Market Strategy 1/22/2019
- January 22, 2019
Don’t Just Stand There – Do Something
The markets’ patience or lack of worry about the government shutdown could wear thin
Key Takeaways
- As the partial Federal Government shutdown enters Day 32, we ponder the markets’ continued patience given the rising costs of the stalemate.
- Q4 earnings are off to a good start, although it’s too early to get a definitive read. With 56 companies having reported last Friday, 58 bellwether stocks are scheduled to release figures this week.
- Data on producer prices show moderation in underlying inflation pressure.
As investors and traders return from the three-day Martin Luther King Jr. weekend they’ll find a busy calendar for this week tied to Q4 earnings and trade talks, along with missives and broadcasts from the World Economic Forum in Davos, Switzerland. We also expect investors might feel some increased discomfort from a reduced flow of economic data on the US economy that they’ve long been accustomed to having and depend on from a number of government agencies.
The “partial government shutdown,” which by the day appears to be affecting more than just a few things, turns 32 days old today. So far the markets have shown patience regarding the shutdown and its effects on the social and economic landscape.
John C. Williams, President of the Federal Reserve Bank of New York, spoke of signs of “emerging headwinds to growth” from the shutdown last Friday. We note that beyond the 800,000 Federal workers who have been furloughed by the shutdown, there are also employees of government contractors who have been laid off. These private sector workers are not likely to be compensated for work days lost by their firms after a resolution is arrived at—adding a unrecovered cost to economic growth this year.
Beyond the slowing in the global economy that the world is already feeling and dealing with —albeit from a host of other sources beyond the political wrangling in Washington—a shutdown that extends even longer could cost the US economy not “just a few basis points” but enough economic impact for the markets to take notice and to challenge its recent improved sentiment. Our hope for now is that politicians of all stripes will recall the populism that drove the election of President Trump and the more recent swing in the 2018 elections that changed the leadership of the House of Representatives.
As market strategists we regard ourselves as political agnostics. That said, we can’t help but think that among the vast and multi-faceted political constituencies that exist in the US today most voters value jobs, job security, economic stability and their well-being highly. It would be ironic the trade war between the US and China finds resolution before politicians in Washington can settle the dispute among themselves.
An extended shutdown could cost the US economy not “just a few basis points…”
Q4 Earnings
Though it’s too early to get a definitive read, the phrase “so far so good” appears applicable to fourth-quarter earnings. With only 56 of the companies in the S&P 500 having thus far reported, 76% have posted positive earnings surprises, and 56% have reported a positive revenue growth surprise.
As of last Friday earnings were up 16.62% for Q4 on the back of 7% revenue growth in the period. This week 58 companies are scheduled to report results with a wide representation of bellwether names across the sectors.
John Stoltzfus
Title:Chief Investment Strategist, Oppenheimer Asset Management Inc.
John is one of the most popular faces around Oppenheimer: our clients have come to rely on his market recaps for timely analysis and a confident viewpoint on the road forward. He frequently lends his expertise to CNBC, Bloomberg, Fox Business, and other notable networks.
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