Weekly Market Update, April 23, 2018

Presented by Mark Gallagher

General market news  
• Yields for intermediate and long-term Treasuries continued to rise last week. The 10-year yield opened Monday at 2.97 percent, putting it within striking distance of 3 percent, a level it hasn’t seen since late 2013. The 30-year yield also increased, starting the week at 3.15 percent.
• U.S. equity markets were up modestly last week. The Nasdaq Composite led the way with a gain of 0.56 percent. The S&P 500 Index and Dow Jones Industrial Average trailed just behind at 0.54 percent and 0.46 percent, respectively. As volatility-inducing headlines—including trade policy and geopolitical tensions in Syria—disappeared (at least for the time being), the focus turned to the first major week of earnings.
• Expectations appear to be high. Similar to other banks, Goldman Sachs reported strong earnings, along with revenue that increased more than 31 percent. Earnings were up more than 20 percent over consensus, coming in at $6.95 per share for the quarter. The spike was helped by an 85-percent increase in trading revenue over the prior quarter. The stock sold off following the results. Other sectors, such as industrials, didn’t face the same scrutiny. Investors reacted favorably to General Electric, for example, as the company works to turn itself around. It will be interesting to see if the reaction to earnings news will continue to be sector specific or if investors will decide that the bar has been raised for the market as whole.
• Last week was a busy one for economic news, with a focus on housing and consumers. On Monday, retail sales for March beat expectations by growing 0.6 percent. This data helps put aside concerns following a surprise decline in February.
• Also on Monday, the National Association of Home Builders Housing Market Index dropped slightly, from 70 in March down to 69. This is still a very solid number and indicates that homebuilders remain confident in the economy.
• On Tuesday, high homebuilder confidence translated to growth in both housing starts and building permits. Both of these indicators of future supply declined in February, so the uptick in housing activity is a good sign.



Equity Index Week-to-Date Month-to-Date Year-to-Date 12-Month
S&P 500 0.54% 1.21% 0.44% 15.59%
Nasdaq Composite 0.56% 1.20% 3.82% 22.07%
DJIA 0.46% 1.59% –0.41% 21.66%
MSCI EAFE 0.53% 2.54% 1.09% 18.64%
MSCI Emerging Markets –0.13% –0.13% 1.34% 25.08%
Russell 2000 0.95% 2.31% 2.22% 14.48%

Source: Bloomberg


Fixed Income Index Month-to-Date Year-to-Date 12-Month
U.S. Broad Market –0.85 –2.30 –0.58
U.S. Treasury –1.01 –2.18 –1.54
U.S. Mortgages –0.61 –1.80 –0.58
Municipal Bond –0.10 –1.21 1.44

Source: Morningstar Direct


What to look forward to
This week’s economic news starts with housing. Monday’s existing home sales report came in better than expected. It showed that sales rose from 5.54 million in February to 5.6 million in March, continuing the recovery from a disappointing January. On Tuesday, new home sales are also expected to rise, from 618,000 to 625,000. Again, this would be a partial recovery from a significant drop late last year. If the numbers come in as expected, they would indicate a continued recovery in housing to its previous growth level.

Also on Tuesday, the Conference Board’s survey of consumer confidence is expected to drop again, from 127.7 to 126.0. Although this is still a very high level, confidence has been declining slowly from its recent decade-plus high. There also may be some downside risk to this number, given rising gas prices and recent stock market turbulence.

On Thursday, the durable goods orders report is expected to show a slowdown in growth from a very strong 3 percent in February to a still strong 1.1 percent in March, supported by rising aircraft orders and motor vehicle sales. Core orders, which exclude transportation, are expected to slow from 1-percent growth in February to 0.4-percent growth in March. These numbers would represent a full recovery from January’s decline. Further, they would indicate that business investment, although slowing, continues to expand.

Finally, on Friday, we’ll see the first estimate of gross domestic product growth for the first quarter. Growth is expected to drop from 2.9 percent in the last quarter of 2017 to 2.1 percent for the first quarter of 2018 due to slower increases in household spending and business investment. It’s possible that remaining seasonal effects could push the number down even more, as has happened in the past, which would suggest faster growth ahead.

Disclosures: Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. All indices are unmanaged and are not available for direct investment by the public. Past performance is not indicative of future results. The S&P 500 is based on the average performance of the 500 industrial stocks monitored by Standard & Poor’s. The Nasdaq Composite Index measures the performance of all issues listed in the Nasdaq Stock Market, except for rights, warrants, units, and convertible debentures. The Dow Jones Industrial Average is computed by summing the prices of the stocks of 30 large companies and then dividing that total by an adjusted value, one which has been adjusted over the years to account for the effects of stock splits on the prices of the 30 companies. Dividends are reinvested to reflect the actual performance of the underlying securities. The MSCI EAFE Index is a float-adjusted market capitalization index designed to measure developed market equity performance, excluding the U.S. and Canada. The MSCI Emerging Markets Index is a market capitalization-weighted index composed of companies representative of the market structure of 26 emerging market countries in Europe, Latin America, and the Pacific Basin. The Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000® Index. The Bloomberg Barclays US Aggregate Bond Index is an unmanaged market value-weighted performance benchmark for investment-grade fixed-rate debt issues, including government, corporate, asset-backed, and mortgage-backed securities with maturities of at least one year. The U.S. Treasury Index is based on the auctions of U.S. Treasury bills, or on the U.S. Treasury’s daily yield curve. The Bloomberg Barclays US Mortgage Backed Securities (MBS) Index is an unmanaged market value-weighted index of 15- and 30-year fixed-rate securities backed by mortgage pools of the Government National Mortgage Association (GNMA), Federal National Mortgage Association (Fannie Mae), and the Federal Home Loan Mortgage Corporation (FHLMC), and balloon mortgages with fixed-rate coupons. The Bloomberg Barclays US Municipal Index includes investment-grade, tax-exempt, and fixed-rate bonds with long-term maturities (greater than 2 years) selected from issues larger than $50 million.

Mark Gallagher is a financial advisor located at Gallagher Financial Services at 2586 East 7th Ave. Suite #304, North Saint Paul, MN 55109. He offers securities and advisory services as an Investment Adviser Representative of Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. He can be reached at 651-774-8759 or at mark@markgallagher.com.

Authored by the Investment Research team at Commonwealth Financial Network.

© 2018 Commonwealth Financial Network®