Hello everyone. We’ve just flipped the calendar forward to March and hope your February was nice.
The month was a good one for the markets. The S&P 500 rose 3.2% and the Dow was up more than 4%.
The month was a good one for the markets. The S&P 500 rose 3.2% and the Dow was up more than 4%.
Following the solid performance of January, it put the gains for both indexes above 11% for the year so far. That makes it the best start to a year since 1991 and also ranks among the best starts ever.
Our next chart shows a breakdown of the performance of the different sectors. It’s interesting to note that the best sector has been the industrials (which is made up of many manufacturing and transportation companies), since they are rarely the leaders.
The reason for the outperformance is largely due to China and the likelihood of a trade deal. These stocks were hit hard in the ongoing feud and as the odds of a trade deal rose, these stocks have risen.
The reason for the outperformance is largely due to China and the likelihood of a trade deal. These stocks were hit hard in the ongoing feud and as the odds of a trade deal rose, these stocks have risen.
The improving relations with China have played a part in this rise in the market, but there have also been several other factors.
As reported in our last commentary, the Fed is no longer as adamant on removing stimulus. Over the last few weeks they have continued to reinforce this idea and stocks have moved higher. While the stimulus has been good for the market, we do have concerns that it creates larger problems down the road, but that’s a different conversation for a different time.
Economic data remains decent as nearly all metrics are showing growth. GDP, for example, was released this week and came in much higher than expected.
As reported in our last commentary, the Fed is no longer as adamant on removing stimulus. Over the last few weeks they have continued to reinforce this idea and stocks have moved higher. While the stimulus has been good for the market, we do have concerns that it creates larger problems down the road, but that’s a different conversation for a different time.
Economic data remains decent as nearly all metrics are showing growth. GDP, for example, was released this week and came in much higher than expected.
Employment looks good, too, especially when you see articles like this:
Lastly, corporate earnings for the fourth quarter have also been coming in above estimates.
With nearly all companies in the S&P 500 reporting results, Factset reports earnings growth of 13.1% and revenue growth (which is the money made by sales. Earnings are what remain after costs are subtracted) of 5.2%. These are respectable numbers.
However, there is a concern that this is the peak of earnings. Factset is reporting an estimate of negative earnings growth in the first quarter of this year, although sales (or revenue) should continue to grow. Earnings have been extremely strong recently so it’s natural to see a decline at some point, but it’s still something to keep an eye on.
With nearly all companies in the S&P 500 reporting results, Factset reports earnings growth of 13.1% and revenue growth (which is the money made by sales. Earnings are what remain after costs are subtracted) of 5.2%. These are respectable numbers.
However, there is a concern that this is the peak of earnings. Factset is reporting an estimate of negative earnings growth in the first quarter of this year, although sales (or revenue) should continue to grow. Earnings have been extremely strong recently so it’s natural to see a decline at some point, but it’s still something to keep an eye on.
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How does the market look going forward? Stocks have risen nearly 20% since their lows in late December and that pace can’t keep up forever. While we don’t see big gains in the near future, we aren’t seeing any red flags that often appear before a big decline.
That said, stocks appear a little on the expensive side and we aren’t enthusiastic about putting new money in here. We aren’t doing any selling, but not actively buying, either.
This commentary is for informational purposes and is not investment advice, an indicator of future performance, a solicitation, an offer to buy or sell, or a recommendation for any security. It should not be used as a primary basis for making investment decisions. Consider your own financial circumstances and goals carefully before investing. Past performance cannot guarantee results.
