What a start to the year it has been. Stocks and bonds embraced the new “pause” outlook from the Fed, rallying sharply in January. Earnings season has also been the focus over the past several weeks. While results for earnings per share and sales have come in weaker than prior quarters as expected, misses are not being punished as badly as in late 2018. Guidance is still above average, but is incrementally weaker as corporations set the bar lower to start the year. Interestingly, there have been limited negative impacts from trade mentioned by companies this earnings season.
There is an old adage on Wall Street: “As goes January so goes the year”. The S&P 500 rallied 8% on a total return basis in the month of January – erasing most of the losses in December. With January posting strong returns, it is an early seasonal signal that the markets should have a positive return on the year – with history showing a positive year 92% of the time. This does not always work as last year was a good example; nonetheless it is a positive box we can check.
From a seasonal perspective, February is typically a weak month for US equities, with an average total return of just 0.2%, and has only shown a positive return 54% of the time. With the Fed pivoting its language towards a more “pause” stance, trade talks with China is still the main risk that could affect the earnings of many publicly-traded international companies.
Lastly, we are still 21 months away from a presidential election (November, 2020) and the race has already begun. 2019 & 2020 will be a banner year for cable news junkies, but let’s hope politics don’t cause significant damage to the economy and markets.