Market Watch - February 8, 2019

By Scotia Wealth Management - The Zukiwsky Group (Sponsored)
February 8, 2019 - 9:31am

Big Picture

U.S. Market Momentum Fades as Global Growth Worries Re-emerge

North American markets began the week on a positive note, buoyed by a resurgent tech sector and better-than-expected earnings reports. By Tuesday’s close, the Dow had climbed nearly 350 points, while the Nasdaq added almost 140 points. Canada’s main stock index rose 196 points over the two-day period as gains in health care and financials, along with upbeat earnings, helped set a positive initial tone for the week.

By Wednesday’s open, the focus had shifted to the Nasdaq, which looked to be on the verge of exiting a bear market. The tech-heavy index had rebounded nearly 20% from its Christmas Eve low, underscoring the strength of the tech sector, which has lifted markets higher. Recent gains have been powered by rising optimism about U.S.-China trade negotiations and the Fed’s recent assurances that near-term rate hikes were less likely, as inflation concerns had receded.

Overall optimism waned later Wednesday as concerns continue to grow over a flagging global economy, Europe in particular. The region’s services sector has shown particular weakness, with indicators hitting a 49-month low in January. France posted its fastest decline in almost five years, Italy continues to struggle and the U.K. posted its weakest service-sector growth in over two years. This in addition to the EU’s downbeat forecast for GDP growth, recently cut to 1.3%, down from 1.9% in November.

U.S. markets closed slightly down on Wednesday, snapping a five-day rally for the S&P, and continued their decline Thursday as U.S.-China trade tensions and a bleaker outlook from the Bank of England renewed fears of a slowdown in global growth.

Meanwhile, the loonie – after a particularly strong start to 2019 – hit a one-week low against the U.S. dollar on Thursday, as the Bank of Canada warned of the negative economic impact caused by deteriorating global trade.


Dow, Nasdaq Hold On to Early Gains

For the four days covered in this report, the Dow added 106 points to close at 25,170, the S&P 500 dropped 1 point to settle at 2,706, while the tech-heavy Nasdaq climbed 24 points to close at 7,288. In Canada, the TSX climbed 197 points to end at 15,703.



Q4/2018 earnings show signs of slowing growth. U.S. earnings season is in full swing, with ~66% of S&P500 Index constituents having reported financial results. On an index basis, revenues and earnings have grown 7% and 14% YOY, respectively. ~71% of earnings results have exceeded consensus estimates. Results have been strong across sectors excluding materials, and the sectors leading the earnings growth trend include energy (+99% YOY), communication services (+20%), and industrials (+19%).

Despite mostly positive results, a growing number of companies have cited mounting headwinds that are eroding margins, including foreign exchange pressures, supply chain constraints and rising input costs. We expect global trade tensions and cost-push inflation will lead producers to pass on higher costs to end consumers in an effort to sustain profit margins. In 2019, we expect earnings growth to decelerate as consumers struggle to absorb additional price increases and corporations feel the effects of higher financing costs. We continue to believe that high-quality issuers that generate substantial free cash flow and have sustainable competitive advantages, clean balance sheets and exposure to secular growth themes offer the best potential risk-adjusted returns.


(Bill Curry)


This publication has been prepared by ScotiaMcLeod, a division of Scotia Capital Inc. (SCI). This publication is intended as a general source of information and should not be considered as personal investment or tax advice. We are not tax advisors and we recommend that individuals consult with their professional tax advisor before taking any action based upon the information found in this publication. Opinions, estimates, and projections contained herein are our own as of the date hereof and are subject to change without notice. The information and opinions contained herein have been compiled or arrived at from sources believed reliable but no representation or warranty, express or implied, is made as to their accuracy or completeness. Neither SCI nor its affiliates accepts liability whatsoever for any loss arising from any use of this publication or its contents. This publication is not, and is not to be construed as, an offer to sell or solicitation of an offer to buy any securities and/or commodity futures contracts. SCI, its affiliates and/or their respective officers, directors, or employees may from time to time acquire, hold, or sell securities and/or commodities and/or commodity futures contracts mentioned herein as principal or agent. SCI and/or its affiliates may have acted as financial advisor and/or underwriter for certain of the corporations mentioned herein and may have received and may receive remuneration for same. All insurance products are sold through Scotia Wealth Insurance Services Inc., the insurance subsidiary of Scotia Capital Inc., a member of the Scotiabank Group. When discussing life insurance products, ScotiaMcLeod advisors are acting as Insurance Advisors (Financial Security Advisors in Quebec) representing Scotia Wealth Insurance Services Inc. This publication and all the information, opinions, and conclusions contained in it are protected by copyright. This report may not be reproduced in whole or in part, or referred to in any manner whatsoever, nor may the information, opinions, and conclusions contained in it be referred to without in each case the prior express consent of SCI.


Winter's Edge announces speakers line-up

Join the Discussion

We are happy to provide a forum for commenting and discussion. Please respect and abide by the house rules: Keep it clean, keep it civil, keep it truthful, stay on topic, be responsible, share your knowledge, and please suggest removal of comments that violate these standards. See full commenting rules.