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Market Commentary - Week Ending 5/5/2018

Summary

  • U.S. stocks closed mixed for the week in spite of a strong Friday afternoon rally
  • Apple reports strong quarterly results and its stock surges
  • The unemployment rate drops below 4.0% for the first time in since 2000

Market Performance Summary

Source: S&P Compustat, www.yahoo.com/finance for Commodities

Notable Market Headlines

Dozens of companies reported quarterly results with the majority contributing to what has been on of the best quarters in years. In spite of the growth in both sales and earnings across a wide range of economic sectors, the reaction by investors has been mixed and has not fueled the rally the bulls on Wall Street have been hoping for.

U.S. large stocks, as measured by the S&P 500, were down -0.2% for the week and now -0.3% year-to-date. The week’s performance would have been much worse if not for the +1.3% rally on Friday. Technology stocks were the best performing sector for the week with gains of +3.0%. Technology stocks have certainly been volatile in 2018 but they remain the best performing sector for the year higher by +7.0%. At this point last year…

Small U.S. stocks continue to post performance that is outpacing large stocks in 2018 gaining +0.7% for the week and higher by +2.1% year-to-date. It is widely believed that the new tax code will help smaller companies more than large which could be one factor helping drive the outperformance.

The performance of international stocks differed meaningfully this week with developed markets down just -0.1% while emerging markets sold off -1.8%. Of the developed markets, Australian stocks did well with average gains of +1.6%. In the emerging markets, Brazil and Mexico suffered the biggest loses during the week down -5.4% and -5.6% respectively. Brazil is struggling with a sharp decline in its currency driving its central bank to raise interest rates sharply in recent days. Year-to-date Brazilian stocks are still higher by +0.7%.

Real estate stocks put together a second week of meaningful gains up +1.2% for the week adding to the prior week’s impressive gain of +3.7%. This has been a much welcomed rally but still leaves the group down -5.2% for the year. The prospect of continued higher interest rates has arguably been a headwind for real estate in 2018.

Commodities posted a strong gain of +1.4% for the week putting them among the best performing asset classes in 2018, fueled by multi-year highs for the price of oil. Year-to-date commodities are up +8.2%. Gold has generally been moving sideways in 2018 posting a loss this week of -0.8% and higher year-to-date by +0.7%.

Bonds added to their year-to-date loss down -0.2% for the week and -3.3% for the year. Investors in U.S. Treasuries are showing some concerns due to an estimate that the government will need to sell $955 billion in bonds this fiscal year as compared to $519 billion in the prior year.

Stock Highlights

Apple (AAPL) reported better than expected quarterly results driving its stock to record highs. Sales came in at $61.1 billion with earnings per share of $2.73. The company said the iPhone X was its best selling phone as the number of phone sold was below expectations but higher than last years. The company announced plans to use $100 billion of its massive cash position to buyback stock. Investors were clearly thrilled with this report with the stock gaining +13.3% for the week. Apple is the most highly valued company in the world with a market value of $933 billion, up +109 billion in just one week.

Mastercard (MA), a global transactions processing giant, reported 30% growth in sales for the first quarter and a 50% jump in earnings per share. This was significantly better than Wall Street had expected and represents strong momentum for the company. The company’s bigger rival, Visa (V), had been growing faster than Mastercard during most of 2017, as illustrated in the accompanying graph, but Mastercard began to outpace Visa in the fourth quarter. Mastercard’s stocks rallied +7.0% for the week to a new all-time record high and is up +24.3% year-to-date.

Source: Source: S&P Compustat

Cardinal Health (CAH), one of the world’s largest distributors of pharmaceuticals, disappointed investors this week with quarterly earnings that were both below last year’s results and below Wall Street estimates. These poor results were due to one underperforming division and a higher than expected tax rate. Furthermore, the company lowered earnings guidance for 2018. Cardinal Health’s stock collapsed -19.5% for the week and is now -38% off its 2015 record high as illustrated in the accompanying graph.

Source: : www.Yahoofinance.com

Industrial stocks struggled for the week with multiple stocks falling double digits. News from these companies was mixed with engines company Cummins (CMI) raising its outlook for future quarters while metals company Arconic (ARNC) slashed their outlook. The accompanying table highlights some of the week’s worst performers.

Source: : S&P Compustat

Economic Indicator - Reported

The April employment report showed the economy adding 164,000 during the month which was fewer than economists forecast but much better than March’s disappointingly low number. Helping ease concerns were a net revision of 30,000 additional jobs in the prior two months. This job growth, combined with fewer people actively looking for a job, drove the unemployment rate down by -0.2% to 3.9%. This is the lowest unemployment rate since …

Motor vehicle sales came in as expected at an annualized rate of 17.2 million. This is a slowdown from the prior month’s 17.5 million that was entirely the result of slower sales for domestic vehicles will sales of imports rose. The report overall suggests continues strength in consumer spending and economic growth.

Economic Indicators – Upcoming

We will get two reports on inflation including both the Consumer Price Index (CPI) and the Producer Price Index (PPI). Both are expected to show to show overall increases of +0.3% for the month but when excluding volatile food and energy both are expected to instead show gains of just +0.2%. These reports have become more closely watched for any signs of prices escalating and the economy overheating which could cause the Federal Reserve to raise interest rates faster than currently anticipated.

Consumer Sentiment, a report published by the University of Michigan measuring consumers’ financial conditions and attitudes about the economy, will be reported with estimates that it will remain near its recent highs.

Contact Mark A. Patton :