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Week in Review

Week Ending: Friday, May 11, 2018

Recap & Commentary

The S&P 500 enjoyed its best week in two months aided by benign inflation data and continued strong corporate earnings. The strong performance brought year-to-date returns back into positive territory. The 10-Year Treasury yield, which briefly rose above 3.0% mid-week, ended below that important psychological level at 2.97%.

Through Friday, 91% of companies within the S&P 500 had reported first-quarter earnings. According to industry group FactSet, 78% of companies have reported better-than-expected earnings, marking the highest percentage since FactSet began tracking the metric in 3Q08. For the quarter, earnings growth is currently forecasted to be 25%. 

North Korea has been featured prominently in the news, as the country released three U.S. citizens and President Trump announced that his summit with Kim Jung-Un will be held on June 12 in Singapore. Regardless of the outcome, there should be little direct impact upon financial markets. However, a positive outcome could boost investor sentiment at the margin.

As expected, President Trump announced a withdrawal from the Iranian nuclear deal and a resumption of sanctions against Iran. The most notable effect was on oil prices, which rose above $71/bl for the first time since 2014. By some estimates, renewed U.S. sanctions could result in a 1MBD decrease in global supply. That would come at a time when global excess supply has been largely eliminated due to OPEC’s production cuts and could result in higher oil prices in the near-term.

Economic Bullet Points

NFIB Small Business Optimism Index data for April was roughly in line with consensus expectations. Overall, small business optimism remains elevated. However, sentiment is moderating as survey participants become more cautious considering the elevated uncertainties that prevail. Forecasters are calling only for a small bounce in the index through the end of the year.

Concerns about rising inflation moderated after data showed it was relatively benign in April. Both headline PPI and headline CPI figures (M/M) came in slightly below expectations. Y/Y values were largely in line with consensus estimates. Core data for both measures (which excludes volatile food and energy prices), also hovered at or below consensus expectations M/M. In aggregate, this batch of inflation data helped assuage concerns about the Fed having to take a more aggressive stance with respect to future interest rate hikes.

Consumer Sentiment held steady in May, with its preliminary reading coming in as expected and unchanged relative to the prior period. The final figure will be announced May 25th. Despite the in line reading, the details of the report were mixed. Specifically, sentiment about current economic conditions declined in May while future expectations picked up from April.

Jobless Claims continued trending below expectations, at historically low levels. The reported 211K (below the 215K expectation) suggests that the US labor market continues to tighten despite the length of the current expansion.

Of Note

  • Oil production in the Lower 48 rose for the 17th consecutive week and now stands at 10.2 MBD.
  • According to Goldman Sachs, S&P 500 companies are on pace to announce $650B worth of buybacks in 2018, easily surpassing the previous record of $589B set in 2007. Apple recently announced a $100B buyback program.

Market Indices Week of 5/11

S&P 500                         2.4%

Russell 2000                 2.6%

MSCI EAFE                     1.4%

MSCI EM                        2.5%

Commodities                0.1%

Barclay’s Agg.               0.0%

US Dollar Index            0.0%

10-Yr Yield                    2.97%

WTI Oil ($/bl)                   $71

Gold ($/oz)                   $1,324

The Week Ahead

  • Empire State Mfg. Survey
  • Philly Fed Business Outlook
  • Industrial Production
  • Business Inventories
  • Housing Market Index
  • Housing Starts
  • Retail Sales
  • Jobless Claims

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