Presented by Mark Gallagher
General market news
- The 10-year Treasury yield briefly broke above 3 percent late last week, reaching 3.033 percent. The 30-year opened Monday at 3.13 percent, after being as high as 3.21 percent last week and below 3 percent a little over a week ago. The 2-year continued its steady climb, reaching 2.50 percent last week, which is double its yield from September 2017. The yield curve remains at its flattest level since 2007, with the difference in yield between the 2-year and the 30-year at just 63 basis points (0.63 percent).
- U.S. markets were down modestly on the week. Company earnings were the main driver of market action. Stocks sank on Tuesday following guidance from Caterpillar (CAT) that it expects this quarter to be the “high water mark” for earnings this year. The second half of the week was more optimistic, as Chipotle (CMG), Amazon (AMZN), and Facebook (FB) all posted strong earnings numbers.
- FactSet is projecting a quarterly earnings growth rate of 23.2 percent for the S&P 500 Index—the highest level since the third quarter of 2008. This week will include another slew of reports, including Apple (AAPL), Alibaba (BABA), and Pfizer (PFE). It will be interesting to see what these remaining firms will provide in terms of future earnings guidance and expectations.
- Turning to economic news, last week was busy, and the results were largely better than anticipated. On Monday, existing home sales came in higher than expected with 1.1-percent monthly growth. This was followed by the release of new home sales on Tuesday. Here, sales grew 4 percent, against expectations for 1.9-percent growth.
- On Thursday, durable goods orders grew 2.6 percent, beating expectations for 1.6-percent growth. This proxy for business confidence has shown solid growth so far this year.
- On Friday, the first estimate of first-quarter gross domestic product (GDP) growth also beat expectations. GDP grew by 2.3 percent to start the year, beating expectations for 2-percent growth, despite a dramatic decline in consumption growth. Given the strong employment market and high consumer confidence, this slowdown in consumption is unlikely to persist for the rest of the year.
|MSCI Emerging Markets||–1.01%||–1.13%||0.32%||21.07%|
|Fixed Income Index||Month-to-Date||Year-to-Date||12-Month|
|U.S. Broad Market||–0.84%||–2.29%||–0.42%|
Source: Morningstar Direct
What to look forward to
This will be a busy week for economic news, giving us a look at all major sectors. Wrapping things up will be the most important report of the month: employment.
Monday’s personal income and spending report remained strong, with income growth coming in at 0.3 percent for March, the same as the downwardly revised number for February. This was below expectations for 0.4-percent growth and is likely due to slower-than-expected job growth last month. Personal spending growth improved as expected, from a downwardly revised flat level in February to 0.4-percent growth in March, on rising auto sales and utility spending. This is helpful after a first-quarter slowdown in consumer spending and reflects continued high confidence.
On Tuesday, the Institute for Supply Management (ISM) Manufacturing survey is expected to weaken from 59.3 in March to 58.5 in April. This would still be a strongly expansionary level, though. (Values above 50 indicate expansion.) The weak U.S. dollar has continued to benefit this survey, although tariff worries may have a negative effect.
On Thursday, the international trade report is expected to show that the trade deficit narrowed, from $57.6 billion to $55.6 billion, as import growth slowed and export growth rose. Growth abroad and the weaker dollar are likely to keep export growth going, which should be constructive for the economy as a whole.
Thursday’s ISM Nonmanufacturing survey is also expected to weaken, from 58.8 in March to 58.0 in April. As with the Manufacturing survey, this is a strongly expansionary level and would indicate that economic momentum continues into the second quarter.
Finally, on Friday, the employment report is expected to show that job growth rebounded strongly, from 103,000 in March to 185,000 in April. This growth should push the unemployment rate down from 4.1 percent in March to 4 percent in April. Wage growth, meanwhile, is expected to tick down from 0.3 percent to 0.2 percent. These numbers would indicate continued job growth, albeit at a slightly slower pace, and would normalize the variance of the past two months.
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 firstname.lastname@example.org.
Authored by the Investment Research team at Commonwealth Financial Network.
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