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.

Why Didn’t Earnings Rekindle the Bull?

Domestic indexes posted strong results on Friday, May 4, as the latest labor report data lessened investors’ concerns about inflation and interest rates. Nonetheless, stocks had mixed results last week. The S&P 500 dropped 0.24% and the Dow gave back 0.20%, which marked both indexes’ 2nd week of losses in a row. Thanks to a bounce in tech stocks, however, the NASDAQ gained 1.26%. International stocks in the MSCI EAFE decreased by 0.57%.

Amid this relatively tepid performance, we reached a big milestone on May 1: Our current economic expansion is now officially the 2nd longest on record. For 8 years and 10 months, the economy has been growing, and many sectors still have room to advance.

As we look to better understand where we stand today, Friday’s employment report provides key insights into our economic health.

What We Learned About Employment

1. Growth Slowed
The report indicated that the economy added fewer jobs than expected in April, and average hourly wage growth also grew more slowly than forecast. Federal Reserve members watch this data closely to help anticipate changes in inflation.

2. Participation Dropped
The percentage of working-age people participating in the labor force dropped by 0.1%. This decline may result from people retiring or returning to school but can also come from people choosing to stop looking for work. The lower participation rate may contradict some of the more positive trends we’ve seen recently.

3. Unemployment Declined
Despite missing growth projections, unemployment fell to 3.9%, the lowest point in 18 years. The rate has only dropped below 4% during 3 other periods. The low unemployment numbers came more from the lower labor force participation rate than from more people finding jobs.

Key Takeaway
Lower participation rates could affect long-term economic growth. However, the combination of low unemployment and reasonable wage growth are likely a positive scenario for the economy. Many people who want jobs have them, but inflation should remain under control.

As the bull market lumbers toward its 9th year, many reports continue to indicate a solid economy. If the economic expansion continues through July 2019, it would be the longest in history (with records going back to the 1850s). While that accomplishment would be noteworthy, our focus remains on current circumstances, and striving to find insight that affects your financial future. From trade to jobs to manufacturing and beyond, we have many details to watch on your behalf.

ECONOMIC CALENDAR
Tuesday: JOLTS
Thursday: Consumer Price Index, Jobless Claims
Friday: Consumer Sentiment

DATA AS OF 5/4/2018 1 WEEK SINCE 1/1/18 1 YEAR 5 YEAR 10 YEAR
STANDARD & POOR’S 500 -0.24% -0.38% 11.46% 10.53% 6.54%
DOW -0.20% -1.85% 15.80% 10.13% 6.39%
NASDAQ 1.26% 4.44% 18.67% 16.37% 11.28%
INTERNATIONAL -0.57% -0.96% 9.60% 3.03% -0.60%
DATA AS OF 5/4/2018 1 MONTH 6 MONTHS 1 YEAR 5 YEAR 10 YEAR
TREASURY YIELDS (CMT) 1.67% 2.03% 2.24% 2.78% 2.95%

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.