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Stocks post fifth straight week of gains

Emily McCormick

U.S. stocks rallied on Friday, ending higher for a fifth consecutive week as lawmakers signaled a bill to temporarily reopen the government after a 35-day shutdown would pass.

The S&P 500 (^GSPC) rose 0.85%, or 22.43 points, as of market close. The Dow (^DJI) rose 0.75%, or 183.96 points, while the Nasdaq (^IXIC) increased 1.29%, or 91.4 points.

The three major indices were on pace to post their fifth straight week of gains based on prices during intraday trading Friday.

President Donald Trump on Friday announced a deal to temporarily reopen the government for three weeks. Trump said he will make sure that “all employees receive their back pay very quickly,” addressing the about 800,000 workers who have been furloughed or forced to work without pay during the shutdown. Senate Minority Leader Chuck Schumer said in a public statement that he expects the bill will pass both houses of Congress on Friday.

On Thursday, the Senate voted on its first two bills to end the government shutdown. Each measure failed, as neither the bill backed by Republicans included funds for Trump’s border wall, nor the measure backed by Democrats that excluded these funds, captured the 60 votes necessary to advance.

However, some analysts pointed out that the temporary reopening – which will devolve back into a shutdown on February 15 if another deal is not reached before then – has not brought the U.S. any closer to a permanent solution.

"This has been another case of self-inflicted uncertainty injected into the environment, serving to potentially undermine consumer and business confidence, coming at a time when the economic expansion is about a decade-old. That makes it more difficult for everyone – consumers, business leaders, the Federal Reserve and others – to make solid judgements about the risks and opportunities for the future,” Mark Hamrick, Bankrate.com's senior economic analyst, wrote in an email Friday. “A baseline expectation will be that the bulk of economic activity that was interrupted over these 35-plus days will be recaptured and that 2019 can still be a year of respectable growth so that Americans can hope to achieve their basic financial goals."

A ramp-up in the number of companies reporting quarterly earnings this week also added noise to the market. As of Friday morning, about one-quarter of the S&P 500’s market capitalization reported earnings. Earnings are beating by 2.4%, with 69% of companies surpassing their bottom-line estimates, Jonathan Golub of Credit Suisse noted in an email. This compares to 4.9% and 70%, respectively, over the past three years.

The S&P 500 is up more than 5% since the start of 2019. However, some analysts are not convinced the surge is set to last amid a backdrop of rising interest rates and quantitative tightening. Citi Research analysts, who had carried an Overweight rating on U.S. stocks since May 2018, downgraded U.S. equities to Neutral in a note published late Thursday, citing these points.

“The rally since Christmas has been encouraging and no doubt helped by a more dovish tone from the Fed,” the analysts wrote. “For markets, it’s imperative that the Fed continues to adopt a cautious approach from here in order to support animal spirits in 1H 2019.”

“Overly aggressive tightening now might extrapolate into a bear market for stocks, push the economy towards recession and lower yields,” the analysts added.

The Federal Reserve’s balance sheet unwind process – also referred to as quantitative tightening – has been humming along since 2017, with the central bank gradually shrinking its portfolio of mortgage-backed securities and Treasurys by allowing these to mature without reinvesting the proceeds into new assets. However, Fed officials have signaled in recent weeks that they are open to being flexible with on policy normalization and will consider signals from the broader economy and market. Next week, Fed Chairman Jerome Powell will give a press conference following the Federal Open Market Committee’s latest meeting, which will likely provide additional color on the Fed’s next moves.

STOCKS: Starbucks beats expectations

Starbucks (SBUX) reported better-than-expected results for the fiscal first quarter after the bell on Thursday. The coffee chain delivered per-share earnings of 75 cents, beating analyst expectations by 10 cents, and revenue up 9% to a record $6.6 billion, ahead of estimates of $6.49 billion. Comparable-store sales came in at 4%, ahead of estimates of 3%, with comp-store sales up in both the U.S. and China. Starbucks guided for revenue growth of between 5% and 7% for the fiscal year 2019, and global comparable store growth of between 3% and 4%. The company expects adjusted EPS for the full-year 2019 of between $2.68 and $2.73.

Intel (INTC) missed Wall Street’s expectations for the fiscal fourth quarter and posted soft guidance for 2019. Revenue came in at $18.66 billion for the fourth quarter, below consensus estimates of $19.01 billion, and the company sees first-quarter revenue of about $16 billion, also below consensus estimates of $17.34 billion. Intel expects to deliver an adjusted 87 cents per share in the first quarter, whereas consensus analysts expected $1.02 per share. Intel CFO Bob Swan acknowledged during an earnings call Thursday that the weaker-than-expected results were due to “dramatically weakening modem demand, lower overall growth in China, cloud services providers absorbing capacity, and a weakening NAND pricing environment.”

Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck

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