A Pause to Refresh

The major market indices finished the week little changed as buyers fatigue set in following the sharp rally off the December 24 lows.

February 11, 2019    |    By Mike Schwager

Performance for Week Ending 2/8/2019:

The Dow Jones Industrial Average (Dow) added 0.17%, the Wilshire 5000 Total Market IndexSM (Wilshire 5000SM) gained 0.11%, the Standard & Poor’s 500 Index (S&P 500) rose by 0.05% and the Nasdaq Composite Index (NASDAQ) tacked on 0.47%. Sector breadth was mixed with 5 of the S&P sector groups finishing higher and 6 closing lower. The Utilities sector (+2.0%) was the best performer while Energy (-3.25%) was the worst.

Index* Closing Price 2/8/2019 Percentage Change for Week Ending 2/8/2019 Year-to-Date Percentage Change Through 2/8/2019
Dow 25106.33 +0.17% +7.63%
Wilshire 5000 28056.24 +0.11% +8.96%
S&P 500 2707.88 +0.05% +8.02%
NASDAQ 7298.20 +0.47% +9.99%

*See below for Index Definitions

MARKET OBSERVATIONS: 2/4/2019 – 2/8/2019

The major market indices finished the week little changed as buyers fatigue set in following the sharp rally off the December 24 lows. The S&P 500 has now gained over 15% in the just under 8-week period. The rapid ascent over such a short period of time has left the market in an overbought position and a period of consolidation should be viewed as a healthy development (a so-called ‘pause to refresh’).

Trade Concerns: With earnings season coming to an end, the focus is beginning to shift back to the macro front, with the trade spat between the US and China moving to the front burner. Stoking concerns were comments from President Trump stating that he and Chinese President Xi Jinping will not meet before their March 1 self-imposed deadline for a trade deal. The announcement was viewed as a sign that recent negotiations have not yielded much progress. On a positive note, talks are scheduled to resume during the coming week with U.S. Treasury Secretary Steven Mnuchin and Trade Representative Robert Lighthizer leading a delegation of officials to Beijing for the next round of negotiations.

Q4 Earnings Tracker: Through Friday, 333 members of the S&P 500 have released results with just over 72% surprising to the upside. Aggregate earnings growth is running at 14.3%, modestly above the 13.3% forecasted growth and on track for the fifth consecutive quarter of double-digit growth. While the pace of growth has moderated from recent quarters, it still remains solidly in positive territory and certainly better than feared heading into the quarter.

Outlook: We maintain a bullish tilt towards the market and continue to believe there is money to be made over the coming quarters. However, after the strong start to the year and overbought conditions, additional near-term market consolidation would not be surprising. Our view is that as long as the economy and earnings continue to grow – which remains our base-case scenario—equity prices should ultimately follow suit. Valuations have contracted following last year’s drawdown, and with stabilizing interest rates and inflation, a moderate expansion in the market’s price to earnings multiple seems likely.

The Week Ahead: While we have moved past the peak in Q4 earnings reports, this week we will see results from just over 60 members of the S&P 500. The data calendar will be backend loaded with the bulk of the reports due out on Friday. Economic reports of interest include; the December JOLTS report, the January consumer price index (CPI), the January producer price index (PPI), January retail sales, November business inventories, the February Empire State manufacturing survey, January industrial production and capacity utilization and the University of Michigan’s February consumer sentiment survey. The Fed speaking calendar will be busy with nine appearances on the docket, including Fed Chairman Powell on Tuesday afternoon.


The Dow Jones Industrial Average is a price-weighted average of 30 blue-chip stocks that are generally defined as the leaders in their industry. It has been a widely followed indicator of the stock market since October 1, 1928.

Wilshire 5000 Total Market IndexSM represents the broadest index for the U.S. equity market, measuring the performance of all U.S. equity securities with readily available price data. The index is comprised of virtually every stock that: the firm's headquarters are based in the U.S.; the stock is actively traded on a U.S. exchange; the stock has widely available pricing information (this disqualifies bulletin board, or over-the-counter stocks). The index is market cap weighted, meaning that the firms with the highest market value account for a larger portion of the index.

Standard and Poor's 500© Index is a capitalization-weighted index of 500 stocks. The index is designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

The NASDAQ Composite Index is a broad-based capitalization-weighted index of stocks in all three NASDAQ tiers: Global Select, Global Market and Capital Market. The index was developed with a base level of 100 as of February 5, 1971.

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