relationship to Comerica Bank, on behalf of itself and its Affiliates with respect to the S&P® Indices is the licensing of the Indices and certain trademarks, service marks, and/or trade names of S&P Dow Jones Indices and/or its licensors. The S&P Indices are determined, composed and calculated by S&P Dow Jones Indices or Standard & Poor’s Financial Services, LLC without regard to Comerica Bank and its Affiliates or any of the content herein. S&P Dow Jones Indices and Standard & Poor’s Financial Services, LLC have no obligation to take the needs of Comerica and its Affiliates or the owners of any of the content herein into consideration in determining, composing or calculating the S&P Indices. Neither S&P Dow Jones Indices nor Standard & Poor’s Financial Services, LLC are responsible for and have not participated in the determination of the prices, and amount of any particular strategy or the timing of the issuance or sale of any particular strategy or in the determination or calculation of the equation by which any particular strategy is to be converted into cash, surrendered or redeemed, as the case may be. S&P Dow Jones Indices and Standard & Poor’s Financial Services, LLC have no obligation or liability in connection with the administration, marketing or trading of any particular strategy. There is no assurance that any particular investment product based on the S&P Indices will accurately track index performance or provide positive investment returns. SPDJI is not an investment advisor. Inclusion of a security within an index is not a recommendation by S&P Dow Jones Indices to buy, sell, or hold such security, nor is it considered to be investment advice.

NEITHER S&P DOW JONES INDICES NOR STANDARD & POOR’S FINANCIAL SERVICES, LLC GUARANTEES THE ADEQUACY, ACCURACY, TIMELINESS AND/OR THE COMPLETENESS OF THE WAM STRATEGIES OR ANY DATA RELATED THERETO OR ANY COMMUNICATION, INCLUDING BUT NOT LIMITED TO, ORAL OR WRITTEN COMMUNCATION (INCLUDING ELECTRONIC COMMUNICATIONS) WITH RESPECT THERETO. S&P DOW JONES INDICES AND STANDARD & POOR’S FINANCIAL SERVICES, LLC SHALL NOT BE SUBJECT TO ANY DAMAGES OR LIABILITY FOR ANY ERRORS, OMISSIONS, OR DELAYS THEREIN. S&P DOW JONES INDICES AND STANDARD & POOR’S FINANCIAL SERVICES, LLC MAKE NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIM ALL WARRANTIES, OR MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE OR AS TO RESULTS TO BE OBTAINED BY COMERICA AND ITS AFFILIATES, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE S&P INDICES OR WITH RESPECT TO ANY DATA RELATED THERETO. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT WHATSOEVER SHALL S&P DOW JONES INDICES OR STANDARD & POOR’S FINANCIAL SERVICES, LLC BE LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL, PUNITIVE, OR CONSEQUENTIAL DAMAGES INCLUDING BUT NOT LIMITED TO, LOSS OF PROFITS, TRADING LOSSES, LOST TIME OR GOODWILL, EVEN IF THEY HAVE BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, WHETHER IN CONTRACT, TORT, STRICT LIABILITY, OR OTHERWISE. THERE ARE NO THIRD-PARTY BENEFICIARIES OF ANY AGREEMENTS OR ARRANGEMENTS BETWEEN S&P DOW JONES INDICES AND COMERICA AND ITS AFFILIATES, OTHER THAN THE LICENSORS OF S&P DOW JONES INDICES.

“Russell 2000® Index” is a trademark of Russell Investments, licensed for use by Comerica Bank and World Asset Management, Inc. The source of all returns is Russell Investments. Further redistribution of information is strictly prohibited.

MSCI EAFE® is a trade mark of Morgan Stanley Capital International, Inc. (“MSCI”).

FTSE International Limited (“FTSE”) © FTSE 2016. FTSE® is a trade mark of London Stock Exchange Plc and The Financial Times Limited and is used by FTSE under license. All rights in the FTSE Indices vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE Indices or underlying data.