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Weekly Market Commentary

Market Recap for the Week ending 2/1/19

-Darren Leavitt, CFA

It was, as expected, a hectic and interesting week in the financial markets.  A steady stream of earnings announcements and economic data were just part of the story in last week’s action.  An FOMC meeting decision along with renewed US/China trade negotiations in Washington and another set of votes in the UK Parliament also influenced the markets.    In the end, the US markets were able to once again ink a nice gain for the week.  The S&P 500 led the way with a 1.6% increase, the Dow and Russell 2000 each gained 1.3% and the NASDAQ was up 1.4%.  Treasuries endured a wild ride but also managed to post excellent gains for the week.  The 2-year note fell 10 basis points during the week to close at a yield of 2.50%.  Similarly, the 10-year bond fell 6 basis points last week and closed with a yield of 2.69%.  Oil was slightly higher on the week with WTI closing at $55.28 a barrel.  Gold added ~$23.00 for the week and closed at $1321.85 an Oz.

There were a ton of earnings announced last week and to say the least it was all a bit confusing.  On the one hand, we had companies that have recently been hammered such as  Apple, AMD, FB, and GE-announce better than “feared” results.  AMD was up 20% post-earnings, Apple, Facebook, and GE also had very nice gains.  On the other hand, NVidia (which has been crushed recently too) offered worse than expected results, so the market took away half of it’s most recent gains following their announcement.  CAT had terrible guidance, and Microsoft (which has held up relatively well) reported disappointing results.  Boeing, Exxon Mobil, and Chevron all posted great results and were awarded nice gains following their announcements.  It is difficult to discern any definite conclusions from the earnings posted last week.  On the margin, management teams have taken the opportunity to lower expectations, and for some, these revisions were better than had been feared, but the growth outlook still appears to be a concern.

The US economic calendar last week was full and offered up a mixed set of data.  The week started with a disappointing Consumer Confidence reading of 120.2 versus expectations of 125, the previous result of 128.1 was also revised lower to 126.1.  The volatility in the market late in the year coupled with concerns surrounding the government shutdown likely influenced the metric and perhaps could curtail demand for consumer discretionary items.  Chicago PMI was also a bit of a disappointment coming in at 56.7 vs. 60, still indicating growth but with growth decelerating.  New Home Sales came in at 657k better than the 550k expected- however, it is worth mentioning that the better than expected number did come in with housing prices falling. The employment situation report came in much better than expected.  Nonfarm Payrolls increased 304k versus the expectation of 180k.  Nonfarm Private Payrolls came in at 296k versus the expectation of 170k.  Average hourly earnings were a bit less than expected up 0.1% versus the expectation of 0.2%.  The Average Workweek was in-line at 34.5 hours, and the Unemployment rate ticked a bit higher to 4% versus 3.9%.  ISM Manufacturing and University of Michigan Consumer Sentiment were both a bit better coming in at 56.6 and 91.2, respectively.

I thought the most significant influence on the market last week was the FOMC rate decision and the subsequent press statement from Fed Chairman Powell.  Ironically the rate announcement and statement were very much in-line with expectations and just reiterated the dovish tone we have heard over the last month- but provided a nice rally on Wednesday, the market closed up 1.6%.   The message:  The Fed will be patient and will move based upon incoming data; the normalization of the balance sheet is not on “autopilot” and this policy could be suspended if need be.  Powell seemed very scripted and pretty much gave the markets exactly what they wanted to hear.

Renewed negotiations on trade started up again on Wednesday in Washington.  The tone felt optimistic this week, and the sides appeared to be making some progress.  That said, we all know there is a lot of work to do on this front and plenty of variables that could derail the talks, illustrated by the announcement on Friday that the DOJ had filed for the extradition of the Huawei CFO from Canada for IP theft among other infractions. The Brexit saga also continued last week with the approval of a Parliamentary amendment to allow May’s government to renegotiate a deal with the EU.  The EU has said it will not renegotiate the deal.  Stay tuned.

We did have a number of changes to our tactical models last week.  Our Alpha Growth strategy that had been playing defense for most of fourth quarter and January moved out of 7-10 year duration Treasuries and into Emerging markets.  EM has been acting relatively well over the course of the last few months and is perhaps poised to do well if a trade deal is struck and US rates stay in check.  Our Tactical Growth model also reduced its exposure to 7-10 year duration Treasuries and added to Gold, International Real Estate, and US Real Estate.  Additionally, our Tactical Bond strategy sold out of its position in International Developed Bonds and placed those proceeds into Emerging Market Bonds.  Net-net, the changes position our models to benefit from a more constructive market, playing more offense than defense and seeking continued recent outperformance in the emerging markets.  Please let us know if you have any questions regarding these changes.

The information in this Market Commentary is for general informational and educational purposes only. Unless otherwise stated, all information and opinion contained in these materials were produced by Foundations Investment Advisers, LLC (“FIA”) and other publicly available sources believed to be accurate and reliable.  No representations are made by FIA or its affiliates as to the informational accuracy or completeness.  All information or ideas provided should be discussed in detail with an advisor, accountant or legal counsel prior to implementation. No party, including but not limited to, FIA and its affiliates, assumes liability for any loss or damage resulting from errors or omissions or reliance on or use of this material.

The views and opinions expressed are those of the authors do not necessarily reflect the official policy or position of FIA or its affiliates.  Information presented is believed to be current, but may change at any time and without notice.  It should not be viewed as personalized investment advice. All expressions of opinion reflect the judgment of the authors on the date of publication and may change in response to market conditions. Due to rapidly changing market conditions and the complexity of investment decisions, supplemental information and other sources may be required to make informed investment decisions based on your individual investment objectives and suitability specifications. You should consult with a professional advisor before implementing any strategies discussed. Content should not be viewed as an offer to buy or sell any of the securities mentioned or as legal or tax advice. You should always consult an attorney or tax professional regarding your specific legal or tax situation. Investment advisory services are offered through Foundations Investment Advisors, LLC, an SEC registered investment adviser.

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