The rebound in financial assets continued into week two of 2019, as bond prices remained stable and global stock prices continued to rise. The S&P 500® Index added 2.67%, while the MSCI EAFE® and Emerging Market Indices gained 1.91% and 2.37%, respectively. The market’s affinity for less trafficked equities was evident in the domestic market as the S&P MidCap 400® and S&P SmallCap 600® Indices outpaced their larger brethren, picking up 4.7% and 4.6%, respectively. While there was a wide range of results among the economic sectors last week, all were positive. Industrials led the advance gaining 4.2%, followed by consumer discretion and energy shares that picked up 3.6%. Consumer staples and utilities were the only sectors that failed to gain at least a full percentage point, adding only 0.7% and 0.9%, respectively, last week. Commodities were particularly volatile, with natural gas setting the pace in the domestic market, up 12%, followed by crude oil at plus 6%. Industrial and precious metals were fractionally higher, apart from a 7% decline in ferrous metal prices. Agricultural prices split with livestock, moving 3% higher, while grain prices fell 1%.
This week will see the start of earnings reporting season with the banks being first up. Given the tepid performance of the financials in the recent rally, the market seems to have tempered its expectations for the group. In the last two weeks, investors appear to have become oblivious to the swirling political winds, as Brexit and the Italian budget impasse no longer seem to bother Europeans. U.S. investors likewise appear unmoved by the partial Federal shutdown and ever-widening scope of Congressional rancor regarding the administration. Whether this disregard is warranted, simply so much whistling past the graveyard remains to be seen. The next three weeks will set the tone as investors digest earnings trends from the last quarter of 2018 and management’s outlook for 2019. While the economic data (as shown in Exhibit 1) involving the consumer remain strong, the second derivative, or the change in the rate of change, has turned down. Were these blips in the data due to the market decline in the closing months of the year or something more ominous? As spring approaches, we will have our answers.
Exhibit 1 (Source: Bloomberg)
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