Economic and Stock Market Commentary for the week of January 22, 2019

Alex Ralicki |

Earnings reporting season is well under way, with expectations for the recently ended fourth quarter still quite positive. In all, forecasts call for another double-digit percentage rise in S&P 500 earnings, as companies capitalize on recent economic gains. But after this likely solid showing, the outlook grows murkier, with consensus calling for more restrained growth in the next few quarters. These more muted expectations reflect the fact that,

Economic headwinds are building, with recent weeks seeing slower growth in manufacturing, tepid sales at key retailers, and some cautionary signals from the Federal Reserve. There also are the trade impasse with China, where there may possibly be some movement now, and the government shutdown to consider. That partial closure, for example, is exacting a growing toll on the economy from lost income, reduced consumer spending, and delays in investment.

Overall, though, our economy should be on firm ground, with most consumer and industrial markets likely to show enough strength for GDP to rise by 2%, or more, this year, after a slow start. True, that would be down from the near-3% gain likely tallied in 2018, but might be sufficient to keep earnings climbing at a modest single-digit pace.

Meanwhile, big problems reside offshore, where economies from Europe to China are in slowdowns that could worsen this year. The weaker growth in China is especially worrisome, with some U.S. companies seeing a negative impact on their business, and with the Federal Reserve acknowledging that it is watching developments there for their impact over here.

There also is drama in the political arena, where the two parties remain at odds on key issues. Most important now is the government shutdown, which current estimates hold could pare more than 0.1% from GDP each week. Reports of widening investigations, which are a daily occurrence, also are taking a toll on business and consumer sentiment.

Through it all, the bulls are persevering, as they are shaking off the stock market turmoil seen late last year and pushing stocks solidly higher thus far in 2019.

Conclusion: The market’s snapback suggests that investors who wisely refused to panic in the fourth quarter are benefiting from the latest rebound.