Market Summary
The US equity market ended last week on a downward trend following a midweek surge in prices. Weakness in technology and consumer staples shares offset the large batch of corporate earnings results, which continued to surpass market expectations on the majority. Investors were also spooked by a rapid uptick in interest rates, as rising rates can pose a threat to economic growth and corporate profits. The benchmark 10-year Treasury yield climbed to its highest level in four years, ending the week at 2.95%, and it continues to creep higher amid expectations for higher inflation. Despite the late week sell-off, the three major US indices still managed to finish higher for the week, with the Dow gaining 0.4%, the S&P rising 0.5% and the Nasdaq advancing 0.6%, ahead of a big week of earnings reports.
Daily US equity trading volume has trended lower recently as more investors wait on the sideline for a better sense of market direction. Many are hoping for significant first quarter earnings results on the back of tax reform and a pick-up in economic indicators. Living up to expectations, the nation's six biggest banks posted record profits in the first quarter, largely due to the recent tax cuts. Combined the six banks saved around $3.6 billion in taxes, according to an Associated Press estimate.
Alongside corporate earnings and inflation expectations, trade tensions continue to be a major topic of discussion. In its World Economic Outlook this past week, the International Monetary Fund (IMF) listed trade tensions as a key downside risk to the global recovery and warned that it could hurt economies connected by international supply chains. Treasury Secretary Mnuchin, in an effort to ease bilateral trade tensions, announced a willingness to visit Beijing that was well received by the Chinese Commerce Ministry.
Economic Highlights
- Commodities: The price of oil continued to climb to a 3-year high this past week with WTI and Brent crude oil closing at $68.38 (+1.5%) and $74.06 (+2.0%), respectively. The increase was driven by a 1.1 million barrel decline in US crude oil inventories and the potential impact on supply of possible sanctions against Venezuela and Iran.
- U.S. Treasury Curve: The 10-year Treasury yield is approaching the significant 3% level as investors bet that inflation will meet the Fed's 2.0% target. The rising inflation expectations and stronger economic results have caused some investors to shed their US Treasury holdings in favor of riskier assets like equities. The 2-year Treasury yield also climbed 9 bps higher this week to 2.46%, its highest level since September 2008.
US Economy - The Week Ahead
Tuesday, 4/24/2018
Conference Board Consumer Confidence Index - Consensus Estimate: 126.0 (-1.3% MoM), Prior Month: 127.7 (-1.8% MoM)
New Home Sales - Consensus Estimate: 630,000 (+1.9% MoM), Prior Month: 618,000 (-0.6% MoM)
Wednesday, 4/25/2018
MBA Mortgage Applications
Thursday, 4/26/2018
Initial Jobless Claims - Consensus Estimate: 230,000 (-0.9% MoM), Prior Month: 232,000 (-0.4% MoM)
Wholesale Inventories (MoM) - Consensus Estimate: 0.6%, Prior Month: 1.0%
Durable Goods Orders (MoM) - Consensus Estimate: 1.6%, Prior Month: 3.1%
Friday, 4/27/2018
US Gross Domestic Product (QoQ) - Consensus Estimate: 2.0%, Prior Quarter: 2.9%
Core Personal Consumption Expenditure (PCE) index (YoY) - Consensus Estimate: 1.8%, Prior Month: 1.6%
University of Michigan Consumer Sentiment Survey - Consensus Estimate: 98.0 (-3.4% MoM), Prior Month: 101.4 (+1.7% MoM)
Employment Cost Index (QoQ) - Consensus Estimate: 0.7%, Prior Quarter: 0.6%
