The major U.S. stock indexes closed higher, posting their biggest weekly gain in six months. The rally was fueled by a generous injection of liquidity by the Peoples’ Bank of China into its financial markets, optimism that the economic fallout from the coronavirus will be contained and upbeat U.S. economic data drove the S&P 500 and the NASDAQ Composite to new record highs.
In the cash market last week, the benchmark S&P 500 Index settled at 3327.71, up 2.1%. The blue chip Dow Jones Industrial Average finished at 29102.51, up 3.0% and the technology-based NASDAQ Composite closed at 9520.51, up 4.0%.
This week, traders will be keeping an eye out for any news confirming the global economic impact of the coronavirus. Federal Reserve Chairman Jerome Powell testifies before Congress on Tuesday and Wednesday. U.S. inflation data will be released on Thursday. The week will end with reports on retail sales and consumer sentiment on Friday.
On the earnings front, the fourth-quarter earnings season starts to wind down, with 13% of the S&P 500 companies reporting results.
Earnings Results So Far
As of Friday’s close, more than 300 S&P 500 companies have reported fourth-quarter results, or which about 70% have topped earnings estimates, according to IBES data from Refinitiv. Earnings is expected to have risen 2.1%.
Edward Jones analysts, citing Factset, said “In 2019 equities posted their best performance in six years, with large-cap stocks climbing 32% on the backs of solid earnings growth and subdued prices heading into this year. Since that time earnings growth has decelerated, and valuations on large-cap stocks have surpassed their five-year and 10-year averages.”
“With two-thirds of firms having reported quarterly earnings so far, the earnings picture is shaping up to be better than initially forecasted. We expect earnings growth to accelerate to mid-single digit growth rates in 2020 to be more in line with historical averages. Still-solid earnings and economic fundamentals will help keep this bull market from petering out and keep share prices rising despite occasional (and, in our view, short-lived pullbacks this year.”
Federal Reserve Suggests Global Growth Outlook Dampened, not Disrupted
In its annual report to Congress released last Friday, the Federal Reserve stated that the coronavirus could negatively impact global growth given the size of the Chinese economy and the global reach of the pandemic, which has limited travel, shuttered businesses and disrupted supply chains on a month after the first reported case earlier this year. Bond markets last week reflected growing investor concerns as the 10-year yield fell below 1.6% despite the strong jobs report.
US Jobs Market Continues to Shine
Stocks may have settled lower on Friday, but the selling wasn’t fueled by disappointing labor market data. January’s jobs report showed the economy produced a robust 225,000 jobs, easily beating the estimate. The unemployment rate eased higher, but for the right reasons, as workers, lured back into the jobs market on higher wage gains, raised the jobs participation rate to 63.4%, the highest since 2013.
The report wasn’t perfect. The manufacturing sector lost jobs and wage gains came in at 3.1% year-over-year, lower than the 50-year average of 4%.
Nonetheless, the numbers should be good enough to continue to support consumer spending and economic growth in 2020.