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Market Commentary for the week ending January 18th, 2020
- U.S. stocks close at record highs fueling optimism about the potential gains for 2020
- Earnings season started strong with multiple big banks reporting record results
- Inflation remains low and housing starts surge in the most recent month
Market Performance Summary
Notable Market Headlines
First quarter earnings season got off to a strong start with several of our country’s biggest financial institutions reporting strong results. At the closing bell on Friday large U.S. stocks were higher by +1.9% as measured by the S&P 500 while the NASDAQ Composite, fueled by a continued surge in the price of technology stocks, gained +2.3%. Lagging behind was the Dow Industrials higher by +1.8%.
Small U.S. stocks put together an even more impressive rally gaining +2.5% but still lag behind large U.S. stocks year-to-date higher by +2.1% versus +3.1% for large stocks. Furthermore, while large U.S. stocks are in record territory small stocks remain about -2% off their record highs set in August of last year.
International stocks rallied for the week as well with developed country markets gaining +1.3%. Australian stocks did very well higher by +2.9% while Japanese stocks were higher by just +0.3%. Emerging markets gained an average of +1.4% with Hong Kong and Mexico leading the pack higher by +2.4% and 3.5% respectively.
Real estate stocks were the best performing of the alternatives higher by an impressive +3.0%. In spite of this strong gain though they are up only +2.0% year-to-date. Both Commodities and Gold prices fell down -0.7% and -0.2% respectively. The easing of gold prices could be the results of tame inflation reports as well as less global tension.
Bond prices were little changed up +0.2%. It is widely expected the Federal Reserve will do little in 2020 regarding interest rates.
Morgan Stanley (MS), a global investment bank, reported blowout numbers for the quarter with revenue hitting $10.86 billion which was a $1 billion more than analyst expected. This revenue jump drove its surge in earnings of $2.24 billion or +46% above the same period last year. Management said it saw strength across all of its businesses and raised expectations for 2020. Morgan Stanley’s stock rallied +10.2% for the week making it one of the best performers among the S&P 500.
J.P. Morgan (JPM), one of the largest and most diversified financial institutions in the United States with more than $2.5 trillion in assets, reported results that far exceeded Wall Street analyst expectations. Earnings for the quarter came in at $8.52 billion on record revenue helped by a surge in bond trading. This stock though gained just +1.6% lagging behind the overall market.
It was not good news for all financial and banking stocks as Bank of New York Mellon (BK) and Wells Fargo (WFC) disappointed. Bank of New York Mellon was hurt in particular by lower interest rates while Wells Fargo is continuing to feel the pain of cultural and other issues it has been dealing with for the past few years. Bank of New York Mellon’s stock was down -8.6% and Wells Fargo fell -6.3%.
The accompanying graph shows the change in rolling annual revenue for J.P. Morgan compared to Wells Fargo over the past couple of years. While one has grown, the other has been shrinking.
Economic Indicator - Reported
Retail sales same in weaker than expected for December higher by +0.3% as compared to an average estimate by economists of +0.4%. The growth in sales though was widespread as only auto dealers and department stores reported lower numbers. Internet sales growth was a bit of a surprise for the month higher by just +0.2% but were up +20% for all of 2019.
Housing Starts surged to a 13-year high of 1.608 million units annually far exceeding economists’ expectations. This is up +17% from the month before and +40% over the same period last year. Geographically the gains were NOT evenly distributed as the Midwest saw a +57% surge while the Northeast and West both saw single digit declines. Milder-than-normal weather is being pointed to for much of the increase.
Inflation remains moderate based upon nearly every measure available. The Consumer Price Index (CPI) gained just +0.2% in December and was higher by +2.3% for 2019 representing the biggest annual price increase in 8 years. The Producer Prices Index (PPI) though rose only +0.1% in the most recent month resulting in a 2019 gain of just +1.3%.
Economic Indicators – Upcoming
The following economic data are expected in the coming week:
- Leading Economic Indicators
- Existing Home Sales