Monday, January 28, 2019

Week In Review | Jan 28 2019

Spencer Joyce, CFA
Author position
Vice President | Markets Analyst

Hilliard Lyons’ Investment Strategy & Research team is dedicated to supporting you and your Wealth Advisor. We provide investment guidance and help you separate meaningful news from idle noise via timely market commentary.

International Equities Lead

  • US large-cap stocks fell fractionally last week despite a Friday surge. The S&P 500 snapped a 4-week winning streak, though small-caps eked out a 5th straight week of gains. Emerging Markets rallied as the US dollar index fell by about 0.5%. Real Estate and Tech were leading sectors.
  • The Hilliard Lyons View: US averages were little changed, but markets still rewarded companies with impressive quarterly results. Procter & Gamble, United Technologies and Texas Instruments shares advanced after reporting Q4s. Earnings season was likely a catalyst for the outperformance in Tech last week, during what was otherwise a mostly risk-off environment (i.e., rates lower, gold higher). In general, we are pleased with a relatively benign week of trading as Brexit and the government shutdown provided plenty of unsettling headlines.

US averages were little changed, but markets still rewarded companies with impressive results.

Government Reopens, at Least for Now

  • Late Friday, Congress and the White House reached a deal to fund the government through February 15. Border wall funding is not part of the deal. Affected workers will receive back-pay this week.
  • The Hilliard Lyons View: Ending the shutdown removes negative pressure on the US economy. We do not expect another shutdown next month, although further compromise is needed to avoid this.

World Economic Forum

  • The annual World Economic Forum in Davos, Switzerland, took place last week. Several high-profile politicians did not attend this year (e.g., Pres. Trump). The IMF lowered its 2019 global growth forecast in Davos.
  • The Hilliard Lyons View: The event seemed overshadowed by Brexit and the US shutdown from a news perspective. Nonetheless, we expect the event was useful as forum for policymakers to hold informal side talks.

Yields Stable

  • Yields fell slight slightly last week. The spread between 2-yr and 10-yr Treasury rates remains small, but range-bound.
  • The Hilliard Lyons View: We are happy to tick off another week with 10-yr rates remaining above shorter maturities.

A Look Ahead

  • The Hilliard Lyons View: This may be the most intriguing week of 2019 thus far. Earnings season should be a driver as 123 members of the S&P 500 release results. Reports include: Exxon, Chevron, Amazon, Apple, GE, Boeing, 3M, Visa, Microsoft, McDonald’s, AT&T, Verizon and Pfizer. Economic data delayed by the government shutdown could impact markets, which is in addition to Jobs data for January that is due out on Friday. The Fed’s Wednesday press conference could alter expectations, but we expect no change to interest rates at this week’s meeting. Unrest in Venezuela is worth monitoring, mostly due to the possibility of escalating US involvement. Venezuelan crude production of ~1.2MM barrels/day is down by half from late 2015.

Key Definitions

  • S&P 500 – index composed of ~500 large-cap US equities listed on the NYSE or NASDAQ.
  • Russell 2000 Index – index composed of ~2000 small-cap US companies.
  • MSCI EAFE – index composed of large and mid-cap securities across 21 developed markets, including countries in Europe, Australasia and the Far East. This index does not include US or Canadian companies.
  • MSCI EM - index composed of large and mid-cap securities across 24 emerging markets.
  • Bclys US Agg – (Bloomberg Barclays US Aggregate Total Return Bond Index, Unhedged) total return bond index composed of taxable, dollar-denominated debt.
  • Oil--WTI – represents West Texas Intermediate Crude Oil, a grade of light crude oil used as the underlying commodity in many indices and futures contracts.
  • Oil--Brent – represents Brent Crude Oil, a grade of light crude from the North Sea used as a global benchmark price.
  • IG Spread – (Investment Grade Spread, Bloomberg Barclays USD Liquid IG Corp Average OAS) represents the yield difference between an index of investment-grade rated bonds and a spot Treasury bond curve.
  • HY Spread – (High Yield Spread, Bloomberg Barclays US Corporate HY Average OAS) represents the yield difference between an index of below investment-grade rated bonds and a spot Treasury bond curve.

Important Disclosures

Each client’s investment needs, risk tolerance, and goals are different. This newsletter is not meant to be advice for any specific investor. Nothing in it should be construed as an offer to sell, or a solicitation of an offer to buy, any securities. This should not be used as the sole basis for an investment decision. Any opinions or estimates are subject to change without notice. For information about how any of this information applies to your personal financial situation, please contact your Wealth Advisor.

Past performance is not a guarantee of future results.

Although the information provided to you in this newsletter was obtained or compiled from sources that we believe are reliable, J.J.B. Hilliard, W.L. Lyons, LLC cannot, and does not, guarantee that the information or data is accurate, timely, valid, or complete.

All investing involves risk, including the possible loss of principal. You should carefully consider investment objectives, risks, charges, and expenses of any investment before investing. Diversi-fication and asset allocation do not guarantee a profit or guarantee against a loss.

Stock markets, especially foreign markets, are volatile and can decline significantly in response to adverse issuer, political, regulatory, market or economic developments. The bond market is also volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect can be more pronounced for longer-term securities.) Fixed income securities also carry inflation risk, liquidity risk, call risk, and credit and default risks.