Market Preview: Market Rallies on China Trade Hopes


Markets that were already moving up, got a boost Friday when it was reported Chinese trade negotiators had offered to address the trade imbalance with the U.S., and essentially eliminate the imbalance by 2014. The offer to purchase $1 trillion of U.S. goods, provided hope to investors that the trade dispute will not only be settled, but will be a boon for the U.S. Trade bellwether Caterpillar (CAT) was up over 2% on the news. And, markets finished up over 1% across the board. With this bounce off of the late December lows, pundits are now concerned markets may be overshooting to the upside and setting up for potential headline risk to send them lower. Cheerleaders of the bull move point to earnings, which though uneven, have been coming in somewhat better than expected, and do not appear to be indicating a recession is in the cards in 2019.   

U.S. Markets are closed Monday for Martin Luther King, Jr. Day. But, the release of economic numbers resumes Tuesday with Redbook retail data and existing home sales. The November data, showing 5.32 million homes sold, was down 7% year-over-year and epitomized the state of housing sales, which fell off a cliff in the final quarter of 2018. Analysts are anticipating a positive effect from falling mortgage rates which may boost the December number. Wednesday, the housing data continues as investors will analyze mortgage applications and the FHFA House Price Index data. The Richmond Fed will release its manufacturing Index Wednesday morning.

Earnings are set to flow Tuesday as we hear from Johnson & Johnson (JNJ), International Business Machines (IBM), UBS AG (UBS) and Capital One Financial (COF). Investors will be expecting JNJ to provide an update in the ongoing battle over contaminated baby powder, which plaintiffs claim was intentionally sold by the company.  Proctor and Gamble (PG), Abbott Labs (ABT), Comcast (CMCSA) and United Technologies (UTX) all report earnings Wednesday. JP Morgan (JPM) raised its price target on P&G Friday, from $100 to $106. The consumer giant’s stock has flattened in the low $90s in recent months, after moving off of lows just above $70 in May of last year.

Market behemoth Intel (INTC) reports earnings Thursday after the close, and will be joined by Starbucks (SBUX) and Intuitive Surgical (ISRG). Though not a staple of tech stocks, investors are keen to learn if Intel will be raising its dividend for 2019. The company currently pays a rate of 2.48% annually to its shareholders. China will be the question on the earnings call when Starbucks reports Thursday. Analysts expect a 3% uptick in U.S. business, but fear this may be offset by a weak consumer in China. Colgate-Palmolive (CP), Ericsson (ERIC), and D.R. Horton (DHI) will close out the week when they report earnings next Friday.

Jobless claims, the PMI flash numbers, and leading indicators will all be released Thursday. The leading indicators are expected to tick up .2% for December. Also on the way Thursday is the Kansas City Fed Manufacturing Index. Durable goods orders and new home sales numbers will be released on Friday. Durable goods are expected to increase .8% month-over-month.