S&P 500 and NASDAQ REACH RECORD HIGHS AMIDST POSITIVE EARNINGS AND SOLID MACRO DATAPOINTS

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Weekly Market Update — April 27, 2019

The two broad U.S. markets posted healthy gains this week and set new closing highs when the final bell rang as the S&P 500 moved up 1.2% and NASDAQ climbed 1.9%
Much of the week's gains can be attributed to very solid corporate earnings reports and macro–data reinforcing the strength of the U.S. economy
The narrowly defined DJIA, however, declined slightly and moved down 0.1%, mostly on the heels of disappointing earnings from a handful of companies, including Intel, 3M and Exxon Mobil
With over 45% of the S&P 500 companies having turned in quarterly results, corporate profits appear to be headed in a positive direction
The market cheered earnings from some very large household names, including Amazon, Facebook and Microsoft, which drove gains in just about all sectors within the S&P 500
The health care sector led the pack, rebounding from last week's significant decline as all 11 S&P 500 sectors are painted green YTD
Investors also cheered data that showed pickups in new home sales and durable goods orders for March
The “advance” estimate for first quarter GDP also topped expectations, increasing 3.2%, while the GDP Price Deflator showed prices moderated
The 2–yr yield declined 11 basis points to 2.27% and the 10–yr yield declined 6 basis points to 2.50%
The U.S. Dollar Index rose 0.6% to 98.03

Weekly Market Performance

Four Months into 2019 and Things Look Good

The two broad–based U.S. stock markets rallied this week and not only closed at record highs but also put last year's decline in the rear–view mirror. Over the last four months, two of the largest drivers of stock prices have performed well – corporate earnings are positive and the macroeconomic climate is supportive.

In addition, uncertainty as to whether the Fed might move rates too fast and too often appears to have subsided and trade tensions between the U.S. and China have eased.

Macro Data Supports Positive Markets

If all of that wasn't enough, U.S. GDP came in stronger than expected. In fact, according to the “advance” estimate released by the U.S. Department of Commerce, the U.S. economy grew at a 3.2% pace in the first quarter, up from 2.2% at the end of last year.

The “second” estimate for the first quarter, based on more complete data, will be released on May 30, 2019.

Earnings Drive Stock Prices

Rising earnings helped the S&P 500 and NASDAQ reach new highs during the past week. And despite a few high-profile earnings disappointments, corporate profits appear to be headed toward small gains in the first quarter.

As of Friday, 46% of the companies in the S&P 500 have reported actual results for Q1 2019. According to research firm FactSet's release dated Friday, April 26th:

In terms of earnings, the percentage of companies reporting actual EPS above estimates (77%) is above the five-year average.
In aggregate, companies are reporting earnings that are 5.3% above the estimates, which is also above the five–year average.
In terms of sales, the percentage of companies (59%) reporting actual sales above estimates is equal to the five–year average.
In aggregate, companies are reporting sales that are 0.3% above estimates, which is below the five–year average.

Further, FactSet reports that:

Six of the eleven sectors are reporting year–over–year growth in earnings, led by the Health Care and Utilities sectors.
Five sectors are reporting a year–over–year decline in earnings, led by the Energy and Information Technology sectors.
Nine of the eleven sectors are reporting year–over–year growth in revenues, led by the Health Care and Communication Services sectors.
Two sectors are reporting a year–over–year decline in revenues, led by the Information Technology sector.

During the upcoming week, 164 S&P 500 companies (including 5 Dow 30 components) are scheduled to report results for the first quarter.

Sources

factset.com; standardandpoors.com; nyse.com; bls.gov; sec.gov; federalreserve.gov; msci.com; nasdaq.com; dowjones.com; morningstar.com; edwardjones.com; bloomberg.com