Market Outlook

FTSE 100 and Dow Jones make stellar start to year; can they sustain gains?

A new weekly run through of the key indices from Opto.

 

 

S&P 500  

After tumbling over 14% in the last three months of 2018, the S&P 500 has had the best first 12 days of a year since 1987, gaining 5.2%. 

EPS “blended growth” outlook increased 0.2% from 10.6% to 10.8% on Friday after 11% of the S&P 500 reported results, according to FactSet. The index has added 3.4% since earnings season kicked off on Monday 14 January.

While fourth quarter earnings have improved the S&P 500, the outlook for the current quarter is a decline in earnings, with an expected slowdown to less than half the average of the first three quarters.

The blended growth estimate shows that analysts expected growth to drop from 16.3% from September 30, 2018 to 1.3% through to January 18, 2019.  This would make it the slowest growth since the second quarter of 2016, which saw a 0.3% increase. 

“The market has rebounded since late December, but it remains in the wider downtrend,” says David Madden, analyst at CMC Markets. “While it remains below its 50-day moving average at 2622, its outlook should remain negative. 2500 or 2438 might act as support.”

“The market has rebounded since late December, but it remains in the wider downtrend” - David Madden, analyst at CMC Markets

 

Nasdaq  

The Nasdaq is fairing even better than the S&P 500 for the start of 2018, gaining 7.4%. 

The tech heavy index, which is highly influenced by the movements in FAANG stocks, has been buoyed by growth for Netflix, which is up 30.8%, despite a minor drop on Friday. Facebook is up 16% and Amazon 15.7%. 

Results of the FAANG stocks earnings season and the effect on those share prices will no doubt highly influence this composite. 

All the FAANG players ended 2018 with shares below the year’s high, meaning there may be room for an ongoing rebound. But a further slowdown could also be on the cards in 2019, particularly with Apple’s reduced estimates in Q1 revenue and Netflix’s market getting increasingly competitive. 

 

Dow Jones 

Dow Jones jumped more than 300 points and reported its first four-week winning streak in January, the highest gains it's received since August 2018.

Last week it saw a 3.3% growth overall on news that trade tariffs between the US and China could be eased and knock-out earning reports from Goldman Sachs and The Bank of America.

336.25points

The Dow's gain on Friday 18 January

Dow Jones ended with 0.67% growth on Friday after US Treasury Secretary Steven Mnuchin proposed lifting at least some tariffs to give China incentive to further trade talks.

The Dow also had a spike days prior, after Goldman Sachs posted its best day since 2009 on Wednesday. The bank reported a 23.8% earnings increase, beating seven straight quarters.

As with all the index’s the Dow faces disappointing guidance for the first quarter of 2019. Dow member American Express fell after reporting disappointing earnings. 

 

FTSE 100 

Like the Dow, the FTSE 100 has been buoyed by news that trade talks between the US and China are improving, it is up 3.5% since the start of the year. 

On Friday the index was boosted by more than 1% on the news, combined with a share rise for companies such as ITV and RBS. ITV was up by 3.53% and RBS by 3.5%.

3.5%

FTSE 100's percentage gain since the start of 2019

Despite this, outlook for the index is not particularly strong amid the prospect of Brexit. On Thursday the FTSE 100 was down by 0.4%, before rebounding the following day. 

“The market has been in a downtrend since August, and while it remains below the 7000 mark, its outlook should remain bearish. 6500 might act as support,” says David Madden, analyst at CMC Markets.

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