Performance for Week Ending 4/13/2018:
The Dow Jones Industrial Average (Dow) gained 1.79%, the Wilshire 5000 Total Market IndexSM (Wilshire 5000SM) added 1.87%, the Standard & Poor’s 500 Index (S&P 500) rose 1.99% and the Nasdaq Composite Index (NASDAQ) tacked on 2.77%. Sector performance was positive with 8 of the 11 of the S&P sector groups finishing higher. The Energy sector (+6.02%) was the best performer while Utilities (-1.35%) was the biggest laggard.
||Closing Price 4/13/2018
||Percentage Change for Week Ending 4/13/2018
||Year-to-Date Percentage Change Through 4/13/2018
*See below for Index Definitions
MARKET OBSERVATIONS: 4/9/2017 – 4/13/2018
The major market indices finished the week solidly higher on easing fears of an imminent trade war with China and the solid start to first quarter earnings season. In monitoring the ongoing rhetoric and the back and forth between China and the US, it seems the near term prospects of a “trade war,” have morphed into more of a “war of words.”
Trade Tensions Ease (for now): In a series of tweets from President Trump last week, he appeared to indicate that the U.S. was beginning to soften its approach in its trade battle with China. Trump said: "President Xi and I will always be friends, no matter what happens with our dispute on trade. China will take down its Trade Barriers because it is the right thing to do. Taxes will become reciprocal & a deal will be made on Intellectual Property. Great future for both countries!"
The following day, Chinese President Xi Jinping pledged to increase imports, lower foreign-ownership limits on manufacturing and expand protection to intellectual property. Speaking at the Boao Forum (the so-called “Asian Davos”), Xi said that the Chinese government was seeking to "broaden market access" for financial services companies. Xi also vowed to reduce the limits on foreign investment in the automotive, shipbuilding and aviation sectors.
Later in the week, President Donald Trump tweeted about the possibility of rejoining the Trans-Pacific Partnership free-trade deal, helping further ease trade tensions.
Q1 Earnings on Deck: The focus over the coming weeks is expected to shift back to fundamentals, as first quarter earnings season is set to kick-off. According to Bloomberg data, overall S&P 500 earnings are estimated to grow by over 17% year-over-year during the first quarter, the biggest quarterly profit growth in seven years. While it is still very early, the quarter is off to a solid start. Through Friday, 29 members of the S&P 500 have reported Q1 results with nearly 76 percent surprising to the upside. Aggregate growth is running in excess of 29%. While the bar has been set very high coming into the quarter, early results suggest there is room for upside surprise. Analyst are expected to pay particular attention to management commentary, as this will mark the first full quarter that incorporates changes in the corporate tax rate.
Geopolitics Also in Play: Last week, President Trump announced that the US could launch a military strike on Syria after warning Russia of imminent military action, declaring missiles “will be coming.” The market sold off in reaction to the news, which in turn, may have be a key factor in Trump’s decision to partially walk back the comments on the following day. In a tweet Trump said an attack “could be very soon or not so soon at all.” The clear winner from the uptick in geopolitical tensions has been the price of oil. Oil gained over 8% last week and finished at the highest level since December 2014.
FOMC Meeting Minutes: The minutes from the March Federal Open Market Committee meeting acknowledged that the incoming activity data for the first quarter was weaker than anticipated, however “all” members thought that the economic outlook “had strengthened in recent months”. Participants said they expect fiscal stimulus to provide a “significant boost” to output over the next few years, though they remained uncertain of the magnitude and timing of any boost. “Most” participants concluded that the improved economic outlook together with the recent stronger inflation readings increased the likelihood of inflation returning to 2%. As a result, a “number” of participants thought that this also justified a “slightly steeper” path for the federal funds rate over the next few years.
Finally, the minutes offered some thoughts on tariffs. FOMC members thought that the US measures on steel and aluminum were not likely to have a significant effect on the outlook, but a “strong majority” feared that retaliatory actions and “uncertainty associated with trade policies” pose a downside risk to the economy. It must be noted that the escalation in trade tensions between the US and China occurred after the March FOMC meeting, and will likely add to those fears.
Market View: Despite the recent “potholes” the road ahead should still have an upward bias. When moving beyond the political ‘noise,’ the macro environment still remains supportive of equities based on; synchronized global growth, robust earnings growth, no signs of recessionary pressures and expectations the Fed will maintain its gradual approach in hiking interest rates. While the recent choppiness in the market has rattled the nerves of investors and additional selling pressure certainly cannot be ruled out, assuming that macro fundamentals remain stable, market weakness would be viewed as an opportunity to add equity exposure to portfolios, especially for investors with a longer time horizon.
The Week Ahead: First-quarter earnings season will move to the front burner this week with 60 members of the S&P 500 scheduled to release results. Included in this group are seven components of the Dow Index. The data calendar will be relatively busy this week. Reports of interest include; March retail sales, the April Empire Manufacturing Survey, February business inventories, the April housing market index, March housing starts and building permits, March industrial production, and the Philadelphia Fed’s April Business Outlook Survey. The Federal Reserve’s periodic Beige Book will also be released mid-week. The Fed speaking calendar will be very busy with over a dozen speeches on the docket.
The Dow Jones Industrial Average is a price-weighted average of 30 blue-chip stocks that are generally defined as the leaders in their industry. It has been a widely followed indicator of the stock market since October 1, 1928.
Wilshire 5000 Total Market IndexSM represents the broadest index for the U.S. equity market, measuring the performance of all U.S. equity securities with readily available price data. The index is comprised of virtually every stock that: the firm's headquarters are based in the U.S.; the stock is actively traded on a U.S. exchange; the stock has widely available pricing information (this disqualifies bulletin board, or over-the-counter stocks). The index is market cap weighted, meaning that the firms with the highest market value account for a larger portion of the index.
Standard and Poor's 500© Index is a capitalization-weighted index of 500 stocks. The index is designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
The NASDAQ Composite Index is a broad-based capitalization-weighted index of stocks in all three NASDAQ tiers: Global Select, Global Market and Capital Market. The index was developed with a base level of 100 as of February 5, 1971.
Indices do not include any expenses, fees, or sales charges, which would lower performance. Indices are unmanaged and should not be considered an investment. It is not possible to invest directly in an index.
The individual companies mentioned in this piece were for informational purposes only and should not be viewed as recommendations.
The comments should not be construed as a recommendation of individual holdings or market sectors, but as an illustration of broader themes. This document contains forward-looking statements about various economic trends and strategies. You are cautioned that such forward-looking statements are subject to significant business, economic and competitive uncertainties and actual results could be materially different. There are no guarantees associated with any forecast and the opinions stated here are subject to change at any time and are the opinion of the individual strategist. Information in this report does not pertain to any investment product and is not a solicitation for any product. This material has been prepared using sources of information generally believed to be reliable. No representation can be made as to its accuracy.
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