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Week in Review

Week Ending: Friday, April 20, 2018

Recap & Commentary

US stocks moved higher for the second consecutive week after the S&P 500 gained 0.5% and effectively pulled the US market back to even for the year. Driving this rise was stronger-than-expected earnings growth from the 17% of S&P 500 companies that have reported 1Q18 results. Currently, earnings are on pace to grow at an 18.3% Y/Y clip, marking the fastest annual rate of growth since 2010. Also, top-line sales are rising above consensus estimates compared to the 5-year average, suggesting that the economy is supporting demand.

The International Monetary Fund, in its April 2018 World Economic Outlook, forecasted that the global economy is on course to grow 3.9% in 2018, the fastest pace since 2011, with every major economy growing for the second year in a row. Underpinning this forecast was “strong momentum, favorable market sentiment, accommodative financial conditions, and the domestic and international repercussions of expansionary fiscal policy in the U.S.,” according to official statements. Additionally, the group expects the US to grow 2.9% in 2018, which is close to the Trump administration’s promise of 3.0% growth. These expectations, however, come with the caveat that they are short-term in nature.

The 10-year Treasury yield hit 2.96%, matching YTD highs. The move seemingly came without creating the same level of consternation that occurred in the first quarter just prior to the S&P 500’s correction.

Economic Bullet Points

Regional factory sector data has begun to show signs of slowing, potentially indicative of tariff trouble. The Empire State Manufacturing Survey missed expectations and the 6-month outlook declined steeply showing a drop-off in new orders and shipments. The Philadelphia Fed Business Outlook Survey, interestingly, didn’t tell the same story of slowing and price friction, but rather rose ahead of expectations. Indications on tariff effects were visible in a jump in prices and a slowing in orders, however.

The proposed tariffs on steel and aluminum didn’t appear to have any measurable effect on the March Industrial Production report as production rose solidly in the month, led higher by mining. Manufacturing was less impressive and didn’t manage to beat even modest consensus expectations, though details behind the headline were more positive. Business Inventories are on the rise, matched by underlying consumer demand, shaping up to be a positive contributor to first-quarter GDP.

Housing market data was largely positive. The Housing Market Index edged down slightly but nevertheless is at a strong level. Traffic is not slowing, though a sudden pop in spring sales isn’t the expectation. Sales aside, residential investment looks to be a positive contributor to first-quarter GDP, as Housing Starts topped even high-end expectations. Construction ended Q1 with momentum likely to carry forward to Q2.

After two soft showings in January and February, Retail Sales surprised to the upside in March, headline sales rose 0.6% M/M, and core sales rose a respectable 0.3%. Auto sales were a highlight of the report, finally breaking out of their slump. Not surprisingly, department stores are met with troubles. Despite strength in March, consumer spending doesn’t look to be much of a contributor to first-quarter GDP growth. Jobless Claims remain low, but directionally, the trend is no longer showing improvement.

Of Note

MLPs gained 3.5% and outperformed the broad market for the second straight week despite increasing 10-Year Treasury yields and a Trump tweet about how oil prices are too high. YTD, however, the group is down ~5%.

Market Indices Week of 4/20

S&P 500                          0.5%

Russell 2000                 0.9%

MSCI EAFE                    0.4%

MSCI EM                      -0.2%

Commodities               0.7%

Barclay’s Agg.             -0.6%

US Dollar Index           0.6%

10-Yr Yield                   2.96%

WTI Oil ($/bl)                  $68

Gold ($/oz)                   $1,337

The Week Ahead

  • Existing Home Sales
  • New Home Sales
  • Case-Shiller HPI
  • Durable Goods Orders
  • Consumer Confidence
  • Consumer Sentiment
  • GDP
  • Jobless Claims

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