VIA NOVA WEEKLY UPDATE: FOR THE WEEK ENDED 2/9/18
- Another rocky week sent the S&P 500 briefly into correction territory.
- A light week of economic news.
- Q4 earnings reports continued to exceed expectations
- Policy: A government shutdown ended before it began thanks to a two-year budget deal.
- Coming Week: Trump's budget proposal, more earnings reports, inflation data and retail sales for January.
Another rocky week sent the S&P 500 briefly into correction territory.
The S&P 500 finished on a positive note Friday but fell -5.10% in the latest week and briefly touched correction territory (-10%) before finding its footing. Investors remain very nervous, but the ability of the S&P 500 to find some “traction” near the 200-day moving average is an optimistic sign that equity market uptrend remains intact.
A light week of economic news.
The domestic economic calendar is usually light in the week following the employment report, and this week was no exception. However, on the international front, it is worth noting that the Bank of England (BOE) met and said it may have to raise interest rates faster and farther than previously planned with inflation running at 3% in December. While the European Central Bank (ECB) and the Bank of Japan (BOJ) still pursue accommodative monetary policies, the tide appears to be turning away from historically low interest rates. The process likely will be gradual, but the trend could put additional upward pressure on bond yields (with lower prices) in 2018.
Q4 earnings reports continued to exceed expectations.
With 68% of S&P 500 companies reporting, FactSet estimates that fourth quarter earnings are on pace to rise 14%, compared with the 11% increase projected on December 31. FactSet also reported that companies with global exposure are reporting higher earnings growth due to the decline in the value of the dollar and accelerating global growth.
Policy: A government shutdown ended before it began thanks to a two-year budget deal.
The Congress passed, and the President signed, a bipartisan two-year spending bill that would increase spending for both defense and domestic programs by roughly $300 billion. The three key takeaways for me:
- The risk of a disruptive budget event is now very low. The Federal budget has been a key lever for policy brinksmanship. With an agreement in place, agencies can more intelligently plan important initiatives.
- The agreement adds to an already high budget deficit, which will worry the Federal Reserve and the markets.
- The odds of a big infrastructure bill are lower. The agreement grants funding for some infrastructure projects. Deficit hawks are unlikely to support additional spending now that the risk of a shutdown is low.
Coming Week: Trump’s budget proposal, more earnings reports, inflation data and retail sales for January.
A higher than expected Consumer Price Index (CPI) report Wednesday could further fuel concerns that the Fed will have to speed up the pace of rate hikes this year.