Investment Commentary – April 2, 2019

Year to Date Market Indices as of Market Close April 2, 2019
Dow 26,183 (12.23%)
S&P 2,867 (14.38%)
NASDAQ 7,850 (18.296%)
Gold $1,295 (-0.16%)
OIL $60.06 (27.71)
Barclay Bond Aggregate (2.56%)
Fed Funds Rate 2.50% (last increase was 12/19/18)
US Real GDP Growth: 2.20% Chg for Q4 2018

First-quarter earnings will stink. Ignore them

Companies are getting ready to start reporting results for the first quarter. Barring a miracle, earnings will fall from a year ago.

But Krishna Memani, chief investment officer of Oppenheimer Funds, isn’t too concerned. Even though analysts are forecasting a nearly 4% drop in profit for S&P 500 companies, Memani thinks investors will look past the expected weak results and focus more on the outlook for the second half of the year — which he says is a lot sunnier.

Memani points out that the market is no longer worrying the Federal Reserve will sink the economy by continuing to raise interest rates. The current consensus is that the Fed will be on hold for the next few months. Some are even predicting the Fed will lower rates by year’s end.

Memani doesn’t believe the rate cut hype though. He argues that the economy simply isn’t weak enough to justify lowering rates. But he also thinks the Fed shouldn’t be raising rates either because inflation remains muted.

Holding steady could be just what Wall Street needs.

With that in mind, Memani still favors the technology, industrial and housing sectors over other more defensive parts of the market. He refers to banks and other financials as a value trap.

And Memani is also very bullish on China and other emerging markets. He believes that a rebound in China’s growth will help sustain the current market rally.

Memani will talk about all this with CNN correspondent Alison Kosik on the “Markets Now” live show Wednesday at 12:45 pm ET. He’ll also discuss the latest Brexit and US-China trade developments and preview Friday’s big jobs report.

Around the web:

Climbing back: The major stock indexes rose more than 1%, regaining positive momentum after alternating between modest weekly gains and losses throughout March. Small-cap stocks outpaced their large-cap peers, as a small-cap benchmark, the Russell 2000 Index, added more than 2%.

Tech leadership: The information technology sector was far and away the top-performing sector in the S&P 500 during the first three months of the year, returning nearly 20%. Healthcare was the quarter’s sector laggard, returning about 7%.

Surging buybacks: U.S. stock buybacks broke a record for the fourth quarter in a row, and the record total for all of 2018 was up 55% from the previous year. Last year, companies in the S&P 500 reported $806 billion in share repurchases, according to S&P Dow Jones Indices.

Calming trend: Market volatility subsided in a big way over the first three months of the year, based on a gauge that measures investors’ expectations of short-term stock volatility. The Cboe Volatility Index dropped 46% in the first quarter to a level that’s close to its historical average.

Upcoming this week:

Friday: Jobs and unemployment, U.S. Bureau of Labor Statistics

Other Notable Indices (YTD)
Russell 2000 (small caps) 15.80
EAFE International 9.14
Emerging Markets 11.21
Shiller Annuity Index 8.41

The views presented are not intended to be relied on as a forecast, research or investment advice and are the opinions of the sources cited and are subject to change based on subsequent developments. They are not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investments.