Investment Commentary –May 22nd, 2018

Year to Date Market Indices as of Market Close May 22ndh, 2018
Dow 24,834 (0.47%)
S&P 2,724 (1.90%)
NASDAQ 7,378 (6.88%)
Gold $1,296 (-1.77%)
OIL $72.09 (20.63%)
US 10Y Treasury 3.05 (64.07%)
Barclay Bond Aggregate (-2.71%)
Fed Funds Rate 1.75 (last increase was 3/21/18)

Stocks close lower as trade, geopolitical worries resurface

U.S. stocks closed lower on Tuesday giving up some of the sharp gains from the previous session as uncertainty over trade policy and other geopolitical issues remained high. The Dow Jones Industrial Average DJIA, -0.72% closed 178.88 points, or 0.7%, lower to 24,834.65. The S&P 500 index SPX, -0.31% fell 8.54 points, or 0.3% to 2,724.46. Meanwhile the Nasdaq Composite COMP, -0.21% declined 15.58 points, or 0.2% to 7,378.46. Among the worst performers on the S&P 500, AutoZone Inc AZO, -9.49% shares plunged 9.5% after the company reported quarterly result.

JP Morgan Thought of the week

Earnings season in the US has seen companies deliver strong results for the first quarter of the year. With approximately 90% of the S&P 500 having reported their results, earnings and sales growth have been healthy, with three quarters of companies beating estimates and all sectors reporting positive growth. On a year over year basis (y/y), earnings grew 24% in Q1 (21% ex-energy) – markedly higher than the average of 11% seen over the prior four quarters. Excluding energy, financials posted the strongest earnings delivery of 29% y/y. Whilst a portion of the earnings uplift can be attributed to the tax cuts, US businesses also continue to benefit from a strong domestic economy and solid global growth. This positive earnings season signals that companies’ fundamentals are firm, and this should be supportive of US equities in 2018.

Around the Web:

Retail strength: Positive economic data and expectations of further interest-rate increases helped to fuel the weekly decline in bond prices and the resulting rise in yields. One key data point was a report on Tuesday that showed a strong gain in retail sales during April.

Small-cap record: A small-cap stock index climbed to a record high as the positive outlook for U.S. economic growth continued to support shares of small companies. The Russell 2000 Index rose on Wednesday to a level that topped its previous record set in late January.

Dollar versus euro: The divergent economic outlook in the U.S. and Europe is reflected in currency markets, where the dollar strengthened to its highest level against the euro in five months. During the latest week, concerns about growing political instability in Italy weighed on Europe’s common currency and on Italian stocks.

Buyback record: Stock buybacks in this year’s first quarter broke a record, even though not all companies have reported their quarterly results and share repurchase activity. As of May 16, companies in the S&P 500 had reported $178 billion in buybacks, topping the prior record of $172 billion set in the third quarter of 2007, according to S&P Dow Jones Indices.

Upcoming events: Wednesday: Release of minutes from May 1–2 meeting of the U.S. Federal Reserve Board

Other Notable Indices (YTD)
Russell 2000 (small caps) 6.31
EAFE International 1.69
EAFE Emerging Markets 0.80
Shiller Annuity Index 5.29

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.

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