March 1, 2019
So far, 2019 has been much kinder to investors than the last month of 2018. A combination of a strong labor market better than expected earnings and a more accommodative Federal Reserve has supported a full recovery from December’s 9% loss on the S&P 500.
Although earnings continue to come in strong, earnings growth forecast for many sectors has been cut to half its prior estimates. The primary reason for the slowdown is the weakness of overseas economies, particularly China. Another factor than has impacted lower forecast estimates has been weakness in commodity prices. Originally, the energy sector was expected to make a positive contribution to 2019 growth but has now flipped to be a double digit drag on the broad markets.
Finally, the largest single factor that has affected positive investor sentiment is the reversal of the Federal Reserve’s decision to not increase on raising interest rates for the time being. The Fed’s balancing act has worked so far as they continue to monitor various factors affecting the economy. Since 70% of GDP is driven by consumption, the good news is that robust job and wage growth, coupled with a rate of inflation below 2% continues to fuel the current economy through consumers having additional cash to spend.
For the year the Dow, S&P 500 and NASDAQ are all positive at 11.10, 11.08 and 13.52 percent, respectively, while the 10-year Treasury is yielding 2.69 percent.