MARKET WATCH: Jan. 17

On Tuesday, the Dow edged higher in response to strong earnings from big U.S. banks, although markets lost a bit of steam later in the day over reports that U.S. tariffs would likely stay in place until after the U.S. election in November. After losing ground on Monday, the TSX was up 59 points Tuesday, lifted by rising oil prices.

Meanwhile, China’s currency on Tuesday strengthened to its strongest level since July, after the U.S. Treasury Department removed China from its list of currency manipulators.

By Wednesday’s close, the Dow climbed above 29,000 after President Trump and Chinese Vice Premier Lui He signed an initial trade pact that will roll back some tariffs and see China increase purchases of U.S. goods and services by $200 billion over two years.

On Thursday, U.S. investors shifted their focus to corporate earnings. After a strong Tuesday, bank earnings have been largely mixed, weighed down by Wells Fargo, which continues to struggle to recover from its fake accounts scandal. According to FactSet, Q4 earnings for S&P 500 companies are expected to decline 2.3% from a year earlier. And yet U.S. stocks rallied to new highs Thursday in light of solid U.S. retail spending for December. The TSX also continued its climb, hitting a new record close at 17,485.

Markets

Trade Optimism Ushers N.A. Markets to New Highs

For the four days covered in this report, the Dow surged 474 points to close at 29,298, the S&P 500 added 52 points to settle at 3,317, while the tech-heavy Nasdaq jumped 178 points to close at 9,357. In Canada, the TSX climbed 250 points to end at 17,485.

Equities/Strategy

Equities

Earnings forecasts revised lower, but top-line expectations marked higher – Fourth quarter earnings season is getting underway in the U.S. with major financial firms announcing results this past week. Current consensus expectations predict an EPS decline of 1.9% for 4Q19, on a year-over-year basis, capping off the worst year of U.S. corporate earnings since 2015. Conversely, sales growth estimates reflect broader optimism. Top-line estimates predict growth of 3.3% YoY, outpacing the 2% pace observed for the first three quarters of 2019, boosted by double-digit gains for healthcare and communication services companies. Downward revisions have set a low bar for 4Q earnings results. Initial estimates for fourth quarter results in October projected 3% YoY earnings growth, a swing of 4.9% to current estimates and the largest downward revision since 2010. Of the 11 sectors in the S&P 500 Index, only the technology segment has been revised higher since October. Expectations for stocks in the consumer discretionary, energy, and materials sectors have decreased the most.

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MARKET WATCH: Jan. 17

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