Last Week:

Markets were up solidly last week. Whispers were the China trade talks were making progress. And Fed Chair Powell kept repeating the Fed would be “patient”. That was enough for the markets to ignore Macy’s poor results/forecast. It was enough to ignore a second missed ISM number. Almost every time the markets opened down, they rallied back last week.

My model’s status: It’s still all down. But speed #1 has moved up a lot.

Tailwinds or Headwinds? Five things will determine where markets go in the coming months: the China trade talks; the length of the government shutdown; Fed actions and speeches; the global economic slowdown; and the coming U.S. corporate earnings season. For now the pending earnings season will be key.

The Fed minutes from their December meeting gave us a few insights. We are starting to hear two key words from Fed officials: patient and flexible. Second, some within the FOMC indicated they felt the Fed should ease up. Not all agreed, but the vote was 10-0 to raise their interest rate .25%.

An historic meeting took place on Friday, January 4th. The current Fed Chair Jay Powell shared a stage with the prior two Fed Chairs Janet Yellen and Ben Bernanke. It was not an open press conference, but a moderator asked them lots of questions. It was a love-fest amongst the three Chairs, praising one another repeatedly. Two messages came across from Chair Powell: the balance sheet will continue to be reduced in 2019, and their interest rate will go up twice this year where appropriate. But the Fed will be patient and flexible as they do this.

The December CPI came in as expected. Year-over-year shows +1.9% inflation. Take out food and energy and the number is +2.2%.

The ISM non-manufacturing number dropped from 60.7 to 57.6. Expectations were for 58.7.


This Week:

The economic focus of the week: Earnings season begins. How will the results be? Wall Street keeps hearing that economic activity is slowing down. So, in addition to the results, what will the forecasts be? We’ll get the “tone” of this new earnings season pretty quick.

December’s retail sales will be announced Wednesday morning. The prior month (November) came in with +0.2% growth. Expectations are that we will see the same number for December. 30% of retail sales takes place in the final 5-6 weeks each year. Black Friday and Cyber Monday were great, but big box stores tapered off from there quickly (Macy’s, Penney’s, Kohl’s). This number will give us some indication of how strong Holiday sales might have ended up.

Earnings season is underway. Some important companies reporting this week: Alcoa, Bank of America, Citigroup, CSX, Delta, Goldman Sachs, JPMorgan, KeyCorp, Morgan Stanley, Netflix, PNC, UnitedHealth, and Wells Fargo.

Indicator focus:  December’s producer price index (Tue); December’s retail sales, business inventories (Wed); December’s housing starts, and January’s Philly Fed index (Thu); and December’s industrial production (Fri).


Have a great week.

Chris

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