Feb 15, 2019
January’s rally reversed about one half of the decline in the popular averages, which ended December 24th, 2018. Corporate earnings are being reported for the fourth quarter and full year 2018, and they are good, up 19% for the S&P 500.
You can see from the chart below that earnings estimates usually start the year higher and then tend to be revised lower during the year. For the Calendar Year 2018, or the teal line in the chart below, earnings were revised upward after corporate tax rates were reduced. There is concern that earnings growth rates are decelerating but we still have positive earnings growth in the S&P 500 for 2019 above 2018 levels but at a slower rate.
The Federal Reserve Chairman Jerome Powell, softened his position on increasing interest rates during 2019. This is a change from the December meeting where he suggested increasing rates multiple times during 2019. Powell also stated that he would reduce the size of the balance sheet less than previously expected. Reducing the balance sheet is perceived as a form of quantitative tightening. China trade talks continue and there is hope that trade policies will favor America.
The Bureau of Labor Statistics reported that 304,000 new jobs were created in January, well above the approximate 170,000 expected. Most of the job growth came from the private sector which brought in 296,000 total jobs for January. Even with the December jobs report revised downward, the 3-month average job growth stands at 241,000 per month!
The Labor Participation Rate also ticked upward indicating there are more job seekers entering the marketplace. The rate hit 63.2% its highest reading since 2013.