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HA – Economic Factors That Moved the Market in February 2019

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A solid start to earnings season, the Federal Reserve’s change in tone, and US-China trade talks were the major factors contributing to the market’s sharp rally in February. December losses may still be fresh on investors’ minds, but the Fed’s more accommodative turn, a blowout employment report, strong S&P earnings, and positive outlook on trade talks have set the ground for a strong rebound.

DJIA Daily Chart from February 1 to  February 28, 2019

 

 

February 1

  • US Indices advanced due to stronger than expected U.S. employment report, with nonfarm payrolls jumping by 304,000 jobs in January.
  • This number not only exceeded forecasts but marked the largest gain since February 2018.

February 4

  • The factory orders report declined by -0.6%, a few points below consensus expectation.
  • Despite the sluggish start, indices advanced later in the afternoon with optimism that Q4 corporate earnings and 2019 outlook are off to a good start.

February 5

  • ISM non-manufacturing sample reports sustainable and solid growth, at 56.7, which is within economist expectation.
  • With news relatively light, markets may have risen due to support from S&P 500 Q4 results showing an average earnings growth rate of 12.4%.

February 6

  • S. and China will start another round of trade talks next week.
  • Nearly 71% of over half of the S&P 500 companies that have reported Q4 results have exceeded profit expectations.
  • Despite this, analysts are reducing their earnings expectations for the first quarter of 2019.
  • S&P 500 in January has been its strongest in over 30 years, a sign of potential market strength.

February 7

  • S. indices fell due to weak economic news from Europe.
  • Selling pressure may have been limited due to hopes that the US and China might be able to reach a trade deal in the upcoming talks.
  • Initial jobless claims declined 19,000 to 234,000, higher than the 225,000 estimate.

February 8

  • S. stock index futures advanced in anticipation of the latest trade talks between the U.S. and China in Beijing.
  • Some analysts have expressed optimism that a trade deal may be reached by March 1.

February 11

  • No major news today.
  • US indices advanced somewhat slightly as the latest trade talks between the U.S. and China began in Beijing.
  • 5% of the S&P 500 companies that have reported results have exceeded analyst estimates.

February 12

  • US indices advanced as lawmakers reached a tentative deal to avert yet another partial government shutdown.
  • Indices were also supported by expressed optimism on progress with the US-China trade talks.
  • Markets moved higher despite reports that the National Federation of Independent Business small business optimism index continued its decline for a fifth straight month, falling to 101.2 in January from 104.4 a month ago. Economists were expecting a higher reading of 102.
  • Job openings, as revealed in the latest JOLTS report, continue to accelerate much faster than hiring, up 3.1 percent to a 7.335 million, exceeding economist expectations of 6.900 million.

February 13

  • Indices advanced partly on a report that President Trump intends to sign the border security deal to avoid another partial government shutdown.
  • Additionally, markets were supported on optimism over the U.S.-China trade discussions.
  • President Trump mentioned that he’s willing to relax the March 1 deadline if he and President Xi were close to an agreement.
  • CPI remained unchanged, though, core prices grew 0.2% from December.

February 14

  • Indices traded higher overnight due to signs of potential progress in U.S.-China trade talks.
  • Several times during the week, President Donald Trump mentioned that discussions are going “very well.”
  • Several sources are reporting that President Trump is may be extending the March 1 deadline by another 60 days in order to comprehensively iron out a trade deal.
  • But indices quickly fell after a report that retail sales recorded their largest decline of 1.2% in more than nine years in December. Economists were expecting to see an increase rather than a decline.
  • Jobless claims increased by 4,000 to 239,000, higher than consensus expectations.

February 15

  • Indices continued trading higher on signs that progress in the Beijing trade talks is being made.
  • Officials from both countries are planning to continue their talks in Washington next week.
  • The NY Federal Reserves Empire State Manufacturing survey came in at 8.8, up from January’s reading of 3.9, and better than economist expectations of 7.1.
  • The cost of US imports fell by 0.5% in January from the previous month. Economists forecasted a 0.3% decrease.
  • Contrary to expectation of a rise in January industrial production, the report shows that it was down by 0.6%, and capacity utilization was 78.2% when 78.8% was anticipated.
  • The end of the government shutdown helped Consumer Sentiment, which came in above consensus at 95.5.

February 18

  • US Presidents Day

February 19

  • Stocks opened lower after the EU threatened to retaliate if the US follows through with their threat to levy tariffs on imported EU goods.
  • Indices continued advancing when President Trump said trade talks with China were going well, suggesting the possibility of pushing the deadline beyond March 1 to complete negotiations.
  • Housing market index came in better than expected at 62. indicating recovery and strength in present sales–attributable by no small measure to low mortgage rates.

February 20

  • Stock gains were subdued due to a few earnings reports that were more or less downbeat.
  • Overall, stock market performance has been strong despite the current geopolitical environment surrounding it, a potential sign of long-term strength.

February 21

  • US market lower today following a negative trading session in Europe plus some weaker-than-expected US economic data.
  • Durable goods orders increased 1.2% in December, but the figure was smaller than the 1.5% gain that economists had expected.
  • Initial jobless claims fell sharply to 216,000.
  • Philadelphia Federal Reserve business index in February came in at -4.1, significantly lower than the expected consensus figure of 14.1.
  • PMI composite came in at 55.8, though on a manufacturing level the figure came in at the lower end of 53.7 (consensus at 54.3) indicating potential “soft spot” in client demand, signalling a slowing in production most likely due to the current global economic slowdown.
  • Existing home sales report came in slightly lower than expectations at 4.94 million (where 5.04 million was expected).

February 22

  • Stocks moved higher today as signs that progress on trade offset the seemingly worsening global outlook.
  • No major economic news or reports came in on this Friday.

February 25

  • President Trump’s announcement that he would delay increasing tariffs on Chinese imports may have contributed to stocks’ advance.
  • Trump cited progress trade talk progress in the areas of intellectual property protection, technology transfers, agriculture, currencies and services.
  • Chinese traders might have found the news favorable as the CSI 300 Index advanced 6%, its biggest single-day gain in nearly four years.
  • The also Yuan rose to a 7-month high following the news.

February 26

  • Housing starts report reveals that December housing starts tumbled by 11.2%, an unexpectedly weak figure of 1.078 M, well below the 1.260 M that economists were anticipating.
  • The Case-Shiller’s 20-city index also shows slowing rates of home-price appreciation–0.2%, below the 0.4% consensus expectation.
  • Despite the government shutdown’s negative effect on consumer confidence in January, February consumer confidence coming in at 131.4 easily beat expectations of 125.0.
  • The key word in Jerome Powell’s speech as “patience.” He described economic growth as “solid” but still “slowing,” and inflationary pressures as “muted.” Powell holds to the “wait-and-see” approach amid slowing global growth, trade uncertainties, and Brexit.

February 27

  • The nation’s goods deficit swelled to a much larger-than-expected $79.5 billion in December as exports fell 2.8 percent following 0.9% contraction in November.
  • Agricultural exports fell 1.9% in the month, down 5.5% YOY.
  • Jerome Powell will soon be announcing the Fed’s plans for 2019 balance sheet reduction.
  • The Fed aims to bring tightening to an end “some time later this year,” according to Powell, stating that another $500 Billion balance sheet reduction to $3.5 Trillion would be “reasonable.”
  • Trump-Kim summit begins.

.February 28

  • Indices declined as the Trump-Kim summit ended without any notable progress.
  • India-Pakistan tensions in the spotlight.
  • GDP came in at 2.6%, a solid figure at the higher end of consensus expectations.
  • Jobless claims report at 225k came in right at expectations.
  • Chicago PMI came in eight points higher than expected at 64.7.

 

Karl Montevirgen

Market Strategist | Halifax America

 

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