Morning Minutes 1/11/2019

Morning Minutes

Stocks Digest Recent Gains Ahead of Monday’s Earnings Season Kickoff

January 11, 2019
8:45 am EST

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Market Commentary By:
Colin Cieszynski, CFA, CMT
Chief Market Strategist
ccieszynski@siawm.com
+1 (647) 282-4428

Following a series of strong gains to kick off 2019, it’s not really a surprise to see stocks pause to digest and consolidate recent news. What has been impressive, however, is that stocks have been holding on to their gains despite negative news; a big change from December when the slightest hint of uncertainty sent investors running for the exits.

Yesterday, for example, US indices shook off a soft start and a profit warning from Macy’s to finish the day up about 0.4%.

Comments from Fed Chair Powell and Vice-Chair Clarida confirmed the shift in tone out of the FOMC from hawkish to neutral, particularly noting that a potential global slowdown led by China could have negative ramifications for the US in an interdependent world economy.

This morning, Europe’s struggles are in the spotlight as the UK reported a 1.5% drop in industrial production, which was worse than the 0.7% decline the street had been expecting. The FTSE is down 0.3% today with the Dax down 0.6%, possibly cushioned by reports that the March Brexit deadline could be extended. European markets could be particularly volatile next week around the UK parliamentary vote on PM May’s UK-EU divorce deal.

In the US, the Fed increasingly talking about being data dependent again and potentially slowing the pace of rate hikes or pausing completely, the US Dollar has been sliding recently, which helps to support the price of USD traded stocks and commodities. Today’s US consumer price index report showed the rate of inflation falling to 1.9% from 2.2% as expected. Easing inflation, likely due at least in part to the recent plunge in oil process, reduces pressure on the Fed to raise interest rates and gives them scope to pause. Dow futures have bounced a bit on the news and are currently down about 65 points or 0.25% giving back part of Thursday’s 122-point gain. With US investors focusing on the Fed, stocks have been able to climb a wall of increasing worries for most of this week, we’ll see today if that can carry through to the weekend.

Citigroup kicks off earnings season on Monday with a number of big US companies set to report through next week, particularly financials, which could have a significant influence on sentiment. Reaction to profit warnings has been contained so far, indicating that investor expectations and stock market valuations have already come down significantly. Next week we should get a better idea of whether the autumn selloff was overdone, not enough or an accurate reflection of changing business conditions.

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