Still, weekly unemployment claims fell
Weekly market opinion form LMK Wealth Management
The major indices finished a choppy week on a mixed note as stocks sagged on chilly economic data. While the S&P 500 and Dow moved lower, the Nasdaq Composite posted its third weekly gain on upbeat news in the tech sector. For the week, the S&P 500 lost 0.1%, the Dow slid 0.3%, and the Nasdaq added 0.5%.
The unrelenting winter weather that has inundated large swaths of the country is also having a chilling effect on the economy. Manufacturing fell drastically in January as the harsh weather curtailed production in some parts of the country. The housing sector has also been affected, with existing home sales falling 5.1% in January, to the lowest level since July 2012. Construction on new houses plummeted 16.0% in January as the weather disrupted groundbreaking activities.
On the positive side, weekly unemployment claims fell last week as fewer Americans filed new claims for jobless benefits. This suggests that labor market conditions are improving, despite two straight months of weak hiring and unseasonably cold weather.
Not so big chill?
The seasonal chill may also affect some corporate profits in the first quarter. While consensus estimates put first quarter profits at a 5.0% increase for S&P 500 companies, expectations have deteriorated dramatically; profits are now expected to be up an anemic 1.5% across the board. That number could fall further as more companies reduce their earnings guidance due to weather disruptions.
So far, the stock market has been willing to look past these seasonal factors because investors hope to see a spring back when the weather warms up. However, what if the polar vortex is just exacerbating existing weakness? With so many seasonal factors affecting the data, it’s hard to know how markets are going to react. We’ll likely experience increased volatility as analysts struggle to see through the noisy data, but it’s too soon to know for sure how the long-term trends will shake out.
What lessons are there for long-term investors this winter? Seasonal variations can play havoc with the best-laid plans. Savvy professionals watch and wait for the noise to subside so that we can look at the fundamentals underneath. As always, we’re looking for good tactical investing opportunities in the volatility. If you ever have questions about seasonality or other cyclical market factors, please give us a call; we’re always happy to be a resource for you.
- Monday: Dallas Fed Mfg. Survey
- Tuesday: S&P Case-Shiller HPI, Consumer Confidence
- Wednesday: J New Home Sales, EIA Petroleum Status Report
- Thursday: Durable Goods Orders, Jobless Claims, Bloomberg Consumer Comfort Index, Janet Yellen Speaks at 10:00 AM ET
- Friday: GDP, Chicago PMI, Consumer Sentiment, Pending Home Sales Index