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Jan 31, 2019

Markets: Resilient U.S. Economy Fuels January Stock Recovery

The Wall Street Journal.
Markets Bull logo.
Hi. Amrith Ramkumar with you discussing the latest markets stories before the last trading session of the month.
Futures are mostly flat after yesterday's surge. Facebook and Qualcomm are rallying premarket after their results yesterday afternoon, while Microsoft and Tesla are down. Investors are parsing another batch of earnings across sectors this morning.
Before we see if stocks can clinch their largest monthly climb since October 2015, I look at the areas leading the market rebound. 

Markets in a Minute

Markets Data

Overnight Developments


U.S. Data, Fed Caution Ignite January Rally

Reinvigorated faith in U.S. growth has pushed investors back toward stocks.
Banks and smaller companies that were among the stock market’s laggards last quarter have put stocks on track for their best January in 30 years, a sign investors are favoring sectors tied to the U.S. economy as trade tensions cloud the global-growth outlook.
The KBW Nasdaq Bank Index has risen 14% this month, on track for its best-ever start to a year. Meanwhile, the Russell 2000 index of small-cap companies is heading for its best January since 1987, with a 10% advance. The S&P 500 and Dow industrials are on pace for their best January since 1989.
The reversal shows investors who were bracing for a sharp slowdown in U.S. economic activity have been soothed by cautious comments from the Federal Reserve and signs of strength in the labor market.
Although lukewarm growth overseas has hurt multinational corporations, companies from banks to industrial firms have said U.S. consumer demand remains resilient.    
“Our view is through our customers, and this strongly supports a solid growth view,” Bank of America CEO Brian Moynihan said on the company’s Jan. 16 earnings call.
Bank of America has climbed 18% this month. Citigroup and Goldman Sachs are up more than 20% for January, as are regional banks such as SunTrust Banks.

Financial stocks were among the worst performers during last quarter’s rout, but remarks from central-bank officials about remaining patient in raising interest rates have fueled the turnaround.

“The flexibility that the Fed has telegraphed buys us a little more time to perhaps prolong this cycle,” said Wasif Latif, head of global multiasset investing at USAA Asset Management.

Indicators used to monitor the strength of the domestic economy have also stabilized. That’s helped spur the rally in small-cap companies, which are more concentrated in the financial, industrial and energy sectors.
The gap between short- and long-term Treasury yields, known as the yield curve, has widened from its December lows, indicating investors feel more confident about the economic outlook. Additionally, commodities including oil have recovered, cooling worries that materials vital to the transportation and manufacturing industries are signaling an immediate slowdown in demand.

And the Citigroup economic surprise index for the U.S.—a measure of whether economic data are in aggregate exceeding expectations—recently turned positive for the first time in two months.
Even though investors will see U.S. earnings and economic growth rates slow, “they are still going to be largely positive and supportive of equity returns,” said Cliff Hodge, director of investments for Cornerstone Wealth. “The consumer is in a really strong position.”

Market Facts

  • With yesterday's 1.7% rise, front-month U.S. crude-oil futures are up 19% for the month and on track for their best January ever, according to a Dow Jones Market Data analysis of figures going back to 1983. Prices are having their best month since April 2016 but are still well below their Oct. 3 nearly four-year high.
  • About 80% of S&P 500 companies are trading above their 50-day moving averages, the highest total in more than a year, according to Dow Jones Market Data.
  • On this day in 1940, the first monthly Social Security check was issued to Ida May Fuller, a 65-year-old retired legal secretary in Ludlow, Vt. Because Social Security was launched only three years before she retired, Ms. Fuller had paid a cumulative total of only $24.75 in Social Security taxes. But her initial monthly check was $22.54, and by the time she died in 1975 at the age of 100, Miss Fuller had collected a lifetime total of $22,888.92 in Social Security benefits— nearly 1,000 times what she paid in. 

Key Events

U.S. jobless claims are out at 8:30 a.m. ET and expected to rise 215,000 in the latest week. They hit their lowest level since November 1969 in the week ending Jan. 19. 
The U.S. employment-cost index for the fourth quarter is expected to increase 0.8% from the prior quarter. The figures are also out at 8:30 a.m.
The Chicago purchasing managers index for January, slated for 9:45 a.m., is expected to drop to 61.4 from 65.4 a month earlier. 
Natural-gas inventories are expected to have fallen 191 billion cubic feet during the week ended Jan. 25—a larger dip than normal for this time of year—per the average target of 11 analysts and traders surveyed by the Journal. The government figures are scheduled for 10:30 a.m. Natural-gas demand rises in the winter as more people use their heaters. 
U.S. new-home sales for November are expected to rise to an annual pace of 571,000 from 544,000 a month earlier. (10 a.m. ET)
President Trump meets with the China’s Vice Premier Liu He at 3:30 p.m. ET.

Must Reads

Paul Singer, founder and president of Elliott Management Corp., speaking in Laguna Beach, Calif., in 2016. PHOTO: MIKE BLAKE/REUTERS
Elliott is looking beyond activism to full-blown takeovers. Elliott Management—one of the biggest and busiest shareholder activists—is making a new push into outright takeovers of companies.
The Fed signaled a possible end to its recent string of rate increases. The Federal Reserve indicated that it was done raising interest rates for now, delivering an about-face from its policy stance six weeks earlier.
A lawsuit claims Goldman feasted at the expense of its food-company client. Goldman Sachs Group put its interests ahead of that of a corporate client in advising on an acquisition last year, a lawsuit alleges.
Wells Fargo Is “working hard” to “rebuild trust.” Wells Fargo detailed steps it has taken to address problems following a series of scandals that have resulted in more than $4 billion in fines and settlements and tougher scrutiny from regulators.
A high-wire audit looms as regulators scrutinize KPMG and GE. Year-end audits are usually routine affairs, but with GE under investigation and KPMG under scrutiny from its regulators, this one could cause fireworks.

What We've Heard on the Street

“Alibaba just reported its slowest growth in years. China’s worsening economy will make it difficult for the e-commerce giant to pick up steam again.”
—Heard on the Street columnist Jacky Wong

Stocks to Watch

MicrosoftThe software giant said growth in several product lines slowed down in the latest quarter, though sales from its cloud-computing business jumped again.
FacebookThe company posted record profit in the fourth quarter, showing the resilience of the social-media giant’s business even as it battles through a string of challenges.
QualcommThe chip maker exceeded quarterly earnings expectations and gave slightly better-than-projected targets for the current quarter.
TeslaThe electric auto maker missed profit targets, stoking concerns about whether it can deliver reliable earnings while selling the lower-priced Model 3 car. Still, Tesla posted its first-ever consecutive quarterly profit.
MondelezThe Deerfield, Ill.-based maker of Oreo cookies, Wheat Thins and other snacks said its revenue dropped in the fourth quarter to $6.77 billion, in line with analyst estimates.



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