For the week ending 9-14-18
Stocks finished the week with solid gains as shifting signals on U.S. trade policy were mostly ignored and investors concentrated their attention on the strong fundamentals in the American economy and optimism for another strong earnings season. Companies will begin to report earnings for the third quarter in about a month and estimates are coming in at around 20%, which, if those estimates bear out, will be the third highest year-over-year growth rate in earnings since 2010. Third place might not seem all that notable but the best and second best growth rates (since 2010) were posted in the first and second quarter of this year, making 2018 already one of the best years for corporate profits in recent memory.
Early in the week, worries about the Trump administration implementing its next round of planned tariffs—a 25% levy on $200 billion of Chinese imports—dampened sentiment. However, on Wednesday headlines about a new round of trade negotiations with China helped lift stocks off their lows amid hopes that the talks would stave off those tariffs. As of Monday morning, though, it seems that president Trump is determined to levy those tariffs and the broader market is down about a quarter of a percent in early morning trading.
The August Consumer Price Index (CPI) showed prices rising 2.7% from a year earlier, making it the first month in 2018 that year-over-year inflation has eased. The Producer Price Index for August also showed more subdued inflationary pressure than earlier in the year but the pace remains well above that of recent years going back to the 2008 recession. The Fed’s next monetary policy meeting is scheduled for September 25–26 and the consensus remains that the Board will hike the short-term benchmark rate another quarter percent higher to a range between 2% and 2.25%.
Other economic data of note include: Small Business optimism rose to a new record in August according to the National Federation of Independent Business. Total consumer credit rose $16.6 billion in July to a seasonally adjusted $3.91 trillion. That’s an annual growth rate of 5.1% but economists see the growth in credit as overall healthy for the economy. According to Sarah House, senior economist at Wells Fargo Securities, “Consumers still appear to have some degree of caution in the spending. The American consumer is leading this expansion and the fact that they are doing it not entirely on credit is pretty encouraging.”
And finally, the number of job openings in the U.S. climbed to a record 6.94 million in July. The share of people who left jobs on their own, known as the “quits rate”, rose to 2.7% among private-sector employees. The record is 2.9%, set in 2001. Workers, it seems, are taking advantage of the strong economy and tight labor market by switching jobs in search of better pay. Layoffs are also at a 50-year low.
For the week, the Dow Jones rose 238 points to 26,155 (0.9%); the NASDAQ was up 107 points to 8,010 (1.4%); and the S&P 500 added 33 points to 2,905 (1.1%)
Oil rose $1.00 to $69/bbl. Gold was essentially unchanged at $1,200/oz.
The yield on the 10 yr. Treasury ticked up 0.1 to 3.0%.
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Disclaimer: It is worth noting that the opinions in this commentary are Christian Peterson’s and may occasionally vary somewhat from the opinions of the Winch Financial investment team as a whole. Client recognizes that any opinions or analysis described in this commentary involve the Advisor’s judgment and good faith and do not constitute investment advice. All recommendations or observations are subject to various market, currency, economic, political and business risks. Client recognizes that no party to this alert has made any guarantee, either oral or written, that Client’s investment objectives will be achieved. Advisor shall not be liable for any action performed or omitted to be performed or for any errors of judgment or mistake, except in the case of Advisor’s gross negligence, willful misconduct, or violation of applicable law. Advisor shall not be responsible for any loss incurred by reason of any act or omission of Client, custodians, broker-dealers, or any other third party. Nothing in this commentary shall constitute a waiver or limitation of any rights that Client may have under applicable state or federal law, including without limitation the state and federal securities laws.