Lindsey Report May ’18

April yielded yet another volatile month for equity markets this year (as measured by Dow, S&P 500 and Nasdaq), yet all three managed to post fractional gains in April. Year-to-date, the Dow and S&P are negative (-2.3% and -1%, respectively), while the Nasdaq has managed a 2.3% gain. Nonetheless, all three remain well off of their January highs (Yahoo Finance).

First quarter earnings reports have been steadily rolling in. With over 50% of the S&P 500 companies reporting, companies have steadily beaten expectations. Rueters notes that 79% have had higher than expected earnings and 73% have exceeded revenue expectations. The figure I find most impressive is that quarterly earnings are higher by 24%.

While growing earnings should be good for equities, there are a variety of factors that could be muting the markets response. High upon that list is the prospect of rising interest rates. In late April, the yield on the 10-year, U.S. Treasury note approached and then briefly exceed 3% (AP). It’s not like 3% is historically high, but it represents a significant move from where were not long ago: the yield was 1.37% in July 2016 (Marketwatch).

As noted last month, there is uncertainty regarding potential trade tariffs. The U.S. has been in negotiations with Canada and Mexico over NAFTA the past nine months, and the discussions with China over their trade policies have only just begun.

There are certainly other factors at play and in my opinion one of them was that the broader equity markets had gotten too pricey. I feel like they had gotten ahead of themselves and ahead of earnings and needed to pullback some, slow down or do both. There is no way of knowing where the markets are headed, but I’m pleased to see strong corporate earnings.

Finally, here are two positive statistics to highlight. On 5/4, the Commerce Dpt. reported that the unemployment rate fell to 3.9%, which is the lowest since 2000. Moreover, unemployment claims during the week of 4/21 reached their lowest level since 1969 (CNBC).

 

The opinions voiced are for informational purposes only and are not intended to provide specific advice to any individual. To determine which investments are appropriate for you, consult myself prior to investing. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. The economic forecasts set forth in this commentary may not develop as predicted and there can be no guarantees that strategies promoted will be successful.

 

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