U.S. stocks spiked following a Wall Street Journal report that U.S. officials are considering easing tariffs on Chinese imports.
The S&P 500 (^GSPC) rose 0.76%, or 19.86 points, as of market close. The Dow (^DJI) advanced 0.67%, or 162.94 points, while the Nasdaq (^IXIC) increased 0.71%, or 49.77 points at the end of Thursday’s trading session.
Earnings season continues to be a key focus, with 11.6% of the S&P 500’s market capitalization having reported quarterly results. Jonathan Golub, chief U.S. equity strategist for Credit Suisse, noted that earnings are beating by 2.1% so far, with 73% of the reporting companies exceeding their bottom-line estimates. This compares to a 4.9% beat rate for 70% of companies over the past three years.
The major companies that have reported include Citigroup (revenue miss, earnings beat), JPMorgan Chase (revenue miss, earnings miss), Bank of America (revenue beat, earnings beat), Morgan Stanley (revenue miss, earnings miss), Delta Air Lines (revenue in-line, earnings beat), and United Continental (revenue beat, earnings beat).
It has been a relatively strong start to the year for equities, with the S&P 500 closing higher for eight of the past 11 trading days in 2019. However, risk appetite is under pressure in the face of an ongoing partial government shutdown, lingering China trade tensions and turbulent Brexit proceedings.
With these and other factors in mind, some analysts are advising investors to “sell into the rally.” Andrew Garthwaite, Credit Suisse equity analyst, wrote in a note that although the firm sees around 5% upside for key global markets in 2019, it advises selling developed markets rather than continuing to build positions.
As justification for his call, Garthwaite noted that global earnings revisions are “are now negative” and “consistent with falling equities over the next year.” Investment-grade spreads are widening, a phenomenon that tends to occur seven months ahead of a market peak, he added. U.S. wage growth, which rose 3.2% over last year in December, could pressure company margins. And excess liquidity, or the M1 money supply less nominal gross domestic product growth, is at the lowest level since 2010, “consistent with the de-rating seen in global markets over the last 12 months,” Garthwaite added.
Garthwaite also noted that U.S.-China trade concerns continue to be among the key global issues for 2019. But investors received a dose of good news after the Chinese government confirmed Thursday that the country’s chief trade negotiator, Vice Premier Liu He, will return to the U.S. at the end of the month for another round of trade talks. This follows three days of mid-level talks in Beijing earlier this month.
However, tensions between the two countries have hardly loosened, with the latest wrinkle coming Wednesday amid reports that federal prosecutors are pursuing a criminal investigation of China’s Huawei Technologies for allegedly stealing trade secrets from U.S. businesses. Huawei, a Chinese telecom giant, has long been in the crosshairs of the trade war as the Trump administration seeks to crack down on claims of intellectual property theft and technology transfer by Chinese companies.
STOCKS: Morgan Stanley quarterly results disappoint; shares fall
Morgan Stanley (MS) reported diluted earnings of 80 cents per share, or 10 cents short of consensus expectations, on fourth-quarter revenue of $8.55 billion, versus expectations of $9.35 billion, according to Bloomberg data. Morgan Stanley also posted a sharp decline in bond-trading revenue, a downtrend plaguing a host of Wall Street banks amid fourth-quarter market volatility. Morgan Stanley’s fixed income trading revenue fell 30% to $564 million, below the $823 million consensus estimate, according to Bloomberg. Shares of Morgan Stanley declined 4.41% to $42.53 each as of market close.
Railroad operator CSX Corp. (CSX) beat consensus estimates for revenue and earnings. Adjusted earnings were $1.01 per share on revenue of $3.14 billion, topping estimates for earnings of 99 cents on revenue of $3.12 billion, according to Bloomberg data. However, the company said it foresees low single-digit revenue growth for the full fiscal year 2019, versus growth of 7.4% last year. CEO James Foote told Reuters this is due to factors including a planned intermodal service reduction while the transportation company implements improvements and is not a result of an expected deceleration in the U.S. economy. Shares of CSX fell 0.44% to $65.09 each as of market close.
ECONOMY: New jobless claims declined more-than-expected last week
Initial jobless claims in the U.S. fell by 3,000 for the week ending January 12 to 213,000, coming in below consensus estimates of 220,000. The decline in new unemployment claims is the latest data pointing to continue strength in the U.S. labor market. Continuing claims, however, rose to 1.737 million for the week ending January 5, increasing from a downwardly revised 1.719 million for the week prior.
The index from the Philadelphia Fed’s Manufacturing Business Outlook Survey increased from a downwardly revised reading of 9.1 in December to 17 in January, with more than 30% of the manufacturers reporting increases in overall activity versus 13% reporting decreases. The index for new orders increased 8 points to 21.3, the highest reading in six months. The latest results of the regional bank’s survey represent a turnaround from December, during which results from the New York, Philadelphia, Richmond and Dallas Federal Reserve banks each disappointed, sparking concern over manufacturing growth in the U.S.
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Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck
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