Stocks headed higher last week, with the S&P 500 rising by 1.62 percent. This solid gain left the benchmark index up 1.80 percent 2016-to-date and just 2.35 percent below the record high hit in May of last year. Many traders, though, have likely become more cautious with their positioning following this multi-week rally in the stock market. For example, a recent fund manager survey conducted by Bank of America Merrill Lynch found that average cash holdings rose from 5.1 percent to 5.4 percent over the past month, and global equity allocations slid to a net 9 percent overweight in April. Surveyed money managers still consider “long the U.S. dollar” to be the most crowded trade but only a net 2 percent of respondents believe that the greenback is currently overvalued, the lowest reading in six months. Further, surveyed managers now view a British exit (Brexit) from the European Union as a bigger potential risk than an economic recession in the United States.
The first quarter corporate earnings season began last week but it really gets underway this week with roughly 20 percent of the companies listed on the S&P 500 scheduled to release their Q1 profit data. FactSet estimates that overall earnings for S&P 500 companies fell by 9.1 percent during the past three months. If true that would make for four consecutive quarters of year-over-year earnings declines, a trend that has not happened since the “Great Recession.” Weaker profits are expected across most major industries but the largest declines will likely be found among companies with business models sensitive to the price of oil and other energy-related commodities. Looking ahead, accelerating U.S. wage growth could be the next headwind for corporate earnings, and in turn stock valuations, but there are several other potential risks for traders to worry about, e.g. China, global monetary policy, the Presidential election, etc. For retirement investors, though, persistent and long-term participation in the market is what matters. This can be enhanced by dollar-cost averaging which aims to turn pullbacks into opportunities. As always, we are here to help with any questions you may have.
To recap what we learned about the U.S. economy last week, the positives included that mortgage and refinance applications jumped, regional manufacturing activity continued to rebound, inflationary pressures moderated, and the number of Americans making first-time claims for unemployment benefits fell to a multi-decade low. As for the negatives, businesses’ average stock-to-sales ratios remained elevated, core retail sales grew by less than expected, U.S. industrial production declined, capacity utilization fell, and both consumer and small business owner sentiment deteriorated. This week the pace of economic data slows down considerably but there are still several important reports on housing, manufacturing, and business activity scheduled to be released.
What To Watch:
- William Dudley Speaks 8:30 AM ET
- Housing Market Index10:00 AM ET
- Neel Kashkari Speaks 12:30 PM ET
- Eric Rosengren Speaks 7:00 PM ET
- MBA Mortgage Applications7:00 AM ET
- Existing Home Sales10:00 AM ET
- EIA Petroleum Status Report10:30 AM ET
- Jobless Claims8:30 AM ET
- Philadelphia Fed Business Outlook Survey8:30 AM ET
- Chicago Fed National Activity Index8:30 AM ET
- FHFA House Price Index9:00 AM ET
- Bloomberg Consumer Comfort Index9:45 AM ET
- Leading Indicators10:00 AM ET
- EIA Natural Gas Report10:30 AM ET
- 5-Yr TIPS Auction 1:00 PM ET
Sources: Econoday, Bloomberg, Twitter, BofAML, FactSet, Goldman Sachs, Wells Fargo, Advisor Perspectives (DShort), et al
Post author: Charles Couch