The equity markets ended this holiday-shortened week essentially unchanged. The Dow Jones Industrial Average (+0.12%) and the Nasdaq (+0.11%) led with modest gains followed by the Russell 2000® Index (+0.02%) while the S&P 500® Index fell 0.22%. Shortly before the markets closed on Friday, President Trump announced a deal with lawmakers to approve a bill which would reopen the federal government until February 15th while negotiations continue. State unemployment claims for last week (199,000) were the lowest since 1969. And, the Flash manufacturing PMI, an early indicator of manufacturing, rose slightly in December. This indicator, though, weakened considerably in Europe and Japan. On Friday, European Central Bank president Mario Draghi warned of persistent “uncertainties related to geopolitical factors . . . and market volatility” while business morale in Germany fell for the fifth consecutive month. Investors are closely monitoring trade negotiations between U.S. and China; while headlines may say otherwise, some commentary suggests that talks may lead to a détente. The Federal Reserve indicated that it may decide to hold more Treasury securities in its inventory than previously planned; the policy adjustment would leave more liquidity in the economy.
Companies such as IBM, Procter & Gamble, United Technologies, American Airlines, Starbucks and Lear, in a variety of sectors, are reporting solid revenue and earnings growth. The outlook for 2019 remains positive as companies reaffirm earlier guidance. For example, a mid-cap regional bank, beat earnings estimates for the fourth quarter and year; and commented favorably on its outlook for 2019. The bank serves Chinese investors in the U.S. market, especially single family mortgages. Activity rose 7% in 2018 and the pipeline remains strong. The bank believes trade discussions with China will progress although negotiations may take a long time. During December, the stock fell 25% on concerns over its exposure with China; the stock has regained these losses yet remains about 20% below analysts’ estimates. The impact of tariffs varies considerably; some have outsourced to other countries, some are sharing the cost of tariffs with manufacturers, while others have absorbed the tariffs.
Many stocks remain oversold; the markets, though, are rewarding companies with good earnings reports. Cash remains on the sidelines as balances in money market funds are reportedly at the highest level in ten years. Rebuilding investor confidence will take time; and yet, the upside remains compelling.
Source: Pacific Global Investment Management Company
Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.
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