Hixon Zuercher Capital Management

Fee-only Registered Investment Advisor in Findlay, Ohio 45840

Special Update: Quarterly Report – Weekly Update for April 8, 2019

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The Week on Wall Street

Stocks just posted their second straight weekly gain. Investors were encouraged by the latest jobs report and new signs of progress on a U.S.-China trade deal. The Dow Jones Industrial Average advanced 1.17% in five trading days; the S&P 500, 1.27%; the Nasdaq Composite, 1.72%. The MSCI EAFE index of international stocks improved 1.84%.

The economy generated 196,000 net new jobs in March, according to the Department of Labor. Monthly job growth averaged 180,000 in the first quarter. Both President Trump and Chinese Vice Premier Liu He told the media last week that the U.S. and China were getting closer to a new trade accord.

Meanwhile, a week into the second quarter, another earnings season is about to unfold. As we await results, we will take a brief look back at what happened in the first quarter.

Quarterly Update

Stocks staged an impressive comeback in Q1, recovering nearly all of the losses incurred in the last three months of 2018.

Bullish Sentiment Increased

Investors were able to set some of their recent concerns aside, at least temporarily. The Federal Reserve indicated that it would pause interest rate hikes, and while no U.S.-China trade deal was completed during the quarter, the ongoing trade dispute cooled. The economy seemed healthy: the jobless rate was under 4%, hourly pay was rising at more than 3% a year, and inflation was tame.

Add in some upside from corporate earnings, and a recipe for gains emerged.

Stocks Had Their Best Quarter Since 2009

The Dow rose 11.15%; the S&P 500, 13.07%; the Nasdaq Composite, 16.49%. Additionally, this was the best first quarter seen on Wall Street since 1998.

The Fed Held Interest Rates Steady

In March, the Federal Reserve left the benchmark interest rate alone and indicated that it would not make a rate hike this year. As recently as December, the Fed had forecast two hikes for 2019.

What’s Ahead

The first-quarter earnings season kicks off this week with three big banks reporting results. The question is whether stocks in the S&P 500 will post earnings that beat analyst expectations to the degree they have in the past few quarters. Other questions: how will consumer confidence, wage growth, and job creation fare in Q2? Will there be a Brexit or a new U.S.-China trade pact this quarter, and if so, how will global markets react? If you have questions of your own as this quarter unfolds, remember that we are always here to talk.

THE WEEK AHEAD: KEY ECONOMIC DATA

Wednesday: Minutes from the March Federal Reserve meeting, plus the latest Consumer Price Index, tracking monthly and yearly inflation.

Friday: The initial University of Michigan consumer sentiment index for April, which assesses consumer confidence.

 

 

 

THE WEEK AHEAD: COMPANIES REPORTING EARNINGS

Wednesday: Bed Bath & Beyond (BBBY), Delta Air Lines (DAL)

Thursday: Fastenal (FAST), Rite Aid (RAD)

Friday: JPMorgan Chase (JPM), PNC (PNC), Wells Fargo (WFC)

 

 

 

 

Stocks Dip on Growth Concerns – Weekly Update for March 11, 2019

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The Week on Wall Street

As in February, investors spent most of the first full trading week of March hoping for new details in U.S.-China trade negotiations. While they waited, stock benchmarks drifted downward. From Monday’s open to Friday’s close, the S&P 500 lost 2.55%, while the Dow Industrials took a 2.66% fall, and the Nasdaq Composite weakened 3.12%. The MSCI EAFE index tracking developed markets outside the U.S. and Canada fell 1.09%.

Why did stocks lose momentum? In a hint that global economic growth might be slowing, the European Central Bank abruptly reduced its 2019 Gross Domestic Product forecast for the eurozone from 1.7% to 1.1%. A disappointing reading on U.S. hiring also raised questions.

Perplexing Jobs Data

According to the Department of Labor, the economy generated only 20,000 net new jobs in February. This was the smallest monthly gain since September 2017. Nevertheless, the unemployment rate fell to 3.8%, while underemployment declined sharply to 7.3%. (These decreases could reflect furloughed federal employees returning to work.) The average wage rose 3.4% in 12 months, the largest year-over-year increase in a decade.

Harsh winter weather may have impeded hiring last month, and February’s payroll growth could be revised in the Department of Labor’s next report.

Earnings Season Recap

The fourth-quarter reporting season is all but over. FactSet notes that the S&P 500 has seen earnings growth of 13.4% in Q4, marking the fifth straight quarter with a double-digit rise.

Final Thought

Stocks lost ground last week, breaking a long string of weekly advances. The extended rally partly reflected optimism that the U.S.-China trade dispute would soon be resolved, but a deal may or may not happen. The week offered a reminder that Wall Street sees both ups and downs. Day-to-day market fluctuations should not cause you to alter your long-term approach.

THE WEEK AHEAD: KEY ECONOMIC DATA

Monday: January retail sales.

Tuesday: The Consumer Price Index, tracking monthly and yearly inflation.

Thursday: January new home sales and February retail sales.

Friday: The University of Michigan’s initial March consumer sentiment index, measuring consumer confidence.

 

 

 

THE WEEK AHEAD: COMPANIES REPORTING EARNINGS

Tuesday: Dick’s Sporting Goods (DKS)

Wednesday: Smart & Final (SFS)

Thursday: Adobe Systems (ADBE), Broadcom (AVGO), Dollar General (DG)

 

 

 

Optimism Spurs a Broad Rally – Weekly Update for February 25, 2019

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The Week on Wall Street

Stocks rallied last week as optimism about a potential U.S.-China trade deal grew. The S&P 500 advanced 0.80% during the 4-day trading week to 2,792.67. The Nasdaq Composite improved 0.86% to 7,527.54, and the Dow Jones Industrial Average gained 0.64% to 26,031.81.

The renewed prospects for a trade pact were not the only development investors found appealing last week. There were indications that the Federal Reserve might be a bit less committed to its plans to raise interest rates further this year.

A Look at the Fed Minutes

There were no surprises from the Federal Reserve’s Board of Governors, who released the transcript from their January meeting on Tuesday. Investors pore over the meeting minutes looking for clues about the Fed’s next move on short-term interest rates.

Fed policymakers appeared split on what’s next. Some felt another rate hike was needed to help slow the strong economy, while others favored a “wait-and-see” approach.

Home Sales Slump

In January, existing home sales were at their slowest pace since November 2015, and down 8.5% year-over-year. One factor: rising home values. Last month, the median single-family home sale price was $247,500, almost $7,000 higher than a year ago.

Mortgage rates have now fallen for three consecutive weeks, a development that may influence home buying decisions in coming months. Thursday, a Freddie Mac survey found the average interest rate on a 30-year, fixed-rate loan at just 4.35%.

Final Thought

The Dow Jones and Nasdaq have posted gains for nine straight weeks and are now at levels unseen since early November. Concerns over volatility have decreased, but that does not mean it is off the table. Whatever the market does in the coming weeks and months, remember your investing strategy should be based on your goals, risk tolerance, and time horizon.2

THE WEEK AHEAD: KEY ECONOMIC DATA

Tuesday: Fed chair Jerome Powell begins two days of testimony on monetary policy in the Senate.

Wednesday: The National Association of Realtors releases its latest pending home sales index.

Thursday: The federal government provides its first estimate of fourth-quarter economic growth.

THE WEEK AHEAD: COMPANIES REPORTING EARNINGS

Tuesday: AutoZone (AZO), Home Depot (HD), Medpace (MEDP)

Wednesday: Apache (APA), Best Buy (BBY), Office Depot (ODP)

Thursday: Anheuser-Busch (BUD), Dell Technologies (DELL), Splunk (SPLK)

Markets Relax and Rally – Weekly Update for January 14, 2019

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After months of volatility, markets relaxed a bit last week. For the first time since October, the S&P 500 went 5 days without a 1% gain or loss. The Cboe Volatility Index, or VIX, also fell to lower than 20—in December, it spiked above 35.

For the week, the S&P 500 added 2.54%, the Dow gained 2.40%, and the NASDAQ increased 3.45%. All three indexes are in positive territory for 2019. International stocks in the MSCI EAFE grew as well, with a 2.85% weekly gain.

What drove last week’s gains?

Updates on trade and monetary policy contributed to investor decisions, yet again.

  1. The Federal Reserve made dovish comments.

Last week, multiple Fed officials gave speeches indicating our central bank would carefully approach its interest rate decisions in 2019. Fed Chairman Jerome Powell described the policies as “flexible” and “patient.”

  1. A trade resolution seemed more likely.

Many investors believe that efforts to resolve trade tension between the U.S. and China made progress last week. On Wednesday, January 9, talks concluded in Beijing after three days of negotiations, and China said the “in-depth” meetings made a resolution possible. The next day, U.S. Treasury Secretary Steve Mnuchin announced that a high-level Chinese policy advisor is coming to D.C. later this month for further talks.

 What is ahead?

Last week’s trade and policy headlines seemed to ease some of the risks on investors’ minds. However, both challenges and opportunities remain.

This week marks the beginning of U.S. corporate earnings season. Analysts have low expectations for companies’ 4th-quarter performance, especially after a number of large corporations released warnings about their results. However, analysts still predict that S&P 500 companies experienced 14.5% profit growth. In addition, the generally sour, pessimistic mood surrounding earnings could support equities in two ways: 1) Investors may not react strongly if companies miss projections, and 2) any companies that have surprisingly good results could see stock price jumps.

Along with earnings results, investors will be paying close attention to companies’ commentary on business in China. Some experts believe Chinese economic growth is slowing, which is already affecting market performance. On Friday, markets stumbled a bit as analysts considered data and commentary on China’s economy. These details will remain important to watch—and see how they relate to trade.

In addition, while the U.S. federal government shutdown has not yet had a large market impact, if it continues for too long, it could sizably affect the economy

We will continue to monitor these and other financial perspectives as we determine where the markets are—and what may be on the horizon. If you have any questions, we’re here to talk and listen.

ECONOMIC CALENDAR

Tuesday: PPI-FD

Wednesday: Retail Sales, Housing Market Index

Thursday: Housing Starts, Jobless Claims

Friday: Industrial Production, Consumer Sentiment

 

 

 

 

 

Year-End Special Edition: A Look Back at 2018 – Weekly Update for December 31, 2018

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The close of the year provides an opportunity for investors to step back and consider the wider financial landscape. This week, we’re reviewing some key issues that defined 2018, as well as some factors that may influence financial markets in the coming year.

Year in Review

Wall Street began 2018 in rally mode, as enthusiasm for the 2017 Tax Cuts and Jobs Act spilled over into the New Year. Strong economic news encouraged investors, who put aside fears that rising inflation may lead to higher interest rates. What Wall Street did not see coming were the spring and summer trade disputes with China, Canada, Mexico, and the European Union. Fear of a global economic slowdown contributed to a sharp decline in stock prices in October. U.S. economic growth forecasts were tempered in November for 2019, with bull and bears engaged in a fierce tug-of-war as the year came to a close.

Economic Growth

After expanding at a middling 2.2% pace in the first quarter, the Gross Domestic Product (GDP) rose 4.2% in Q2 and 3.4% in Q3. The Federal Reserve Bank of Atlanta forecasted a 2.7% increase for Q4, which will be released on January 30, 2019 by the Bureau of Economic Analysis. The Congressional Budget Office expects GDP growth in 2019 to slow to 2.4% “as growth in business investment and government purchases slows.”

Interest Rates

At the close of its September 2018 meeting, the Federal Reserve raised the federal funds rate to 2.25%, a full percentage point higher than it was a year earlier. Federal Reserve Chair Jerome Powell appeared to change his stance on monetary policy, saying interest rates were “just below” a neutral level. Previously, he indicated rates were a “long way” from neutral.

Consumer Prices and Wage Growth

The number of future interest rate hikes by the Fed may largely depend on its reading of inflation. An uptick in consumer prices or an increase in wage growth may prompt the Fed to consider additional hikes in 2019.

Trade Talk Progress

Tariffs were a highlight of 2018 news. On July 10, the Trump administration announced a list of tariffs on $200 billion in Chinese goods. The escalating trade dispute between the U.S. and China is an enormous overhang on the financial markets. The continuing impasse may affect economic growth and push consumer prices higher.

2018 also was a year in which a major trade pact started to come together. The United States-Mexico-Canada Agreement (USMCA) was approved in principle in October. However, the agreement must be approved by Congress and the legislative bodies of Mexico and Canada before it can take effect.

U.S. Dollar

Rising interest rates and robust domestic growth in 2018 lead to a strengthening of the U.S. dollar. A strong U.S. dollar can negatively affect profits of U.S.-based multinational companies, since it can make their products more expensive to overseas buyers. This will also be something to watch in the coming year.

Real Estate

The trend of higher interest rates in 2018 was also felt in the real estate market. The average rate on a 30-year conventional home loan stood at 3.95% in January 2018. At year’s end, it was hovering near 5% according to Freddie Mac.

We hope you enjoyed this look back at 2018! Next week, we’ll be back to covering the market numbers.

 

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