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Week in Review

Week Ending: Friday, April 27, 2018

Recap & Commentary

Equity markets ended the week down slightly as investors focused on corporate earnings, a further rise in rates, and key economic data including first-quarter GDP.  A face-to-face meeting between Korean leaders was noteworthy, however, had seemingly little impact on the markets, as is often the case with such geopolitical events.

On Tuesday, the 10-Year Treasury yield closed above 3%, for the first time since Jan. 2014. While the move generated significant headlines, overall market reaction was relatively muted.  For the week, the 10-Year yield was essentially flat ending at 2.95%.

First-quarter GDP registered at 2.3% down from 2.9% the prior quarter. Not surprisingly, consumer spending slowed from 4.0% to 1.1%, the effect of post-hurricane reconstruction efforts in the fourth quarter effectively pulling demand forward. Business spending was strong accounting for just over half of the first quarter activity.

European economic data released during the week was mixed and, at times, contradictory.  Given the lack of clear direction, the ECB made no changes to its current monetary policy.  After the bank’s meeting, ECB president Mario Draghi said it was unclear as to whether recent data pointed to, “the beginning of a decline or simply a normalization following a period of very strong growth.”

Through Friday, 53% of S&P 500 companies had reported first-quarter earnings.  Thus far, 79% and 74% of companies have beaten their earnings and revenue estimates, respectively.  If the 79% number holds, it would mark the highest percentage since industry group FactSet began tracking the metric in 2008.

Economic Bullet Points

GDP grew at a 2.3% annual rate in Q1, comfortably surmounting the 1.8% consensus expectation. The measure did, however, lose some momentum after a spurt of faster growth last year (GDP rose 3% during the final nine months of 2017), due mainly to a significant slowdown in consumer spending which rose at its slowest pace in nearly five years. In recent years, first-quarter growth has tended to be weaker than other quarters, driven by seasonal factors that later dissipate. That suggests a bounce back in Q2 could come after the effects of the $1.5T tax cut package further materializes.

Existing Home Sales ticked up 1.1% M/M to an adjusted annual rate of 5.6M, but were well below 2017 levels. Tight inventories, rising mortgage rates, and high prices have led to the sluggish start in this segment. New Home Sales, however, which make up a small slice of all US home sales, surged 4.0% M/M to an annual rate of 694K. Causes for this increase were low unemployment and layoff rates and the limited supply of existing homes. Also, according to the S&P Core Logic Case-Shiller National Home Price Index, home prices rose for the 70th-consecutive month through February, up 6.3%, outpacing the 6.1% Y/Y increase reported in January.

Durable Goods Orders increased 2.6% M/M due to increased aircraft orders, but underlying proxies for business investment showed declines. This data gives a mixed picture of US business investment, considering that the 2017 tax plan was meant to encourage firms to spend more on capital expenditures.

Jobless Claims fell 24K to a seasonally adjusted 209K in the week through April 21st, the lowest level since 1969. Economists expected 228K claims. Additionally, continuing unemployment benefit claims fell 29K to 1.8 million through April 14.

Of Note

Money Market Funds—Due to Fed rate hikes, five since late 2016, yields are averaging between 1.5% and 2%, almost a point above year-ago levels.

Market Indices Week of 4/27

S&P 500                         0.0%

Russell 2000                -0.5%

MSCI EAFE                   -0.4%

MSCI EM                        -1.0%

Commodities               -0.5%

Barclay’s Agg.                0.0%

US Dollar Index               1.4%

10-Yr Yield                      2.95%

WTI Oil ($/bl)                    $68

Gold ($/oz)                     $1,322

The Week Ahead

  • Factory Orders
  • ISM Manufacturing Index
  • ISM Non-Mfg. Index
  • Construction Spending
  • International Trade
  • Personal Income & Outlays
  • Employment Situation
  • Jobless Claims

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