Fourth quarter earnings reports have started coming in and more companies are beating expectations than not. Close to 12% of S&P 500 companies have announced so far. Of the companies that have announced, 67% reported earnings above consensus, 9% in-line with consensus and 24% below consensus. Revenue for 69% of the companies reporting was above expectations with the remaining 31% below.
Equities continued to run as we hit the middle part of the month. The S&P 500 added another 1.2% for the week. Emerging markets were up 2.4% and even bonds advanced as the Barclays Bloomberg Aggregate Bond Index gained 0.6% on the week. The feared rebalancing and tax-loss selling never materialized, as the S&P 500 has gone over a month without back-to-back down days.
The year started with an event that caused volatility in oil markets. The drone strike of the Iranian General, Qassem Soleimani, led to swings in the energy markets. The price for WTI Crude Oil shot up by 3% the day the strike was announced. Over the last week, the price for the commodity peaked at $63.27/barrel and the price as of yesterday’s close was down to 59.61.
Equities posted strong returns for the month of December with the S&P 500 up 3.0% and emerging market equities up 7.4%. For the year, the S&P 500 gained 31.5%, which bettered small caps by roughly 6%. Foreign equities posted good gains, but lagged the U.S. market by 8-12% depending on which benchmark is used.
This last Weekly Insight of 2019 highlights the end of another eventful year. We came into 2019 with some fire under our feet after closing out 2018 with increased market volatility. The VIX, a measure of market volatility, was at 30 a year ago today. Now, it’s closer to 13 and is well below its average of 19 since its inception in 1990.
Equities posted a solid week of gains. We noted at the end of November how it was rare for December to be down in back-to-back years. Despite a tough start to the month, the S&P 500 has gained in eight of the last 11 trading days. For the month, the S&P 500 is now up 1.7%, whereas small caps have gained 2.4%.
The Federal Reserve rate-setting committee voted unanimously to leave the federal funds rate unchanged. Rate cutting intervention was deemed necessary to offset slowing economic growth toward the end of 2018. The broad expectation is for rates to stay the same for at least a little while. We come to this opinion due to future probabilities of changes in the market.
Equities started the month off on a soft note with the S&P 500 falling 1.3% over the past week. Domestic small caps were down a similar number while foreign developed equities fared better with a 0.9% decline. Despite the equity drop, fixed income didn’t provide any offset as the Bloomberg Barclays Aggregate Bond Index was flat on the week.
Equities continued to bleed higher and tacked on another 1% for most large cap indices. Domestic small caps popped 2.1%. The headlines seem to attribute daily equity gains to U.S.- China comments ad nauseum, but the driving force is participants forced to buy back into a rising market. Both retail and hedge fund risk positioning have been extremely defensive despite the strong gains realized year-to-date, and over the last decade.
Equities moved higher this week as the S&P 500, Dow Jones Industrial Average, and Nasdaq Composite all notched new record highs. Small caps equities lagged. Bond yields fell causing the Barclays Aggregate Bond Index to outpace the S&P 500 on the week. Rhetoric regarding the China-U.S. trade deal is not looking good.