Below is a snapshot of last week’s market performance and what to watch in the weeks ahead from Chadd Mason, Cabana CEO and co-founder.
Earnings reports have been released for 390 of the 500 S&P 500 companies. According to FactSet, 76% have beaten estimates. That is a pretty good percentage and supports the increase in stock prices that we saw during the first quarter.
On Friday, a blowout jobs report was released, which propelled the entire equity space higher and more than made up for the perceived hawkish comments made last Wednesday by Fed Chairman, Jerome Powell. Investors were looking for the Federal Reserve to hint at lowering interest rates, given that we are still not seeing inflation within the supply chain. Chairman Powell stood his ground and indicated that lower rates are not coming any time soon. The jobs number reflects a new low in unemployment as well as some positive wage gains. Interest rates remain contained. As an example, the 10 Year Treasury Yield is right where it started the year, despite most equity markets rising more than 15%. The moderate interest rates have provided support to bonds, real estate and dividend-paying equities. As I described several weeks ago, this has resulted in a “Goldilocks scenario,” whereby things are neither too hot or too cold. This is a great spot to be in as an investor and should be enjoyed while it lasts. The first threat on the horizon is that of a trade war with China. President Trump tweeted yesterday that this coming Friday the U.S. will begin imposing additional tariffs on several hundred billion dollars in Chinese imports. Apparently, China is backtracking on parts of the proposed trade deal. Whether this is all gamesmanship or a serious threat to global trade remains to be seen. World stock markets opened down between 2% and 4% this morning, but recouped most of the losses by today’s close. This indicates to me that investors aren’t quite ready to throw in the towel on a deal. We shall see if they are right as the week plays out.
One additional thing worth mentioning is the shift in performance within the energy/commodity sector. Those assets outperformed everything else this year up until the last two weeks. The continued strength in the U.S. dollar looks like it has finally taken its toll. The U.S. dollar and commodities are typically inversely correlated. As such, a strong dollar puts pressure on many international markets in addition to the whole energy sector. This may be one of the reasons investors were hoping for lower rates out of the Federal Reserve. In other words, lower rates could help to weaken the dollar and push commodity prices up. It would also help our multinational companies that rely on their ability to export, since those goods are priced in dollars. A strong dollar makes those items expensive when purchased abroad in another currency.
A PDF of this week’s market commentary is available here:
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