Market News – Week of February 19th, 2018

CLIMBING BACK:

U.S. markets experienced five straight days of gains last week. The S&P 500 had its best week in five years. Global economic growth remains positive and improving. U.S. corporate earnings are healthy. Interest rates and inflation spooked the markets, but they remain low by historic standards (but investors will keep watching these items). About half of the slightly more than 10% correction that occurred after January 26 has been recovered.

INFLATION:

Since this was one of the items that spooked the markets and caused a correction, all eyes will remain on the various data points that indicate whether or not we are heading into an inflationary period, and if so, how much. It is very likely that we will top 2% this year, but if signs of a significantly greater rise do not appear, that will help calm markets. Since August, the Consumer Price Index has been hovering in the 2.0% to 2.2% range. But, the labor market has tightened, a nationwide truck shortage indicates a heating economy where higher prices will be a necessity, oil prices have risen to over $60 per barrel, and the falling value of the U.S. dollar all point to rising inflation. How much? It is too early to tell.

CORPORATE EARNINGS AND FORECASTS IMPRESS:

With 77% of the S&P 500 corporations having reported their fourth quarter earnings, we see the following:

• S&P 500 revenue growth in 2017 appears to have risen about 8%.
• S&P 500 earnings growth appears to have risen almost 15%.
• S&P 500 companies are forecasting over 18% earnings growth for 2018.
• Regarding those forecasts:
• Are they too optimistic when it comes to projecting the impact of the corporate tax cut?
• How will the direction of the U.S. dollar impact profits?
• How will oil prices affect profits?

HOUSING CONTINUES TO CRAWL OUT OF THE BOTTOM:

According to the U.S. Census Bureau, privately-owned housing starts in January were 9.7% higher than December, and 7.3% higher than January of a year ago. Single family housing starts were up 7.6% compared to a year ago.

References:

HOUSING CONTINUES TO CRAWL OUT OF THE BOTTOM: http://www.calculatedriskblog.com/2018/02/comments-on-january-housing-starts.html
INFLATION: https://www.wsj.com/articles/a-shortage-of-trucks-is-forcing-companies-to-cut-shipments-or-pay-up-1516789800; https://www.forbes.com/sites/billconerly/2018/02/15/is-inflation-accelerating-time-for-worry-not-panic/2/#4f755fa17deb; https://www.wsj.com/articles/oil-prices-follow-broader-market-higher-1518783256?mod=searchresults&page=1&pos=1&mod=djem_EnergyJournal;
CORPORATE EARNINGS AND FORECASTS IMPRESS: https://horsesmouth.com/stock-market-corrections-par-for-the-course