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Market Summary

U.S. equities continued their rally this past week despite the announcement of implementation of more U.S. tariffs on imports from China as investors have shifted their focus toward second quarter corporate earnings results. For the week, the S&P 500 returned 1.53% while the Nasdaq and Dow notched slightly better returns of 1.79% and 2.31%, respectively. Generally, cyclical sectors including the consumer discretionary, industrial, and information technology sectors displayed the greatest relative performance as investors have noted optimistic expectations for second quarter earnings growth.

Last Tuesday, the Trump Administration announced that an additional $200 billion in Chinese goods would be proposed for a 10% tariff. The tariffs didn’t come as a significant surprise as President Trump has threatened tariffs on up to a little over $500 billion of Chinese goods, but this was a step toward the actual implementation, which is expected to occur in early September after a required public comment period. The U.S. stock market edged down on the news, but rallied late in the week to recover as earnings season kicked off.

It was also reported last week that the United States’ trade deficit with China surged notably to $29 billion from $24.6 billion in the prior month. The rise in the trade deficit with China was attributed to the weakening Chinese yuan (making imports from China cheaper), companies rushing to ship goods before the implementation of tariffs, and the relative acceleration of the U.S. economy and consumer strength versus that of China, which has slowed this year.

Quarterly earnings from the second quarter will kick into high gear this week, with almost 80% of the S&P 500 constituents due to report within the next three weeks. Analysts have predicted earnings growth of about 20% year-over-year in the second quarter for the S&P 500 members compared to about 25% in the first quarter, according to FactSet.

Economic Highlights

  • Inflation: The US core Consumer Price Index (CPI) firmed to 2.3% year-over-year, growing at its fastest rate in 6 years. Rent and healthcare costs were notable contributors to firming inflation, and rising gasoline prices contributed to non-core inflationary growth.
  • Employment: The US Job Openings and Labor Turnover Survey (JOLTS) continued to indicate a tight labor market that is encouraging more Americans to voluntarily leave their positions for better opportunities. The rate of individuals voluntary leaving current employers rose to a 17-year high of 2.4%, according to Goldman Sachs.
  • Consumer Sentiment: July’s preliminary reading of the University of Michigan Consumer Sentiment survey slipped to 97.1, below the consensus estimate of 98.2 as the index was pressured down by escalating trade concerns. However, the index remains near its 12-month average reading of 97.7. Healthy employment and income reports have generally overpowered concerns of trade conflicts and rising interest rates.

US Economy - The Week Ahead

Tuesday, 7/17/2018

US Industrial Production (Month-over-Month) – Consensus Estimate: 0.55%, Prior Month: -0.09%

Wednesday, 7/18/2018

Housing Starts – Consensus Estimate: 1.32 Million (-2.2% MoM), Prior Month: 1.35 Million (4.9% MoM)

Thursday, 7/19/2018

Initial Jobless Claims – Consensus Estimate: 220,000 (2.8% WoW), Prior Week: 214,000 (-7.4% WoW)
Leading Economic Index (Month-over-Month) – Consensus Estimate: +0.4%, Prior Month: +0.2%

Friday, 7/20/2018

No Data

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