Recent U.S. economic data have sent a lot of conflicting signals. Jobs data, pricing data, and corporate earnings reflect a solidly growing domestic economy with manageable inflation, but manufacturing reports show a downturn in demand that points to potential weakness ahead. Wall Street’s economic outlook is more clouded than at any point of the cycle, so this week, we’ve turned to Main Street for direction via the Federal Reserve’s (Fed) Beige Book survey.

Healthy, but High Uncertainty

The Beige Book, a qualitative assessment of the domestic economy and each of the 12 Fed districts, is prepared eight time

Fourth quarter earnings reporting begins this week. Over the next five days (January 14–18), 35 companies in the S&P 500 Index will report quarterly results, highlighted by several big banks. Here we preview fourth quarter earnings, discuss several key drivers, and share some thoughts on the outlook for 2019. We expect a mid-to-high-teens increase in earnings for the quarter, driven primarily by the solid economic backdrop.

The Numbers

Consensus estimates from Thomson Reuters are for a 14.5% year-over-year increase in S&P 500 earnings for the quarter, which is slower than the 25% pace of the past three quarter

The U.S. government is in Day 24 of a partial government shutdown, which is now the longest in U.S. history. The closure reached an inflection point on Friday, when government workers’ first payday during this closure passed without a paycheck.

While past shutdowns have largely been a nonevent for the U.S. economy, the current shutdown has lasted for an unprecedented amount of time, and there is still no end in sight. As of now, we believe this shutdown will have limited long-term ramifications for economic growth, but it’s important to recognize that we’re in uncharted territory.

Another Headwind

This week, we look at stock valuations to try to gauge the potential opportunity for stocks. Amid the dizzying volatility and news cycle that investors have had to deal with lately, it can be difficult for many investors to take a step back and see beyond the daily headlines. We try to do that this week by focusing on what lower stock market valuations relative to corporate profits may signal for stock market performance over the next year and beyond.

Lower Valuations Provide Opportunity

The latest reduction in stock market valuations has been dramatic. While the all-time high for the S&P 500 Index was set on Septem