Market Commentary - Week Ending 5/4/2019


  • U.S. stocks closed at another record high helped by strong employment numbers
  • Earnings continue to generally come in strong for companies helped by a strong economy
  • Worker productivity increased at the fastest rate in years

Market Performance Summary

Source: www.YCharts.com

Notable Market Headlines

Stocks closed the week strong with U.S. markets at another all-time record high. In a relatively rare event U.S. large stocks were the weakest of the major asset classes gaining just +0.2% for the week as measured by the S&P 500. The tech-heavy NASDAQ Composite gained a similar +0.2% while the Dow industrials lagged behind down -0.1% for the week and have yet to top their record high hit in October 3rd last year. Year-to-date large U.S. stocks are higher by +17.7% making it one of the strongest starts to a year.

Small U.S. stocks turned in a very strong performance for the week higher by +1.4% and are now higher by a stellar +19.9% in 2019. Financial stocks were among the best performers while energy stocks fell on the decline in the price of oil.

A notable trend in the market this year, continuing a multiyear trend, is the outperformance of growth stocks, those with faster sales and earnings growth, relative to the more conservative value stocks. Year-to-date growth stocks are higher by +21.1% as compared to value stocks gaining +14.9%. As the accompanying graph shows growth stocks have outperformed value stocks by nearly 50% cumulative the past 5 years which has only been topped by the surge in the late ‘90s. Surprising to some investors today, value has actually performed better since the inception of the Russell indexes measuring this performance back to December 1990.

Source: www.YahooFinance.com ; Russell 1000 Growth, Russell 1000 Value

International stocks continue to trail U.S. stocks in 2019 but did have a relatively strong week. Developed markets gained +0.8% with strength in both Europe and Japan while the Australian market slipped by -0.5%. Emerging markets gained an equal +0.8% as no one particular market moved meaningfully. Year-to-date developed markets are up +14.0% while emerging markets have gained +13.2%.

The non-traditional asset classes were mixed this week with real estate posting a strong gain of +1.2%. Both gold and commodities were lower with gold down -0.6% as inflation fears remain isolated and commodities fell -0.9% on a drop in the price of oil. Year-to-date commodities are higher by +15.3% and gold is off less than a percent.

Bond prices were little changed for the week down -0.1%. The Federal Reserve did meet and voted to leave interest rates unchanged. Additional comments from the Fed reduced some investors’ hopes that there could be a rate cut later this year. The yield on the benchmark 10-year U.S. Treasury closed at 2.522% up fractionally from last week.

Stock Highlights

Apple (AAPL) reported earnings that were down 10% from the prior year on -5% lower revenue of $58 billion. These numbers were not as bad as some had feared both topping Wall Street estimates. The company is struggling with declining iPhone sales while seeing record revenue in services, fueled by its install base of 1.4 billion active devices, and wearable devices. As the accompanying graph shows quarter revenue had been accelerating through the third quarter last year and abruptly turned negative. The company exists to reverse this trend in the third quarter of this year. All of this was ultimately welcome news for investors with its stock gaining +3.6% for the week now higher by +17.5% year-to-date.

Source: www.YCharts.com

Amazon (AMZN)’s stock had an up and down week…or better said as a down and up week. The company reported earnings a week prior resulting in an initial jump in its stock price followed by the stock drifting lower throughout much of this week. It ended on a positive note though when Warren Buffett disclosed his Berkshire Hathaway, via one of his internal portfolio managers, has been buying the stocks. He did not indicate how many shares they had purchased but that did not stop the stock from rallying to close at a new 2019 high up +30.7% for the year now.

General Electric (GE), the struggling industrials conglomerate, reported quarterly results that contained some very welcome news for investors. Revenue held steady as compared to a year ago at $27.3 billion and earnings per share topped estimates. The most welcomed news though was that the company only burned through $1.2 billion in cash…not a good thing but better than had been expected. The stock jumped +9.7% for the week and is up +38.9% for the year. As the accompanying graph shows this stock has suffered greatly off a high above $31 in 2016, and $60 in 2000, now trading at $10.50.

Source: www.YahooFinance.com

Alphabet (GOOG), the parent of search engine giant and advertising behemoth Google, reported disappointing quarter results sending its stock lower. Earnings per share came in above Wall Street estimates but revenue missed the target by less than 3%. The company continues to grow at an impressive rate but that rate of growth has been slowing for 4 quarters as its cost-per-click declines. The stock fell -6.8% for the week on this news but remains higher for the year by +14.5%.

Economic Indicator - Reported

The U.S. employment report showed the economy adding 263,000 new jobs which was significantly better than economists’ forecast of 190,000. This marks 100 consecutive months of employment growth and eased some fears that we could entering a period of economic slowdown. The added jobs in the month pushed the unemployment rate to a 49-year low of 3.6%. This was impacted some though by a drop in the participation rate or the number of people seeking jobs.

Worker productivity, a measure of the amount of output per worker, jumped in the first quarter by +3.6%. This is good news for both workers and the economy as higher productivity can drive economic growth without a high risk of inflation. Productivity gains have been weak since 2007 averaging just +1.3% after averaging more than +2% in the postwar economy.

The pace of U.S. housing prices has slowed to the lowest rate since late 2012 according to the S&P CoreLogic Case-Shiller 20-city housing price index. In the most recent month prices were higher by +0.2% resulting in a year-over-year gain of +3.0%. Of note is a moderation of prices increases in multiple cities in California partially being impacted by the 2017 tax law.

Economic Indicators – Upcoming

The following economic data is expected in the coming week:

  • Consumer Prices (CPI) are expected higher by +0.4% in April with the core rate expected to by just +0.2%
  • Producer Prices (PPI) are estimated to increase by +0.2%

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