Tuesday, February 19, 2019

Week In Review | Feb 19 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.

Love for Stocks around Valentine’s Day

  • Global equities were mostly higher last week, led by US small-caps. Domestic stocks outperformed international markets for a second straight week as the dollar continued to rally. A rebound in oil helped propel Energy to be the strongest sector last week. Utilities were the only sector to fall.
  • The Hilliard Lyons View: Earnings season news flow remained sufficient to support stocks last week, though the most impactful narrative was perhaps the news that the government would avoid another shutdown. US outperformance makes sense with international narrative still focused on weakening economic data. In general, however, the magnitude of our rally last week was surprising.

Trade negotiations in China concluded last week, and continue in Washington this week.

Trump Still in the Trenches

  • Trump seemed to relax his border wall funding demands in agreeing to a bill that will fund the government. He then declared a national emergency that will allow access to additional money. A week of trade negotiations in China concluded last week; talks continue in Washington this week. A date for a summit between Trump and Chinese President Xi has not been set.
  • The Hilliard Lyons View: From an investment standpoint, we largely view the border wall saga as a distraction. We view the China-US trade debate as the much more important narrative. The market seems to be pricing in a near-term resolution, but this outcome could mean few structural reforms to items like state sponsorship and intellectual property rights.

Earnings Season Winding Down

  • Eighty percent of the S&P 500 have reported calendar-Q4 results. In aggregate, companies grew earnings by 11% on revenue growth of 6%. The rate of positive surprises is down a bit from the past handful of quarters, but the pace of absolute growth is robust in a historical context.
  • The Hilliard Lyons View: Expectations seem to have been reduced considerably throughout the course of the correction late last year. Even companies that are missing consensus targets are seeing positive stock price reactions after reporting. Earnings season from here on out could be a catalyst in spots, but most of the mega-caps have already reported.

A Look Ahead

  • The Hilliard Lyons View: Walmart reported robust same-store sales growth Tuesday morning, which flows opposite of weak Retail Sales data for December that was out last week. A debate on this front could influence early week trading. More broadly, earnings season is likely to be in focus, but could easily be supplanted by ad hoc developments across a range of geopolitical narratives. We are especially eyeing China news potentially breaking late in the week. Companies to report this week include: CVS, Macy’s, Berkshire, Smucker’s, and utilities Southern Company, American Water Works, First Energy and Con Ed.

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.