MARKETS GAIN AGAIN

Last week closed out one of stocks’ top January performances in years. In fact, both the S&P 500 and Dow posted their best January results in at least 3 decades.^[1] For the week, major domestic indexes were also up. The S&P 500 gained 1.57%, the Dow added 1.32%, and the NASDAQ increased 1.38%.^[2] The Dow’s performance marked its 6th week of gains in a row.[3] Internationally, MSCI EAFE stocks also posted growth, rising 0.91%.^[4]

What drove stock results last week?

As discussed in our previous market update, last week provided a number of details for investors to focus on. Here are some key items that contributed to market performance:

1. Federal Reserve Meeting: The Fed chose not to increase interest rates above its current 2.25% – 2.50% target. When releasing this update, the central bank noted that it would be “patient” when deciding about any future increases.^[5]
  Market Impact?
  The Fed’s signal that additional rate hikes may not be imminent helped improve market confidence.^[6]
2. Corporate Earnings: By Friday, nearly half of S&P 500 companies had released earnings data for the 4th quarter of 2018. Of them, 70% had higher earnings-per-share than expected and 62% beat revenue projections. Right now, the S&P 500 is poised to have its 5th quarter in a row of double-digit earnings growth. However, the currently projected growth of 12.4% is lower than it has been since 2017.^[7]
  Market Impact?
  With worries of disappointing results calmed, some investors are feeling relieved by earnings season so far.^[8]
3. January Labor Report: The latest Employment Situation release from the Bureau of Labor Statistics showed that the economy added 304,000 new jobs in January. At the same time, the unemployment rate increased slightly, as the count included furloughed federal workers. The latest data also indicated that December job growth was lower than initially reported.^[9]
  Market Impact?
  The January job growth was much higher than investors expected and implied the partial government shutdown minimally affected the U.S. economy. These perspectives helped drive stock gains on Friday.^[10]

This week, we will continue to monitor corporate earnings season and will follow any developments in the U.S.-China trade negotiations. We will also watch for new data releases, especially those previously delayed by the government shutdown. If you have any questions, we’re here for you.

ECONOMIC CALENDAR*
Monday: Motor Vehicle Sales, Factory Orders
Tuesday: PMI Services Index, ISM Non-Mfg Index
Wednesday: Jerome Powell Speaks
Thursday: Jobless Claims

*The federal government shutdown may delay some data releases.

_{Notes: All index returns (except S&P 500) exclude reinvested dividends, and the 5-year and 10-year returns are annualized. The total returns for the S&P 500 assume reinvestment of dividends on the last day of the month. This may account for differences between the index returns published on Morningstar.com and the index returns published elsewhere. International performance is represented by the MSCI EAFE Index. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly.}

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The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.

The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ. The DJIA was invented by Charles Dow back in 1896.

The Nasdaq Composite is an index of the common stocks and similar securities listed on the NASDAQ stock market and is considered a broad indicator of the performance of stocks of technology companies and growth companies.

The MSCI EAFE Index was created by Morgan Stanley Capital International (MSCI) that serves as a benchmark of the performance in major international equity markets as represented by 21 major MSCI indexes from Europe, Australia and Southeast Asia.

The Dow Jones Corporate Bond Index is a 96-bond index designed to represent the market performance, on a total-return basis, of investment-grade bonds issued by leading U.S. companies. Bonds are equally weighted by maturity cell, industry sector, and the overall index.

The S&P US Investment Grade Corporate Bond Index contains US- and foreign issued investment grade corporate bonds denominated in US dollars. The SPUSCIG launched on April 9, 2013. All information for an index prior to its launch date is back teased, based on the methodology that was in effect on the launch date. Back-tested performance, which is hypothetical and not actual performance, is subject to inherent limitations because it reflects application of an Index methodology and selection of index constituents in hindsight. No theoretical approach can take into account all of the factors in the markets in general and the impact of decisions that might have been made during the actual operation of an index. Actual returns may differ from, and be lower than, back tested returns.

The S&P/Case-Shiller Home Price Indices are the leading measures of U.S. residential real estate prices, tracking changes in the value of residential real estate. The index is made up of measures of real estate prices in 20 cities and weighted to produce the index.

The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.

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