VIA NOVA UPDATE: Stocks post gains despite uncertainties.

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  • U.S. stocks continued the recovery from the December sell-off.

  • Trade talks with China remain a concern.

  • The Week Ahead: Lots of earnings and economic data.Can another shutdown be avoided?

U.S. stocks continued the recovery from the December sell-off.

Stocks seesawed for most of the week before finishing higher on Friday afternoon.  A stronger close into the weekend suggests improving investor confidence and contrasts with much of 2018 when investors would often close out positions at week’s end to avoid potential negative news while the markets were closed.

The markets shook off data showing slower global growth, lower first quarter corporate earnings guidance and risks that the Trump/Xi trade summit may not occur by the March 1 deadline.  The S&P 500 posted a modest gain for the week, despite the news and is up over 8% year to date and up over 15% since Christmas Eve.  Small cap stocks outperformed the S&P again suggesting a broadening market advance with more stocks participating in the recovery.  However, international and emerging market stocks fell.

In other markets, Treasury yields edged lower on news that foreign central banks are shifting away from previous plans to gradually tighten monetary policy.  Lower international rates make U.S. bonds more attractive for investors, pushing down yields.  While political discord has become the global norm, central banks have taken on the task of providing economic and market stability.  The result is lower interest rates which is good for both stocks and bonds. 

Oil prices fell but remained above $50/ barrel.  Real Estate Investment Trusts (REITS) and Treasury Inflation-Protected Securities (TIPS) rose for the week, but gold prices fell.  The easier global monetary policies prompted a 1% jump in the value of the dollar.  A higher dollar tends to lower import prices but makes U.S. goods less competitive in the world markets and thus is a potential headwind for corporate earnings if the trend persists.

Trade talks with China remain a concern.

The Trump Administration announced that the President will meet with North Korea’s Kim Jung Il the last two days of February, which means that a trade summit with China’s Xi is unlikely before March 1 when the next round of tariff hikes is due.  However, senior Trump officials will head to China in the coming week to continue the talks, and if progress is evident, the tariff increases could be delayed.  The continuation of negotiations improves the chances of an agreement, which would be a significant positive for the stock market.

The Week Ahead: Lots of earnings and economic data.  Can another shutdown be avoided?

With the government back open, economic data will be pouring out in the coming week, including data on inflation and industrial output.  The question is whether economic data will be released the following week.  Government funding is set to expire at the end of Friday if Congress fails to approve a spending plan.  Expect a lot of back and forth on this topic, which could increase market volatility.  More corporate earnings are also due.