Performance for Week Ending 4/29/2019:
The Dow Jones Industrial Average (Dow) dipped 0.06%, the Wilshire 5000 Total Market IndexSM (Wilshire 5000SM) added 1.30%, the Standard & Poor’s 500 Index (S&P 500) rose by 1.20% and the Nasdaq Composite Index (NASDAQ) tacked on 1.85%. Sector breadth was positive with 8 of the 11 S&P sector groups finishing higher. The Healthcare sector (+3.66%) was the best performer followed by Communication Services (+2.69%) and Consumer Discretionary (+1.42%).
||Closing Price 4/26/2019
||Percentage Change for Week Ending 4/26/2019
||Year-to-Date Percentage Change Through 4/26/2019
*See below for Index Definitions
MARKET OBSERVATIONS: 4/22/2019 – 4/26/2019
The major market indices finished the week mostly higher following a batch of strong economic and earnings reports. Both the S&P 500 and Nasdaq Composite closed at new all-time highs. The Fed’s decision to pause its rate hiking campaign earlier this year has been a key driver of the market’s strong year-to-date performance, although the markets recent strength is likely a reflection of the better than feared first quarter earnings season.
Q1 Earnings Roundup (as of 4/26): Of the 230 members of the S&P 500 that have released results, nearly 78 percent have surprised to the upside with the aggregate surprise at 5.4 percent. Aggregate earnings growth is up 2.0 percent, solidly ahead of the 3.6 percent decline expected by analysts at the end of March. Taking the better than expected results into consideration, analysts have been inching their forecast for the quarter higher, with consensus expectations now seeing a decline of “only” 1.7 percent.
GDP Surprises to the Upside: Fears of a forthcoming recession are likely to be put to bed for now following the Commerce Department’s report showing that the US economy expanded by 3.2 percent during the first quarter. The results were much better than the 2.3 percent forecast and the strongest first quarter gain since 2015. The report also showed that core PCE—the Fed’s preferred inflation barometer—gained just 1.3%, down sharply from 1.8% last quarter. While the Fed has recently suggested that they are done raising rates for the remainder of the year, it will be interesting to hear their thoughts following the strong Q1 GDP report and the muted reading on inflation.
Sentiment: Despite the strong year-to-date performance, the percent of investors who consider themselves ‘bullish’ on the market remains below average. In a survey for the week ended April 25, the America Association of Individual Investors (AAII) showed bullish investors account for only 33.5% of those polled, below the 38% average dating back to September 1987 and well below the 50%-plus reading that have often foreshadowed a market correction. Investing, in its simplest form, is about emotions – fear & greed. These emotions also tend to be contrarian in nature, meaning investors tend to be the greediest (Bullish) at/near market tops and the most fearful (Bearish) at/near market bottoms. While the current reading is more neutral than a contrarian bullish or bearish signal, it does suggest that the market may have some additional room to run in the near-term.
Outlook: We maintain a bullish tilt towards the market and continue to believe there is money to be made over the coming quarters. While a period of consolidation following the strong year-to-date performance cannot be ruled out, a drawdown would be viewed as healthy as it would likely set the stage for the next leg higher. Our view is that as long as the economy and earnings continue to grow – which remains our base-case scenario—equity prices should ultimately follow suit.
The Week Ahead: The focal point during the coming week will be the two-day Federal Open Market Committee (FOMC) meeting starting on Tuesday. The meeting announcement along with updated committee member forecasts will be released at 2:00 p.m. ET on Wednesday. Fed Chairman Powell will hold a press conference half an hour later at 2:30 p.m. No change in rates is expected. Earnings season will remain on the front burner with 160 members of the S&P 500 scheduled to report. Included in this group are five members of the Dow Jones Industrial Average. It will also be a busy week on the data front. Economic reports of interest include; March personal income and spending, the February Case-Shiller home price index, the April Chicago Purchasing Managers’ Index (PMI), the Conference Board’s April consumer confidence survey, March pending home sales, the April ADP employment report, the April Institute for Supply Management (ISM) manufacturing index, and March construction spending. Friday brings the April payroll report and according to Bloomberg, nonfarm payrolls are expected to rise by 185K while the unemployment rate is expected hold steady at 3.8%.
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.
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