The WMA Weekly Market Wrap v.180424

April 24, 2018

Good Again

Domestic stocks rose for the second consecutive week as first-quarter earnings reporting season began in earnest. The energy sector posted strong returns for another week, boosted by the continuing rally in crude oil prices. The price of a barrel of West Texas Intermediate crude, the U.S. benchmark, approached $70 midweek before moderating. However, consumer staples companies lagged, dragged lower by a steep drop in Philip Morris shares. The tobacco company reported that its cigarette shipments declined more than expected and that its e-cigarettes gained less market share in Japan – a key market – than anticipated, weighing on other tobacco stocks.

Last week began with something of a relief rally, as traders appeared to be heartened that the previous Friday’s air strike on Syria, conducted by the U.S., France, and the U.K., was limited and did not provoke a response from Russia. The economic outlook also helped drive sentiment during the week. Stocks turned lower in late trading on Wednesday on remarks from St. Louis Federal Reserve President James Bullard. In an interview with CNN, Bullard stated that he was “getting concerned about the flattening yield curve,” and he noted that an “inverted yield curve [in which short-term rates are higher than long-term yields] is a powerful predictor of economic downturns.” Traders appeared to be encouraged by data showing that retail sales had increased in March, breaking a three-month streak of declines. Housing starts also rose, and a regional gauge of manufacturing activity indicated healthy expansion.

For much of last week, however, traders seemed to turn away from the economic and political backdrop and focus on corporate earnings. The week brought earnings reports from 69 of the constituents of the S&P 500 Index, along with several hundred reports from smaller firms. According to data and analytics firm FactSet, 80 percent of the S&P 500 companies that have reported quarterly earnings to date have posted earnings per share results that topped consensus estimates.

The U.S. Treasury yield curve steepened toward the end of the week, reversing course after a recent flattening trend, as longer-term U.S. Treasury bonds experienced selling pressure. The strong retail sales and housing starts data, combined with higher oil prices, likely contributed to fears of inflation. On Friday, the benchmark 10-year U.S. Treasury note traded to a 2.94 percent yield, which was near the top of its recent range.

European equities ended last week mostly and modestly higher, although emerging markets were lower, as traders waded through a wave of corporate earnings reports and economic data there too. Markets were helped by an easing of geopolitical tensions as well as some renewed optimism about global trade after positive comments by U.S. officials on NAFTA and China. Midweek, mining and basic resource stocks were notable outperformers. Financial stocks were also strong, but consumer goods and oil & gas companies were marked underperformers by the end of the week.

The pan-European STOXX 600 index logged another advance and climbed to a seven-week high on Thursday before sliding lower. Germany’s export-heavy DAX 30 index and France’s CAC 40 index also ended the week higher, rising on Tuesday to their highest closes since early February.

In Asia, Japanese stocks rallied, largely due to trade talks between Japan and China for the first time in eight years. In China, stocks traded lower even though its economy grew faster than expected in the first three months of 2018 as consumer demand stayed strong and manufacturing rebounded.

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