February 4, 2019 — Treasury prices rose over the course of last week and equity markets closed higher as well. For the month of January, the S&P 500 was up 8% which is the best January return since 1987 and the best month since October 2015. Information Technology and Energy were the top performing sectors, fueled by strong quarterly corporate earnings announcements.
The Federal Reserve met last week and on Wednesday reported that they would take a more patient approach and adjust its balance sheet reduction process if necessary. The benchmark interest rate remained unchanged with an upper bound of 2.50% and the Fed removed language on the expectation for "further gradual increases" in its policy statement. This dovish signal caused interest rates to drop significantly through the end of trading Thursday with the expectation that the Fed would pause interest rate increases if there were further economic headwinds. The market implied probability of a rate hike by the end of 2019 dropped from 29.0% at the start of last week to only 4.9% by week's end.
In economic news, January's change in Nonfarm Payrolls increased 304k, significantly beating expectations of 165k, while ISM Manufacturing, University of Michigan Sentiment, and Construction Spending all beat expectations. The unemployment rate ticked higher to 4.0% but the labor force participation rate also rose slightly.
Finally, in earnings news, Xerox, AMD and Symantec all reported in-line with expectations but provided higher revenue guidance for FY19 and General Electric was a top performing name after rallying 11% last week after beating earnings expectations. According to Bloomberg, this earnings season has been strong thus far, as 237 names in the S&P 500 have reported and just over 75% of them have met or beat estimates.
Sources: briefing.com, Yahoo Finance, Kitco.com, U.S. EIA, First Trust, Wintrust Wealth Management analysis. Returns are total returns calculated through 2/1/2019 and 5 year returns are annualized. Gold is the New York spot price in $/oz. Oil is the Cushing, OK WTI spot price FOB in $/BBL. Securities, insurance products, financial planning, and investment management services are offered through Wintrust Investments, LLC (Member FINRA/SIPC), founded in 1931. Trust and asset management services offered by The Chicago Trust Company, N.A. and Great Lakes Advisors, LLC, respectively. ©2019 Wintrust Wealth Management
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