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Weekly Update

Market Summary

U.S. equities finished the week on a strong note to end mostly in positive territory. The S&P 500 index grew 0.8% for its fifth straight week of positive gains, while the Dow and Nasdaq returned 0.1% and 1.0%, respectively, with a lift to market sentiment after a positive employment report and solid corporate earnings results. Although U.S. trade tensions with China remain elevated, relief of some trade tensions with the E.U. along with the strong earnings and economic results have driven markets upward over the past few weeks. However, some investors have cited concerns of the global shift from expansionary to tight monetary policy and a potential peak in corporate margins and profit growth.

The industrial sector lost some ground last week, down -0.2%, on fears that the latest volley of trade threats between the US and China puts both countries on a path toward a full blown trade war.  China said Friday it would place duties of 25% on U.S. products worth more than $60 billion if the Trump administration followed through on threats to impose tariffs of 25% on $200 billion of Chinese goods.

At its July meeting, the Federal Reserve held off on raising interest rates as expected, but discussed the economy as strong, hinting that the U.S. is still on track for two more rate hikes in 2018. The announcement comes amid debate in the markets, where disagreement reigns over how many more rate hikes the central bank will be able to carry out this year and in 2019 in light of the flattening yield curve. The spread between the 2-year and 10-year Treasury yields currently sits at only 0.31%.

One of the primary positive themes driving markets forward in recent weeks has been second quarter earnings results. According to FactSet, with 81% of S&P 500 having now reported, constituents of the S&P 500 have reported blended earnings growth of 24.0% in the second quarter, up from the 20.0% expected at the start of earnings season. The current rate of companies beating earnings expectations of 80% is the highest since 2008.

Economic Highlights

  • Employment: The latest picture of the U.S. labor market was released showing 157,000 payrolls for July, another gain but softer than June's 213,000 jobs. Meanwhile, the unemployment rate fell to 3.9% from last month's 4.0% rate. Wage growth remained muted as hourly pay rose 7 cents to $25.07, increasing at a 2.7% annual rate. The numbers could suggest the economy is helping the labor market weather trade tensions, allowing the Fed to raise rates again in September.
  • Commodities: A surprise increase in U.S. crude oil inventories drove down oil prices last week, with WTI and Brent falling -0.28% and -1.43%, respectively. Metals also struggled to gain ground, as copper remained under pressure from trade threats and gold stumbled to its lowest price in over a year.

US Economy - The Week Ahead

Tuesday, 8/7/2018

Job Openings & Labor Turnover Survey – Consensus Estimate: 6,650K (0.2% MoM), Prior Month: 6,638K (-0.9% MoM)

Wednesday, 8/8/2018

No data

Thursday, 8/9/2018

Initial Jobless Claims – Consensus Estimate: 220,000 (0.9% WoW), Prior Week: 218,000 (0.5% WoW)
U.S. Producer Price Index (PPI) Year-Over-Year – Consensus Estimate: 3.4%, Prior Month: 3.4%
Wholesale Inventories Month-Over-Month Growth – Consensus Estimate: 0.0%, Prior Month: 0.4%

Friday, 8/10/2018

U.S. Consumer Price Index (CPI) Year-Over-Year – Consensus Estimate: 2.9%, Prior Month: 2.9%

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