Weekly market update
Markets had a mixed week that saw the S&P 500 pull back from near record highs to close the week down 0.07%, while the Dow and NASDAQ (briefly surpassing into all-time high territory) were able to eke out small gains. The Russell 2000 has been the weak link as of late at it was down 1.2% for the week.
Downward pressure on healthcare stocks from proposed healthcare legislation served to offset a stronger than expected start to Q1 earnings season and positive global economic data. Johnson and United Healthcare are two stalwarts when it comes to the healthcare sector, and they have experienced a good bit of downward pressure following upbeat earnings.
In Europe, stocks finished mostly higher as positive news from China pointed toward growth.
The slowdown in global growth was a cause for concern for investors in 2018 and early this year as a decelerating China, persistent trade tensions, fading effects of tax reform in the U.S and geopolitical issues cultivated uncertainty, which typically causes business and consumers to pause in investing and spending.
Risk assets have rallied on the expectations that growth has not stalled, so confirmation from the data is crucial. As noted in the latest preliminary manufacturing PMI’s (Purchasing Managers Index), the Eurozone, France, Germany and Japan perked up slightly and although they remain in contractionary territory, the change rather than the level may indicate an inflection point.
Additionally, improving data from China and a stabilization in the U.S. could foreshadow a bottoming weakness in other markets.
Banks kicked off earnings season and the general picture was declining in earnings compared with the first quarter of last year but was able to surpass analysts’ low expectations for quarterly profits. On the revenue front, they mostly fell short of estimates, underscoring muted trading and mergers-and-acquisition activity on Wall Street in the first quarter.
In other earnings news, United Rentals (URI) stock surged after earnings—and let me tell you, these people are a barometer on the economy. You don’t rent equipment when you have no work and vice versa.
So far, 83% of the S&P 500 companies that have reported Q1 results have topped EPS estimates on 4.18% growth, while only 51% have topped revenue estimates.
In the latest sign of the labor market strength, jobless claims fell to the lowest in nearly half a century (September 1969), when the working population was little more than half what it is today.
And March Retail Sales: Wow!! Motor Vehicles, Furniture, Food & Beverage, Gasoline, Apparel and e-commerce all strong.
This will be a busy week on the earnings front—142 S&P 500 companies will be reporting this week. On the economic front, it is a busy week. We will get Chicago National Activity index, Richmond and Kansas regional FED reports, existing home sales and the Biggy—Q1 GDP. Q1 GDP has been a hotly debated subject so I will be watching this one close. So, stay tuned and we will keep you posted.
Todd Day, MBA
Portfolio Manager
Horizon Financial Services, LLC
April 23, 2019
