Weekly market update
It’s been a tough year for investors. A cocktail of concerns, from politics to trade, to inflation to interest rates, and it has led to high volatility and lackluster returns so far in 2018.
But we did just have our best week in the past five despite all of the headline risks – trade wars, rate hikes, inflation, Syria, Russia and China. This cocktail of concerns has led to higher volatility and lackluster returns so far for 2018. The Dow is still down a little more than 0.75%, the S&P 500 is down 0.1% but the NASDAQ has bucked the trend and is up 3.2%.
Speaking of volatility, in the last two weeks, the S&P 500 has had eight 1% moves within a range of just 5%. That’s never happened before.
The daily see-saw pattern in capital markets continues:
April 2 – Bear market in place.
April 4 – Correction over, bull resumes.
April 6 – Trade war, bear market in place.
April 9 – Morning. No trade war, bull market resumes.
April 9 – Afternoon. Nevermind. Bear market.
April 10 – No trade war. Off to the races again!
STOCKS
Earnings season got off to a good start from the big banks, but it didn’t help their stocks.
The world’s largest money manager, BlackRock, blew past earnings and revenue expectations in their latest earnings report. With the volatility that returned, clients were de-risking and rebalancing.
JP Morgan, Citi, Bank of America and Wells Fargo all reported strong quarters and profit growth.
ECONOMY
All eyes were on the inflation data last week. We first got the producer price index which is running about 3% YoY, which was a bit higher than expected. We got the consumer price index and we saw the Core CPI (ex-food and energy) surge 2.7%, and that was the fastest clip since September 2011, 0.3% and higher than expected and back to last year’s high – it looks to me like inflation is moving from “very low” to “low” levels.
The University of Michigan consumer sentiment index slipped to a three-month low on trade fears and geopolitical concerns.
THIS WEEK
The first quarter earnings season is set to kick into high gear this week with 60 S&P 500 companies set to report. The consensus estimate is for 24% earnings growth with particular strength in technology, financials, energy and telecom names. This will be the first quarter that companies will report under the new tax laws, so analysts are expecting a pretty good one-time boost.
On the economic front, we will get retail sales, housing starts and industrial production. Retail sales have been weak for 3 months, so we would like to see that turnaround.
We’ll be closely watching the geopolitical landscape, so stay tuned and we’ll keep you posted.
Todd Day, Portfolio Manager
Horizon Financial Services, LLC
April 16, 2018
