Back to Market Commentaries

Weekly Market Review, February 4, 2019

06 February 2019

Clint McGarvin, CFA® | Portfolio Manager/Research Analyst

U.S. Equities

The S&P 500®, representing large cap stocks, increased a little more than 1.5% last week while the Russell 2000 Index, representing small cap stocks, was up about 1.3%. Domestic equity markets were reacting positively to earnings reports that were more mixed compared to positive economic data from past quarters. An increase in the Institute for Supply Management manufacturing index and the Fed holding steady on rates contributed to the positive reaction. Caterpillar released earnings Monday which declined by about 9% with revenues from China coming in below expectations[i]. However, revenues increased 11% year-over-year and earnings before taxes were up 23%. On the other hand, industrial giant 3M’s stock price increased following its earnings release because results were better than expected despite sales and earnings before taxes declining year-over-year. The key to the response is Caterpillar came in below expectations while 3M was above expectations[ii]. The economic news out last week indicated the economy is slower than six months ago and is still growing at a decent pace.

The Institute for Supply Management manufacturing index increased 2.3% to 56.6% as new orders and backlog both increased in January[iii]. Also boosting equity markets was January nonfarm payrolls, which increased 304,000 in the month[iv]. Wages were up $0.03 in the month, but growth in wages cooled slightly from December. Earnings reports from Caterpillar and Nvidia confirmed the global economy is slowing perhaps more dramatically than expected, and  the U.S. economy is slower but continues to be the strength of the world.

International Equities

International equities also increased last week with developed equities rising just less than 1% and emerging up a bit more than 1.7% on the week. The solid performance in emerging equities was despite economic reports that were below expectations in China. For example, the Caixin Manufacturing index was 48.3 in January compared to consensus estimates of 49.5. This was outweighed by the better than expected Caixin Services reading of 53.6 compared to consensus estimates of 53.3[v]. The economic data in Europe is flashing a possible recession. Data from the French services sector looks like it has dropped off a cliff.

The decline prompted some economists to suggest that the data was possibly wrong. However, this data continues the decline we began to see in 2018. The German and British economies are also showing steep declines in economic activity, with the German industrial sector in contraction territory[vi]. The positive performance in developed and emerging equities appear at odds of the data, but news regarding trade talks between the U.S. and China has largely been positive.


Oil prices increased last week based on the jump in U.S. nonfarm payrolls and a reversal of the increase in the number of rigs producing oil the previous week. Also, the sanctions placed on the Venezuelan oil company by the Trump administration increases the risk that Venezuelan production will be removed from global supply. Production from Saudi Arabia declined by 350,000 barrels per day in January and decline of 15 rigs in the U.S. also helped put upward pressure on oil prices. Despite the rise oil prices though, commodities overall declined slightly last week.

Fixed Income

Bonds and stocks were positively correlated last week with the Agg index rising about 0.5% and U.S. Treasuries rising 0.59% overall. Treasury yields from 3-months to 30-years declined last week with the benchmark 10-year yield falling from 2.76% to 2.7%[vii]. At the Fed meeting last week, the board voted to not increase rates and noted a deceleration in the U.S. economy, which accelerated the decline in yields[viii]. However, the strong growth in jobs in January partially reversed the decline with the 10-year yield rising 7 basis points.


The positive equity performance outside the U.S. was partially at odds with economic data. The manufacturing sector in China is slowing more than expected and European manufacturing and services sectors are declining with some countries showing contraction. However, the U.S. economy is still the driver of global economic growth, despite the government shutdown. The U.S. manufacturing sector accelerated in January relative to December and this week we will get information on the U.S. services sector.

Past performance is no guarantee of future returns.  Performance discussed represents total returns that include income, realized and unrealized gains and losses. Nothing presented herein is or is intended to constitute investment advice or recommendations to buy or sell any types of securities and no investment decision should be made based solely on information provided herein. There is a risk of loss from an investment in securities, including the risk of loss of principal. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment will be profitable or suitable for an investor’s financial situation or risk tolerance. Diversification and asset allocation do not ensure a profit or protect against a loss. All performance results should be considered in light of the market and economic conditions that prevailed at the time those results were generated. Before investing, consider investment objectives, risks, fees and expenses.
Frontier does not directly use economic data as a part of its investment process.
Information provided herein reflects Frontier’s views as of the date of this newsletter and can change at any time without notice.  Frontier obtained some of the information provided herein from third party sources believed to be reliable, but it is not guaranteed, and Frontier does not warrant or guarantee the accuracy or completeness of such information. The use of such sources does not constitute an endorsement. Frontier’s use of external articles should in no way be considered a validation. The views and opinions of these authors are theirs alone. Reader accesses the links or websites at their own risk. Frontier is not responsible for any adverse outcomes from references provided and cannot guarantee their safety. Frontier does not have a position on the contents of these articles. Frontier does not have an affiliation with any author, company or security noted within.
Exclusive reliance on the information herein is not advised. This information is not intended as a recommendation to invest in any particular asset class or strategy or as a promise of future performance.  References to future returns are not promises or even estimates of actual returns a client portfolio may achieve. Assumptions, opinions and estimates are provided for illustrative purposes only. They should not be relied upon as recommendations to buy or sell any securities, commodities, treasuries or financial instruments of any kind.  This material has been prepared for information purposes only and is not intended to provide, and should not be relied on for, accounting, legal, investment or tax advice.
Any forward-looking statements or forecasts are based on assumptions and actual results are expected to vary from any such statements or forecasts. No reliance should be placed on any such statements or forecasts when making any investment decision.
In reviewing the performance information presented here, we recommend that you consider both the returns generated and the level of risk that was assumed in generating those results. We believe that performance information cannot be properly assessed without understanding the amount of risk that was taken in delivering that performance. The performance information presented here covers different time periods. We present performance information for short time periods because we understand that clients and potential Investors are interested in this information, however, we recommend against making any investment decisions based on short-term performance information. For any investment products mentioned herein, a complete description of their investment objectives, along with details of the risks and fees involved is contained in their respective prospectus and statement of additional information, which is available on their websites and should be read fully.
It is generally not possible to invest directly in an index. Exposure to an asset class or trading strategy or other category represented by an index is only available through third party investable instruments (if any) based on that index.
S&P 500®
Represents US large company stocks. It is a market-value-weighted index of 500 stocks that are traded on the NYSE, AMEX, and NASDAQ
Russell 2000
Measures the performance of the small-cap segment of the U.S. equity universe
[i] Caterpillar Inc. (2019), 4Q 2018 Earnings Release. Retrieved from
[ii] 3M (2019), 3M Reports Fourth-Quarter 2018 Results. Retrieved from
[iii] Institute for Supply Management (2019), January 2019 Manufacturing ISM® Report on Business®. Retrieved from
[iv] Bureau of Labor Statistics, US Department of Labor (2019), The Employment Situation – January 2019. Retrieved from
[v] Trading Economics (2019), Near Real-Time Economic Data Calendar. Retrieved from
[vi] Business Insider (2019), The Economic Data from France is So Bad that One Analyst Simply Wrote ‘?!’ on the Chart. Retrieved from
[vii] U. S. Department of the Treasury (2019), Daily Treasury Yield Curve Rates. Retrieved from
[viii] Bloomberg (2019), Fed Chair’s Comments Take Rate Hike Off the Cards. Retrieved from

Market Commentaries

Today's Markets