Almost, but not quite…
…the Dow Jones Industrial Average rose over 110 points last Friday, but it was not quite enough to put the index into positive territory for the week. The Dow ended with a weekly decline of .02% and in the process had its weekly winning streak snapped at 9. The other two major averages however, did post gains last week. For its part, the NASDAQ Composite has now risen 10 weeks in a row, and the Standard & Poor’s 500 Index is back above the 2,800 level for the first time since early last November.
Stocks are off to a solid start so far this year, as the S&P 500 is up over 11%. Declining worries over Federal Reserve monetary policy and increasing optimism around a U.S.-China trade deal continue to be the fuel powering this year’s rally. Regarding trade with China, White House economic advisor Larry Kudlow said both sides made “fantastic” progress last week. Further, news reports indicated that trade negotiations may wrap up in as early as two weeks, with a deal for President Trump and Chinese President Xi to sign. Over the weekend, the Wall Street Journal reported the two countries were in the final stage of completing a deal.
A trade deal would almost certainly be welcome news for the market. However, for those investors expecting a big market rally (which could happen) there are some important points to keep in mind. The market is a discounting mechanism and part of this years advance in equity prices has been based on the likelihood of a deal being reached. Also, the market is often fickle and does not always react to good or bad news in a consistent manner. Thirdly, trade issues are not the only thing on the market’s radar, stock prices move based upon many dynamic variables. So while we believe a good trade deal is good for the stock market and the global economy overall, future short-term market moves are less than certain!
Wrapping up earnings season: For the 4th quarter of 2018 (with 96% of the companies in the S&P 500 reporting actual results), 69% of S&P 500 companies have reported a positive EPS surprise which is below the 5-year average of 71%, and 61% have reported a positive revenue surprise, slightly above the 5-year average of 60% – according to data from FactSet. As always, feel free to contact us with any questions you may have or if you would like to set up a meeting.
All the best,
Southport Station Financial Management, LLC