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STOCKS FLAT AS TRADING ACTIVITY SLOWS WAY DOWN AHEAD OF THE START OF EARNINGS SEASON

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Weekly Market Update — April 13, 2019

  • The U.S. stock markets ended the week mostly where they started, as trading volumes were remarkably low throughout the week as daily volumes recorded new year–to–date lows on Monday, Wednesday and Thursday
  • The low trading volumes seemed to be due in part to the wait–and–see attitudes leading up to first quarter earnings season which kicked off on Friday with JPMorgan Chase delivering a very strong report to start the season
  • Investors were also digesting news from the International Monetary Fund that global growth is slowing to 3.3% from 3.5%, although there were suggestions that growth could increase slightly more toward the second half of the year
  • The Brexit deadline was extended yet again, this time until October 31st
  • The markets welcomed reports pointing to a rebound in activity out of China
  • Looking at the glass as half–empty, the Health Care sector struggled and lost 2.4%, partly due to rising uncertainty with respect to the Affordable Care Act
  • U.S. Treasuries lost ground this week, pushing yields higher across the curve
  • The 2–yr yield increased five basis points to 2.39% and the 10–yr yield increased six basis points to 2.56%
  • The U.S. Dollar Index lost 0.5% to 96.96
  • WTI crude rose 1.3% to $63.91/barrel

Weekly Market Performance

First Quarter Earnings Season Kicks Off

Earnings reports from JPMorgan and Wells Fargo marked the unofficial start of the quarterly earnings season and JPMorgan delivered a much better-than-expected report on Friday, helping push the Financial sector to outperform on the week.

Thomson Reuters and FactSet are reporting that analysts expect overall earnings for the S&P 500 to decline marginally this quarter when compared to the first quarter of 2018. The reasons most often mentioned by pundits include the effect of the December 2017 tax cuts rolling–off and slower global growth.

Given that most are expecting a decline in earnings this quarter, FactSet examined the results from the 25 companies that have reported so far through Friday to see if there were specific topics driving down earnings and found two that seemed to be more common. The most negative topic was the term “foreign exchange” although only a few of companies discussed specific currencies relative to the U.S. dollar. The second negative topic was “higher wages and labor costs.”

Inflation Remains in Check

On Wednesday, the United States Department of Labor released Consumer Price Index data and confirmed that inflation remains in check, validating the Fed's decision to hold off on raising rates. From the DOL:

  • The Consumer Price Index increased 0.4 percent in March on a seasonally adjusted basis after rising 0.2 percent in February
  • Over the last 12 months, the all items index increased 1.9 percent before seasonal adjustment
  • The energy index increased 3.5 percent in March, accounting for about 60 percent of the seasonally adjusted all items monthly increase
  • The gasoline index increased sharply, and the electricity index also rose, although the natural gas index declined
  • The food index also increased in March, with the indexes for food at home and food away from home both continuing to rise
  • The index for all items less food and energy increased 0.1 percent in March, the same increase as in February
  • The indexes for shelter, medical care, new vehicles, recreation, education, and tobacco were among those that increased in March, while the indexes for apparel, used cars and trucks, and airline fares all declined

Jobless Claims Lowest in 50 Years

The Department of Labor was busy this week and on Thursday it reported on weekly jobless claims with this:

  • In the week ending April 6, the advance figure for seasonally adjusted initial claims was 196,000, a decrease of 8,000 from the previous week's revised level. This is the lowest level for initial claims since October 4, 1969 when it was 193,000.
  • The 4–week moving average was 207,000, a decrease of 7,000 from the previous week's revised average. This is the lowest level for this average since December 6, 1969 when it was 204,500.

More Brexit Uncertainty and Another Extension

The EU gave the UK until the end of October to finalize a Brexit agreement, causing the British pound to gain and the FTSE 100 Index to decline. This additional extension revealed big disagreements among EU leaders as to how much time the UK should be given to exit and it’s hard to see how much will improve in the coming months. And if there is one thing markets hate, it’s uncertainty. Adding to the uncertainty is that moments after the extension was pushed out until October 31st, talk began about extending the October 31st deadline even further out.

Sources

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