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  • Scott Poore, AIF, AWMA, APMA

Fundamentals May Rule While Fed Speakers Go Away

Equities were mixed last week as Friday’s trading nearly salvaged a down week. So far, 11% of S&P 500 companies have reported earnings and the number of companies out-performing is below the 5-year average.

Approximately 67% of companies have exceeded earnings expectations and 64% have beat on revenue expectations. There was welcome news last week on the inflation front. The Producer Price Index fell more than expected (-0.5% vs –0.1%) in December. On a year-over-year basis, Producer Prices are now lower than Consumer Prices, which has historically been a strong correlation to overall lower inflation going forward.


Implied futures on the February Fed hike show a 99% probability of only a 25 basis point rate hike. For reference, December’s rate hike was 50 bps and November’s rate hike was 75 bps.

Implied futures for a pause or “pivot” in rate hikes for the March meeting has picked up at now a 20% probability. A pause in March would be good news for the consumer and the economy. We are now in a “blackout” period for Fed speakers, so markets may move more on fundamentals this week. There could be a looming battle over the Debt Ceiling this week. Government shutdowns have been debated for decades as to whether or not they affect markets. The results, historically, have shown the average returns for equities during government shutdowns is flat. The longest shutdown occurred during from December 22, 2018 to January 25, 2019 (34 days). The S&P 500 Index was up 9.1% during that shutdown. The second longest occurred from December 16, 1995 to January 5, 1996 (21 days). The S&P 500 Index was up 0.2% during that shutdown. In other words, government shutdowns are not a reason to make dramatic investment changes in either direction.

 

Disclosures


The information contained herein is for informational purposes only and is developed from sources believed to be providing accurate information. The opinions expressed are those of the author, are for general information, and should not be considered a solicitation for the purchase or sale of any security. The decision to review or consider the purchase or sell of any security should not be undertaken without consideration of your personal financial information, investment objectives and risk tolerance with your financial professional.


Forecasts or forward-looking statements are based on assumptions, may not materialize, and are subject to revision without notice.


Any market indexes discussed are unmanaged, and generally, considered representative of their respective markets. Index performance is not indicative of the past performance of a particular investment. Indexes do not incur management fees, costs, and expenses. Individuals cannot directly invest in unmanaged indexes. The S&P 500 Composite Index is an unmanaged group of securities that are considered to be representative of the stock market in general.


Past Performance does not guarantee future results.



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