For the week ending 7-13-18
Stocks had another week of gains and the NASDAQ posted another record high in a week that saw low trading volumes but higher-than-average volatility. Technology and consumer discretionary shares performed best, while utilities stocks and other income-producing investments lagged. Trading volumes were subdued for most of the week as many investors awaited the rush of second-quarter earnings reports, which began in earnest on Friday, following the release of reports from three major banks.
The ebb and flow of trading sessions centered, once again, around the issue of tariffs and trade. The lack of any bad news on the trade front over the previous weekend helped stocks get off to a strong start on Monday, but stocks retreated as trade tensions rose again on Wednesday, following news that the U.S. was planning to follow through on a threat to impose tariffs on an additional $200 billion worth of Chinese goods. The lack of an immediate response from China was met with relief, however, helping stocks rebound on Thursday and hold those gains into the close on Friday.
The impact of ongoing trade disputes was evident in producer prices, which rose 0.3% in June, building on a 0.5% increase in May. On an annualized basis, producer prices rose 3.4% which is their fastest increase in nearly seven years. Increased costs for metals used in construction and manufacturing appeared to be behind much of the increase, suggesting that the steel and aluminum tariffs recently put in place by the Trump administration are driving up input costs.
Consumer price inflation remained more contained but also appeared to be inching higher. Consumer prices in June increased 2.9% over a year ago—the highest rate in six years, more than offsetting the 2.7% increase in average annual wages over the same period. Indeed, inflation concerns appear to be growing among Americans.
In their latest survey of consumer sentiment, researchers at the University of Michigan noted that over half of Americans in the top third of the income distribution expressed concerns about the economic impact of tariffs. “The primary concerns expressed by consumers were a decline in the future pace of economic growth and an uptick in inflation,” researchers noted.
As mentioned above, earnings season got underway on Friday with the release of earnings reports from JP Morgan, Wells Fargo, and Citigroup, among others. Analysts described the results as “mixed.” JP Morgan’s earnings were, overall, pretty good but Citigroup disappointed primarily on weakness in trading revenue and credit cards and Wells Fargo missed their target by four cents, or 3.6%.
According to analytics firm, FactSet, earnings growth in the second quarter are expected to be up by 20% on a year-over-year basis. If those estimates hold up it will be the second highest growth rate since Q3 of 2010. The highest growth rate since 2010 was last quarter when earnings among the companies in the S&P 500 grew by 24.2%.
For the week, the Dow Jones rose 563 points to 25,109 (2.3%); the NASDAQ was up 138 points to 7,826 (1.8%); and the S&P 500 added 41 points to 2,801 (1.5%)
Oil fell $3 to $71/bbl. Gold lost $23 to $1,242/oz.
The yield on the 10 yr. Treasury was steady at 2.8%.
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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.