Mixed results from earnings and economic data released this week lead to a strong sell-off on Friday, giving the markets their first weekly loss of the year. For the week, the Dow was down 0.08%, the S&P lost 0.78%, and the Nasdaq was off 1.26%.
Despite the preliminary reports showing strength in the retail sector during the Christmas season, retail sales came in with a 0.3% loss for the month of December. Still, this was a slight gain from the previous year. More disappointing news came with the Beige Book release, which showed a stubborn weakness in the economy and unemployment continuing. Also on this negative trend, January consumer sentiment gained slightly from the previous month yet was below expectations, imports grew considerably and widened the trade deficit, the Consumer Price Index (a measure of inflation) came in slightly positive at 0.1%, and the U.S. Treasury reported a record deficit. The only bright spot in terms of economic releases came in the industrial production report which reported a 0.6% gain for December.
Last week marked the beginning of the corporate earnings season. We started off the week with disappointing news from Dow-component Alcoa, who reported earnings of 1 cent per share, below the 6 cents analysts forecasted. Later in the week, Intel came in well above expectations, yet the stock sold off. The last big name of the week was JP Morgan, who also beat expectations, yet sold off heavily on Friday. It is not a good sign for earnings to come in higher than expected, yet the market sells off. Investors may have very high expectations or may be looking for an excuse to sell. Either way, we are adding to our portfolios on these big down days.
We are heading full-steam into earnings season next week, despite the holiday on Monday. Bank earnings will be the main focus as many banks will be releasing earnings this week. After the disappointing results from the JP Morgan release, we remain cautious. It is possible that these banks will be writing off many losses to report lower earnings, alleviating some of the populist backlash they have been facing (A new bank tax? What is this government thinking?). Besides the corporate earnings, Wednesday we get the producer price index and housing starts. Thursday is the leading economic indicators report, which is expected to continue is upward trend. As always, we will be watching these releases carefully.
Where are we investing now?
Little change here. We remain bullish for the short term and are looking to put some money to work on the market dips. For equities, we are focusing on higher-quality and multi-national stocks. We are still bullish on commodities and believe the dollar will continue its trend lower. TIPs continue to be a favorite, as we expect inflation to increase in the future. Consequently,
Enjoy the day off Monday.
