The major US indices recorded their best monthly performance in years for January, as US markets clawed back from a dismal end to 2018. Although the month started on a shaky footing, it ended on a high note with the major indices closing their best January in three decades, according to CNBC data. This as the US Federal Reserve (Fed) indicated it will pause rate hikes, causing investors to rush back into the market following the December sell-off. As was widely expected, the Fed opted not to increase rates at its first 2019 meeting. More importantly, Reuters reported that the Fed said the “rundown of its balance sheet” (or the stockpile of bonds it has accumulated over the past decade of quantitative easing [QE]), could also slow. Signs of an improved global economic outlook, some stronger-than-expected earnings reports from a several companies and positive economic data out of the US, and Japan (manufacturing and output), which showed a clear global acceleration trend, further boosted sentiment.
In addition, as pressure mounted, US President Donald Trump announced a deal on 25 January to reopen the US government (albeit temporarily) following a prolonged partial shutdown (a record 35 days) that had also taken a toll on investor sentiment. This was despite Trump not getting the $5.7bn he had demanded from Congress for a border wall with Mexico. The shutdown had left the markets anxious as it came at a time of heightened concerns over global growth, and the still-unresolved China vs US trade war. January delivered some de-escalation in geopolitical tensions, with the prospect of progress in trade talks between China and the US as the parties met towards the end of the month. Trump tweeted on Thursday (31 January) that trade talks with China were going well but that “no final deal will be made until my friend President Xi, and I, meet in the near future to discuss and agree on some of the long standing and more difficult points.”
The benchmark S&P 500 Index posted its biggest monthly percentage gain, at 7.9% MoM, since October 2015 and its best January performance since 1987. Almost half of S&P 500 companies released 4Q18 earnings during the month, with those companies that reported results delivering 14.8% YoY earnings growth. The final quarter of 2018 is the last quarter which will see earnings growth boosted by the December 2017 US tax cuts.
Although the Dow Jones Industrial Average (DJIA) was under pressure on Thursday (31 January; on the back of declines in the share prices of Visa, DowDuPont Inc., Microsoft etc.), it nevertheless recorded its best monthly performance since March 2016 (rising 7.2% MoM) and reclaimed the 25,000-mark on Wednesday (30 January). It also closed the month 14.7% higher vs its market low on 24 December 2018. This was also the DJIA’s biggest January gain in 30 years. The tech-heavy Nasdaq rose 9.7% MoM – its best performance since October 2011, according to Reuters.
Among those shares on the Anchor Watchlist that reported results in January, General Electric Co. (GE) posted weaker-than-expected 4Q18 earnings, but reported a solid rise in sales, lifting the share price by 11.4% on Thursday (31 January). GE’s adjusted earnings came in at USc17/ share, below Refinitiv consensus estimates of USc22/share, however, revenue rose 5% YoY to $33.3bn firmly ahead of the consensus forecast of $32.6bn. GE also said it was able to retain or generate c. $10bn in cash over the quarter due to its dividend cut and the sale of parts of its stake in oil services group, Baker Hughes. Apple produced better-than-expected 1Q19 results, although it did see a decline in revenue for the holiday quarter and gave a weaker-than-expected sales outlook for the current quarter (2Q19). Nevertheless, investors seem to have taken the results in stride, given the earlier warning from CEO Tim Cook, and focused on improving performance in the firm’s services business
McDonald’s share price fell after it beat 4Q18 earnings expectations but fell short of revenue forecasts. Microsoft’s share price declined 1.83% after its 2Q19 revenue missed consensus analysts’ estimates, despite the strong gains from its cloud computing segment (which generated $9.38bn in revenue, +20% YoY). Microsoft reported earnings of $1.10/ share – USc1 better than Refinitiv consensus analysts’ expectations, but overall revenue of $32.47bn fell short of estimates of $32.51bn.
Intel Corp. declined after naming interim CEO Robert Swan as its permanent head and DowDuPont Inc. reported 4Q18 adjusted earnings of USc88/ share (beating consensus forecasts by USc1), however revenue was flat YoY and below consensus forecasts. This amid a decline in sales at the company’s materials science division. Visa retreated after it announced better-than-expected earnings and revenue but low payments volume growth, while Amazon’s share price retreated despite beating consensus analysts’ top- and bottom-line expectations. However, the firm provided weak 1Q19 guidance. Tesla’s share price also dipped on the back of weaker-than-expected earnings and the company announcing its CFO was leaving his post. Shares of PayPal were down 4%, after the payments firm gave a downbeat revenue outlook for the current quarter (1Q19), due in part to weakness at eBay. Facebook delivered stellar results, which helped it end the month 27% higher (it surged 10.8% on Thursday [31 January]) after posting record 4Q18 profit that beat Refinitiv consensus analysts’ expectations.
