The S&P 500 posted its best start to the year in more than 30 years as strong earnings results from major names buoyed stock prices.
The S&P 500 (^GSPC) rose 0.86%, or 23.05 points, as of market close. The index advanced about 7.9% for the month, logging the best January since 1987, when the index posted a monthly advance of around 13%.
Stocks leading the markets higher include Facebook (FB) and General Electric (GE), both of which posted strong results in their most recent quarterly reports. Facebook beat Wall Street’s expectations on the top and bottom lines on strong user growth and advertiser retention, who continue to turn to the monolithic social media platform despite a string of data and privacy scandals.
Meanwhile, shares of GE surged the most in nine years as the company announced a settlement with the Department of Justice and reported that strength in its aviation business helped to offset weakness in GE Power.
After the worst December for stocks in 87 years, “stocks have bounced back in a spectacular fashion,” said Ryan Detrick, senior market strategist for LPL Financial.
“With the S&P 500 about 10% away from new highs, we do think new highs are quite possible at some point this year,” he added. “Positive news from the Federal Reserve and China trade talks, as well as the realization by investors that the odds of a recession in 2019 are quite low could spark potential new highs.”
As of Thursday morning, 49.7% of the S&P 500’s market capitalization reported fourth-quarter results. Earnings are beating by 2.3%, with 65% of companies exceeding their bottom-line estimates, Jonathan Golub, chief U.S. equity strategist with Credit Suisse, wrote in an email. This compares to 4.9% and 70% over the past three years.
Companies with overseas sales are posting stronger growth for revenue and earnings per share than companies with a heavier domestic focus by 200 and 290 basis points, respectively, Golub added. This comes even in light of continued signs of a global growth slowdown, particularly amid political turmoil in Europe and sluggishness in the Chinese economy.
However, data released Thursday provided signs of an improved – but still anemic – manufacturing sector in China. An official gauge of China’s factory activity from the National Bureau of Statistics rose to 49.5 in January from 49.4 in December. This follows four consecutive months of declines in the gauge. However, the index held below the critical level of 50 – indicating contraction in that sector – for the second straight month.
On Thursday, a Chinese delegation led by Vice Premier Liu He meets with Trump administration officials for a second day of trade talks. Trump himself is also expected to meet with Liu, marking the highest-level trade discussions since Trump’s meeting with Xi in early December at the G20
STOCKS: GE, Facebook shares surge after posting solid quarterly results
General Electric (GE) beat expectations on the top line, posted strength in its aviation business and announced a $1.5 billion settlement in principle with the Department of Justice over its investigation of GE’s shuttered subprime mortgage business WMC. Fourth-quarter revenue came to $33.28 billion, ahead of consensus expectations of $32.6 billion, although EPS of 17 cents came 5 cents below estimates. GE saw fourth-quarter profits in segments including its aviation, health-care and Baker Hughes oil and gas businesses, while GE Power posted a loss and a 25% year-over-year decline in revenue.
Facebook (FB) in results reported late Wednesday posted record profit for the fiscal fourth quarter and saw growth in daily active users in ever geographic segment. Quarterly earnings per share were $2.38 on revenue of $16.91 billion, ahead of the $2.19 per share on revenue of $16.39 billion estimated by analysts. Average revenue per user at $7.37 also topped expectations by 26 cents. Facebook CEO Mark Zuckerberg said it is planning to push further into commerce across platforms Instagram, WhatsApp and core Facebook in order to help vendors advertise and sell to users.
Tesla (TSLA) shares declined after the company announced on a call with investors Wednesday that its CFO is retiring, to be placed by 34-year-old Zach Kirkhorn, previously vice president of finance. The company beat expectations for fourth-quarter revenue but missed on earnings per share, and indicated it would struggle to eke out a profit in the current quarter.
UPS (UPS) delivered fourth-quarter adjusted earnings of $1.94 per share, ahead of estimates of $1.90 per share, while revenue was in-line with estimates at $19.96 billion. Streamlined operations due to increased investment in automation, new cargo aircraft and package-sorting capacity helped boost earnings. The company also acknowledged concerns of slowing international growth – which had also impacted FedEx in the fourth quarter – but noted that its “broad portfolio, diverse revenue base and flexible network” helped “buffer the impacts of global economic softening.”
ECONOMY: Initial jobless claims jumped last week
Initial jobless claims rose to a seasonally adjusted 253,000 for the week ending January 26, nearing a one-and-a-half year high. The headline figure came in ahead of expectations of 215,000, according to estimates compiled by Bloomberg. For the week prior, initial claims had fallen to 200,000, the lowest level since October 1969.
Continuing claims also rose more-than-expected to 1.782 million for the week ending January 19, ahead of the prior week’s reading of 1.713 million.
On Friday, the Bureau of Labor Statistics will release its monthly jobs report, with consensus estimates calling for 175,000 new private payrolls and 165,000 new total non-farm payrolls. This follows a surge of 312,000 new non-farm payrolls in December.
The employment cost index fell 10 basis points to 0.7% in the fourth-quarter, according to a report Thursday from the Bureau of Labor Statistics. The results for the index, which tracks compensation costs for businesses, fell below expectations of 0.8%, or unchanged from the quarter prior. Wages and salaries, comprising about 70% of compensation costs, increased 0.6%, while benefit costs increased 0.7% from the September quarter.
Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck
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