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Weekly Update

Market Summary

A host of corporate earnings beats and a better than expected headline figure for U.S. GDP growth in the first quarter helped fuel equity returns last week, driving the S&P 500 and NASDAQ Composite to new record-high closes. For the week, the S&P 500 and NASDAQ indices gained 1.2% and 1.9%, respectively, while the Dow Jones lost -0.1%. However, U.S. Treasury yields dropped for the week with the 10-year yield declining from 2.56% to 2.50% as bond investors saw weakness in key components within the U.S. first quarter economic growth reading.

On Friday, the preliminary reading of U.S. economic growth in the first quarter came in well ahead of expectations with a 3.2% annualized rate of growth over the first quarter of 2018, the highest first quarter growth mark in the last four years, compared to forecasts for a 2.0% rate. However, the beat was primarily driven by volatile components like business inventories and exports, while core components including domestic consumer spending and business capital investment stumbled badly, which has led many market participants to question the sustainability of such growth in the future.

With almost half of S&P 500 companies having reported first quarter earnings results to date, 78% have beaten earnings expectations, according to FactSet, though net profit margins are on track to decline year-over-year for the first time since 2016 as cost pressure from rising wages and commodity prices begins to build. The flow of results will stay heavy in the week ahead with 169 more companies from the S&P 500 on the docket.

In addition to earnings results, investors will turn their attention to monetary policy as well as any news of U.S.-China trade progress in the week ahead. The Federal Reserve is set to meet Tuesday and Wednesday to decipher the first quarter economic results. With inflation continuing to fall below the Fed’s 2.0% target, it is generally expected that the committee will remain on the sidelines for now. Regarding trade negotiations, U.S. Treasury Secretary Steven Mnuchin stated that the U.S. and China are in the “final laps” of discussions with a resolution to be announced in the near future.

Economic Highlights:

Inflation: Personal Consumption Expenditures (PCE), the Federal Reserve’s preferred gauge of inflation, slowed to 1.5% year-over-year (1.6% excluding food and energy). Fed officials have noted that a sustained level of inflation at or below 1.5% may be justification for a rate cut, so market participants will continue to watch this reading closely in the coming months to see if the downward trend is confirmed.

Jobless Claims: Last week’s reading of initial unemployment claims jumped unexpectedly by 37,000 to a seasonally adjusted 230,000.

US Economy – The Week Ahead

Tuesday, 4/30/2019

  • Pending Home Sales Index – Consensus Estimate: 102.7 (0.8% MoM), Prior Month: 101.9 (-1.0% MoM)
  • S&P/Case-Shiller Home Price Index Year-over-Year Growth – Consensus Estimate: 3.2%, Prior Month: 3.6%

Wednesday, 5/1/2019

  • Federal Open Market Committee (FOMC) Meeting
  • ISM Manufacturing PMI – Consensus Estimate: 55.0 (-0.5% MoM), Prior Month: 55.3 (2.0% MoM)
  • ADP Employment Survey – Consensus Estimate: 175,000, Prior Month 129,000

Thursday, 5/2/2019

  • Initial Jobless Claims – Consensus Estimate: 219,000 (-4.8% WoW), Prior Week: 230,000 (19.2% WoW)
  • Durable Goods Orders Month-over-Month Growth (Final) – Consensus Estimate: 2.7%, Prior Month: -1.1%

Friday, 5/3/2019

  • Hourly Earnings Growth Year-over-Year – Consensus Estimate: 3.3%, Prior Month: 3.2%
  • U.S. Unemployment Rate – Consensus Estimate: 3.8%, Prior Month: 3.8%
  • Nonfarm Payrolls Added – Consensus Estimate: 180,000, Prior Month: 196,000
  • ISM Non-Manufacturing PMI – Consensus Estimate: 57.0 (1.6% MoM), Prior Month: 56.1 (-6.0% MoM)
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