Markets, Economy

Weekly Kickstart (04/09/2018-04/13/2018)

4/9/18 8:00 AM

/iStock-462756183.jpgStocks were under pressure last week, as the S&P 500 fell 1.38 percent to 2,604.47. That decline left the benchmark index down 2.59 percent year-to-date, and 9.34 percent below the all-time closing high. Despite the disappointing performance, the price action last week actually suggests that equities may be eager to rally, because it was only the negative headlines about the (still completely avoidable) global trade war that were able to drag down stocks. One reason why many investors remain quick to step back into the market even in the face of rising volatility is the expectation for a strong corporate earnings season. Indeed, the Q1 2018 earnings growth rate for the S&P 500 is projected to be 17.3 percent, according to the latest FactSet data. If true that would mark the highest earnings growth recorded since the first quarter of 2011 (+19.5 percent).


At the start of the year earnings growth was forecast to be only 11.4 percent in Q1, but this improved over the past three months due to analysts revising their estimates upward across ten of the eleven business sectors. Analysts have also raised their EPS estimates for the full year by 7.1 percent since the start of 2018, the largest increase on record. The decrease in the corporate tax rate has been the main factor behind the broad upward earnings revisions, but rising oil prices and interest rates have likely augmented the increase in earnings estimates for companies in the energy and financial sectors, respectively. Although encouraging, there are still many unknowns (risks) that remain in the market, meaning that volatility is likely to stay elevated. As a result, individual investors should continue to focus less on the near-term fluctuations in stock valuations and more on the long-term goal of amassing a large retirement nest egg. Assistance with that endeavor is available through the consistent use of tax-advantaged savings vehicles, dollar-cost averaging, and regularly consulting with a professional financial advisor. As always, we are here to help with any questions you may have.


To recap a few of the things we learned about the economy last week, the positives included that small business capital investment rose, and average hourly earnings for Americans grew at a faster pace due to continued tightening in the U.S. labor market. As for the negatives, mortgage and refinance applications declined, the nation’s trade gap widened, construction spending grew by less than forecast, gauges of manufacturing and services sector activity sent mixed signals, small business hiring cooled, corporate layoff announcements surged, first-time claims for unemployment benefits unexpectedly jumped, and nonfarm payrolls growth fell to a 6-month low. This week the pace of economic data slows down but there are still a few important reports on employment, consumers, inflation, and small business scheduled to be released, along with the potentially market-moving minutes from the latest Federal Open Market Committee (FOMC) meeting due out on Wednesday.


**A more detailed snapshot of the U.S. economy can be found here.**

What To Watch:


  • Nothing significant







Sources: Econoday, FactSet, FRBSL

Post author: Charles Couch