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Weekly Commentary

ND&S Weekly Commentary 2.19.19 – Crisis Averted

The equity markets’ resilience continued last week as trade progress with China and a government-spending bill that averted another shutdown provided the lift. For the week, the DJIA jumped higher by 3.21% while the broader-based S&P 500 closed up 2.56%. Smaller US companies continued their surge closing the week up 4.22%. However, international equities were mixed with the MSCI EAFE up 2.04% and emerging markets down 0.49%. Yields pushed higher on the week with the 10yr US Treasury yield settling at 2.66%, up 3bps from the previous week.

With roughly two weeks remaining in the US-imposed 90-day negotiating window with China, media suggested that President Trump is considering extending the deadline for another 60 days as progress is being made. There are plenty of thorny issues still to be ironed out, but optimism over a potential deal helped support markets last week. Additionally, congressional negotiators cobbled together a spending package to fund the government through the end of the fiscal year. The agreement did include some funding for barriers, but much less than the White House requested. No doubt this removed some uncertainty in the short-term.

With roughly 80% of the constituents of the S&P 500 Index having reported for Q4 2018, forecasted earnings growth is running at a 13.1% year-over-year pace while revenues are seen rising 7% compared with the same quarter a year ago, according to FactSet Research. However, estimates for Q1 continue to be lowered with analysts now expecting earnings per share to decline around 2.5% this quarter. There is plenty of talk in the financial media about the potential “earnings recession” but that doesn’t necessarily mean equities will be negative in that environment. We are monitoring this closely as the bar has been set low with potential upside surprises looming.

In the week ahead, the minutes of January’s FOMC meeting will be released as well as economic reports on durable goods order and existing home sales. Let’s make it another good week!

“In preparing for battle I have always found that plans are useless, but planning is indispensable.”Dwight D. Eisenhower

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