Stocks continued their advance on generally strong earnings reports this week despite the GDP report showing a slow first quarter economy. The S&P 500 rose 1.51%, the Dow gained 1.91%, and the NASDAQ added 2.32%. On Tuesday, the NASDAQ posted record highs as it closed over 6,000 for the first time. Internationally, the MSCI EAFE was up 2.97%.
On Friday, April 28, we learned that first quarter GDP increased a modest 0.7%, lower than the reported consensus expectations of approximately 1%. Oil drilling and housing performed well, but consumer spending fell, largely due to poor auto sales and lower utility bills. Consumer spending, the largest segment of our economy, rose by only 0.3%.
While this growth is slower than the 2.1% last quarter - and the lowest we've experienced in three years - the picture is likely not as negative as it may seem at first. Not only did mild weather affect consumer spending on heating, but the government has also acknowledged its challenges accurately calculating data for first quarter GDP.
In addition to these GDP readings, a number of other events and data releases contributed to market performance this week.
Corporate Earnings were largely positive
Thus far in the first quarter, 79% of reporting companies published strong profits. In particular, consumer discretionary companies and commodity producers reported robust earnings while phone services and real estate investment trusts had weaker results.
- General Motors
- Alphabet (parent company of Google)
- Proctor & Gamble
- U.S. Steel
Trump Announced Tax Plan
President Trump outlined his new tax proposal, including plans to cut corporate taxes to 15%. Individual tax rates would fall to 10%, 25%, and 35% if Congress adopts the President's plan.
North American Trade Experienced Tension
On Wednesday, April 26, reports that the U.S. may pull out of NAFTA created concern in financial markets. By Thursday, however, markets calmed after President Trump said he would agree to requests from Canada and Mexico's leaders to renegotiate the decades-long trade deal. As these negotiations continue, two controversies lay in the background:
- U.S. dairy farmers' claims that Canadian action concerning milk imports violates the trade agreement.
- A new tariff of up to 24% on Canadian softwood lumber that President Trump announced last week.
Finding the right solution for the negotiations is important to the U.S., Canada, and Mexico. NAFTA affects a significant portion of each country's economy, including industries such as farming, automotive, and energy. Trade with the two countries accounted for approximately $584 billion in U.S. exports in 2016.
French Elections Moved Markets
Political newcomer Emmanuel Macron emerged as the frontrunner in the French election while ultra-right nationalist Marine Le Pen's chances of winning the May 7 final election appear to be fading. After the first round election results eased investor concerns about a possible Le Pen victory, the markets reacted positively with $2.4 billion flowing into European equities by April 26. Asian equities also rallied.
With Congress avoiding a shutdown last week, the markets should focus this week on:
- Earnings reports
- Construction spending
- April auto sales
- Manufacturing data
- Federal Reserve meeting on Wednesday
By Friday, most remaining S&P 500 companies' earnings reports will be in, including Apple, Facebook, and Pfizer. Looking ahead, we will watch for what economic stories emerge from the data we receive, including the upcoming jobs report. For now, despite the first quarter's initially slow GDP growth of 0.7%, expectations continue for 2.5% growth in 2017.
Monday: Construction Spending, Personal Income and Outlays, PMI Manufacturing Index, ISM Manufacturing Index
Wednesday: ADP Employment Report, PMI Service Index, ISM Non-Manufacturing Index
Thursday: International Trade, Productivity and Costs
Friday: Employment Situation
Notes: All index returns (except S&P 500) exclude reinvested dividends, and the 5- year and 10-year returns are annualized. The total returns for the S&P 500 assume reinvestment of dividends on the last day of the month. This may account for differences between the index returns published on Morningstar.com and the index returns published elsewhere. International performance is represented by the MSCI EAFE Index. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly.
These are the views of 4th River Financial Group, and not necessarily those of the named representative, and should not be construed as investment advice. Neither the named representative nor the Investment Advisor gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your financial advisor .for further information.
Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.
Diversification does not guarantee profit nor is it guaranteed to protect assets.
International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors.
The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.
The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ. The DJIA was invented by Charles Dow back in 1896.
The Nasdaq Composite is an index of the common stocks and similar securities listed on the NASDAQ stock market and is considered a broad indicator of the performance of stocks of technology companies and growth companies.
The MSCI EAFE Index was created by Morgan Stanley Capital International (MSCI) that serves as a benchmark of the performance in major international equity markets as represented by 21 major MSCI indices from Europe, Australia and Southeast Asia.
The S&P/Case-Shiller Home Price Indices are the leading measures of U.S. residential real estate prices, tracking changes in the value of residential real estate. The index is made up of measures of real estate prices in 20 cities and weighted to produce the index.
The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.
Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.
Past performance does not guarantee future results.
You cannot invest directly in an index.
Consult your financial professional before making any investment decision.
Fixed income investments are subject to various risks including changes in interest rates, credit quality, inflation risk, market valuations, prepayments, corporate events, tax ramifications and other factors.
By clicking on these links, you will leave our server, as they are located on another server. We have not independently verified the information available through this link. The link is provided to you as a matter of interest. Please click on the links below to leave and proceed to the selected site.