Breakin’ Out to the Upside!

On Friday, the markets closed the week gaining traction. The Dow had 7 days of consecutive growth, rising 2.34%—its largest weekly gain since March. Meanwhile, the S&P 500 rose 2.41%, the NASDAQ jumped 2.68%, and the MSCI EAFE increased 1.41%.

Various factors came together to support the growth. From geopolitical topics to strong corporate earnings, we’ll focus on 3 key developments that drove movement.

1. Energy Shares Boosted by Iran Nuclear Deal Withdrawal

President Trump’s decision on Tuesday to withdraw from the Iran nuclear deal helped push the energy sector higher. With the possibility of renewed sanctions on the horizon, the anticipation of a pullback from global oil supplies helped boost prices. Though oil prices fell from a 3½-year high on Friday, it was the 2nd week of growth, driving energy shares to rise 3.8%.

2. Technology Sector Jumps Amid Strong Corporate Earnings

After the technology sector’s months of stagnation—fueled in part by recent fears over privacy—it is now approaching all-time highs. Since April 25, the information technology sector has increased 9%. The movement is driving many investors to join the rally, while many analysts remain cautious.4 Overall, the growth contributed 3.5%.5

This rally happened on the back of strong corporate earnings. Over 70% of total S&P 500 companies reported earnings growth that exceeded expectations. Last week’s positive reports helped push the index past 50- and 100-day moving averages.6

3. Inflation Remains Steady

The Consumer Price Index (CPI), which measures the price of goods and services, rose only 0.2% for the month in April and 2.5% over the year. These reports both missed and met expectations, respectively.7 The tepid growth caused some investors to worry that the Federal reserve would raise interest rates more quickly, as the U.S. dollar fell and held below its 2018 high.8 Some analysts, however, believe that the missed expectations should ease the Fed’s pressure to fast-track interest rates.9

Looking Ahead

We will continue tracking geopolitical developments—from potential actions against Syria, tariffs on Iran, and preparations for President Trump’s upcoming meeting with North Korea’s Kim Jong-un.10 In addition, key discussions around the American Free Trade Act and trade relationships with China remain on the horizon.11 We also will gain our first insights on how well consumer spending performed in the 2nd quarter.12

If you would like to discuss any developments or gain a clearer understanding of how these issues may affect your portfolio, contact us today. We are always here to help you make sense of your financial life and gain clarity for the road ahead. READY TO GET IN? CLICK HERE FOR CUSTOMER CENTER

ECONOMIC CALENDAR
Tuesday: Retail Sales, Housing Market Index
Wednesday: Housing Starts
Thursday: Initial Jobless Claims, Philadelphia Fed Business Outlook Survey, Bloomberg Consumer Comfort Index

DATA AS OF 5/11/2018 1 WEEK SINCE 1/1/18 1 YEAR 5 YEAR 10 YEAR
STANDARD & POOR’S 500 2.41% 2.02% 13.92% 10.80% 6.99%
DOW 2.34% 0.45% 18.70% 10.43% 6.90%
NASDAQ 2.68% 7.24% 21.04% 16.59% 11.71%
INTERNATIONAL 1.41% 0.45% 10.84% 3.21% -0.37%
DATA AS OF 5/11/2018 1 MONTH 6 MONTHS 1 YEAR 5 YEAR 10 YEAR
TREASURY YIELDS (CMT) 1.68% 2.06% 2.28% 2.84% 2.97%

Notes: All index returns (except S&P 500) exclude reinvested dividends, and the 5-year and 10-year returns are annualized. The total returns for the S&P 500 assume reinvestment of dividends on the last day of the month. This may account for differences between the index returns published on Morningstar.com and the index returns published elsewhere. International performance is represented by the MSCI EAFE Index. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly.

Earnings Season Begins

Market volatility continues. Stocks slid on Friday, April 13, but still held on to gains for the week. The S&P 500 increased 1.99%, the Dow added 1.79%, and the NASDAQ was up 2.77%. International stocks in the MSCI EAFE also rose, gaining 1.45%.

Similar to recent weeks, international events continued to sway markets: Concerns about trade disputes affected investor behavior. Meanwhile, escalating conflict in Syria may have weighed on people’s minds.

As we track these developments, we want to share insight about another important occurrence from last week: the beginning of corporate earnings season.

1st Quarter Corporate Earnings Season

1. Expectations remain very high
Analysts anticipate a particularly strong earnings season. Thomson Reuters data predicts that S&P 500 companies’ profits were 18.6% higher in the 1st quarter of 2018 than in 2017. If accurate, this increase would be the largest since 2011.

So far, data seems on track. According to The Earnings Scout, 1st-quarter earnings growth is currently at 26.8%.

2. Banks outperform but stocks drop
On Friday, 3 major banks released their reports—and each beat projections for earnings and revenue. Despite this positive news, however, their stocks experienced sizable declines that contributed to overall market losses.

Why would strong quarterly results create stocks losses?

The markets anticipated this positive performance and had already priced it into the shares. As a result, any less-than-ideal news seemed to outweigh the expected earnings and revenue increases. In particular, 2 facts drove losses:
• 1 bank may have to pay a $1 billion penalty
• All 3 banks experienced slow loan growth

We are in the early stages of earnings season, and many major corporations still need to release their reports. In the coming weeks, we’ll continue monitoring these developments to better understand our economy. As always, please contact us if you have questions about how the data affects your finances and life.

ECONOMIC CALENDAR
Monday: Retail Sales, Housing Market Index
Tuesday: Housing Starts, Industrial Production
Thursday: Jobless Claims

DATA AS OF 4/13/2018 1 WEEK SINCE 1/1/18 1 YEAR 5 YEAR 10 YEAR
STANDARD & POOR’S 500 1.99% -0.65% 14.06% 10.83% 7.14%
DOW 1.79% -1.45% 19.10% 10.38% 7.05%
NASDAQ 2.77% 2.94% 22.42% 16.62% 11.99%
INTERNATIONAL 1.45% -0.41% 14.75% 3.55% -0.21%
DATA AS OF 4/13/2018 1 MONTH 6 MONTHS 1 YEAR 5 YEAR 10 YEAR
TREASURY YIELDS (CMT) 1.64% 1.97% 2.12% 2.67% 2.82%

Notes: All index returns (except S&P 500) exclude reinvested dividends, and the 5-year and 10-year returns are annualized. The total returns for the S&P 500 assume reinvestment of dividends on the last day of the month. This may account for differences between the index returns published on Morningstar.com and the index returns published elsewhere. International performance is represented by the MSCI EAFE Index. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly.

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Cattle Livestock Futures Zoom While Summer BBQ Feasts Loom; Equities Flat Overall for the Week; Treasuries Await This Week’s News

Meat packers were scrambling to cover forward sold beef contracts last week as new weight for carcass weights continue to come in an average of 30# shy of last year’s weights. Chinese demand for beef is ever increasing as they’ve purchased technology for safe handling of beef from US leaders for years and are now ramping up to handle beef on their own at US tech levels. Add summertime on the horizon and BBQ pits everywhere cleaning up as the weather stays warmer and the demand has exceeded supply: cattle livestock futures soared. Read more here and here.

Sector performance in equities fell out pretty much like this: Information Tech up about 0.33%; Healthcare up about 0.24%; Energy up about 0.13%; Utilities Real Estate and Materials all down from 0.44%, 0.60% and 0.71%, respectively.  Also down 0.43% each were the Industrials and Consumer Discretionary Sectors. The Financials Sector pared 0.94%, while the Consumer Staples Sector stayed flat (0.00%).  Source.

In fixed income, US Govt 5 year yields are 1.81% on a 1.88% Coupon; 10 year 2.28% on a 2.25% Coupon; and 30 year 2.95% on a 3.00% Coupon.  Source. The Bonds markets are awaiting inflation news Monday May 1, 2017 while April payroll news is due at the end of the week, with the Fed to announce its policy on May 3. Plus, Congress still has to keep the government open next week by passing a stop-gap funding bill. Source.