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Market Strategy 2/4/2019

  • John Stoltzfus
  • February 4, 2019

Keep on Keepin’ On

Expect progress not perfection in the weeks ahead

Key Takeaways

  • The Chinese lunar New Year starts on Tuesday this week. Look for a number of major Asian indices to be closed or on limited scheduling.
  • Stateside, earnings continue to be released this week with more than half of the S&P 500 companies still to report.
  • Even with a strong rebound in global equity markets since December 24, valuations remain attractive.
  • Last week’s jobs numbers and consumer confidence data support our view that US economic growth remains sustainable.
  • The dollar has begun to come off its high perch versus developed and emerging markets.

With the Fed’s January FOMC meeting concluding on a positive—even rather “doveish” note for the market last week—investors will likely steady their focus near term on the weeks remaining in Q4 earnings season and any signs of progress from the ongoing negotiations with China.

News over the weekend pointed to prospects for as many as two meetings between President Trump and Chinese President Xi in the weeks and months ahead with one of those meetings possibly to take place in Vietnam according to a report in the overseas press on Sunday.

us china relations

Last week news of progress in talks between the two countries helped market participants stay cool even as earnings reports were mixed. Positive developments related to trade in the weeks ahead could further boost market sentiment globally.

With nearly half (235) of the S&P 500’s member companies having reported thus far through last Friday, earnings have risen 14.7% on the back of 6.2% revenue growth in the fourth quarter (see page 3 ahead). Results of multinational components of the S&P 500 with revenue and earnings exposure to foreign currencies in their businesses abroad have been mixed so far in Q4 earnings with a number of US exporters reporting a negative impact on results due to the strength of the dollar over the course of last year.

In the same period a number of US importers have reported benefits from the dollar’s strength. The effect of the dollar’s strength in 2018 was highlighted last week among companies belonging to the S&P 500’s technology, industrials and health care sectors.

A Bloomberg News item noted three “household names” that felt negative impact from the dollar’s strength last year:

Quotation from Aenean Pretium

We also expect that a positive resolution to the trade dispute will provide opportunity for upward revisions to forecasts of global growth and trade.

  • IBM (ticker IBM) which books better than half of its sales outside of North America, took a larger than expected $500 million hit to revenue in the fourth quarter.
  • Johnson & Johnson (JNJ), which relies on markets outside the US for nearly half of its revenues, saw international growth impacted noticeably by exchange rate movements in the quarter.
  • United Technologies Corp (UTX), reported that foreign exchange created a headwind for the company reflected in Q4 results.

Our expectations continue to be that a positive resolution to the US/China trade dispute will help the dollar move further off its high perch established last year and move lower to a more competitive level versus US multinationals’ trading partners as well as likely providing a boost to the competitive stance of US exporters. We also expect that a positive resolution to the trade dispute will provide opportunity for upward revisions to forecasts of global growth and trade.

So far this year (in contrast to 2018) the dollar has weakened against many developed international and emerging market currencies.

John Stoltzfus of Oppenheimer Asset Managment Inc.

John Stoltzfus


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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