Knowledge builds confidence.

Weekly Market Snapshot

April 13, 2018

Market Commentary
by Scott J. Brown, Ph.D., Chief Economist

The economic data reports took second stage to shifting views on trade policy and the conflict in Syria. China’s President Xi Jinping gave a speech that was virtually the same as the one he gave in Davos a few months ago, but the markets took it as “conciliatory” (wishful thinking?). Emboldened, President Trump indicated an even tougher stance against China, but he also suggested that he might be down with TPP (that is, negotiating a U.S. entrance to multilateral agreement). Trump also threatened to respond militarily to gas attacks in Syria, but later tweeted that he didn’t signal any timing (or whether they would happen at all).  

The Consumer Price Index (CPI) rose a bit less than expected, reflecting lower gasoline prices (mostly due to the seasonal adjustment). Core inflation rose a little more than expected, partly reflecting higher shelter costs. The CPI rose 2.4% year-over-year (vs. +2.2% y/y in February), as the 7.0% March 2017 drop in wireless telecom rolled off of the 12-month calculation. Ex-food and energy, the CPI rose 2.1% y/y (vs. +1.8% y/y in February). The Producer Price Index showed a continued buildup in inflationary pressure. Import prices showed further increases in prices of raw materials but little inflation in finished goods (following gains in January and February). 

The FOMC minutes from the March 20-21 policy meeting showed that several officials thought it might be appropriate to push the federal funds rate above the neutral level for a while (that is, hitting the brakes somewhat more than anticipated). The Congressional Budget Office’s latest update showed the federal budget deficit rising to $804 billion (4.0% of GDP) in FY18 and $980 billion (4.6% of GDP) in FY19. 

Next week, of the mid-month economic releases, the retail sales report has some potential to move the financial markets. Trade policy and Syria will remain near-term wildcards. The stock market is expected to focus on earnings results. This follows an unusual pre-earnings season. Normally expectations are talked down and then actual earnings generally surprise to the upside. This time, earnings expectations have not come down. Hence, the bar is set high, leaving the market with some potential downside risk.


Indices

  Last Last Week YTD return %
DJIA 24483.05 24505.22 -0.96%
NASDAQ 7140.25 7076.55 3.43%
S&P 500 2663.99 2662.84 -0.36%
MSCI EAFE 2037.43 2014.20 -0.65%
Russell 2000 1557.33 1542.93 1.42%

Consumer Money Rates

  Last 1 year ago
Prime Rate 4.75 4.00
Fed Funds 1.68 0.90
30-year mortgage 4.49 4.05

Currencies

  Last 1 year ago
Dollars per British Pound 1.423 1.254
Dollars per Euro 1.233 1.067
Japanese Yen per Dollar 107.33 119.09
Canadian Dollars per Dollar 1.259 1.325
Mexican Peso per Dollar 18.189 18.551

Commodities

  Last 1 year ago
Crude Oil 67.07 53.18
Gold 1341.90 1278.10

Bond Rates

  Last 1 month ago
2-year treasury 2.34 2.29
10-year treasury 2.82 2.82
10-year municipal (TEY) 3.74 3.86

Treasury Yield Curve – 04/13/2018

Chart

As of close of business 04/12/2018


S&P Sector Performance (YTD) – 04/13/2018


Chart

As of close of business 04/12/2018


Economic Calendar

April 16  —  Retail Sales (March)
 —  Homebuilder Sentiment (April)
April 17  —  Building Permits, Housing Starts (March)
 —  IMF World Economic Outlook (update)
 —  Industrial Production (March)
April 18  —  Bank of Canada Policy Decision
 —  Fed Beige Book
April 19  —  Jobless Claims (week ending April 14)
 —  Leading Economic Indicators (March)
April 24  —  CB Consumer Confidence Index (April)
April 26  —  Durable Goods Orders (March)
April 27  —  Real GDP (1Q18, advance estimate)
May 2  —  FOMC Policy Decision (no press conference)
May 4  —  Employment Report (April)
June 13  —  FOMC Policy Decision (Powell press conference)

 

All expressions of opinion reflect the judgment of the Research Department of Raymond James & Associates, Inc. and are subject to change. There is no assurance any of the forecasts mentioned will occur or that any trends mentioned will continue in the future. Investing involves risks including the possible loss of capital. Past performance is not a guarantee of future results. International investing is subject to additional risks such as currency fluctuations, different financial accounting standards by country, and possible political and economic risks, which may be greater in emerging markets. While interest on municipal bonds is generally exempt from federal income tax, it may be subject to the federal alternative minimum tax, and state or local taxes. In addition, certain municipal bonds (such as Build America Bonds) are issued without a federal tax exemption, which subjects the related interest income to federal income tax. Municipal bonds may be subject to capital gains taxes if sold or redeemed at a profit. Taxable Equivalent Yield (TEY) assumes a 35% tax rate.

The Dow Jones Industrial Average is an unmanaged index of 30 widely held stocks. The NASDAQ Composite Index is an unmanaged index of all common stocks listed on the NASDAQ National Stock Market. The S&P 500 is an unmanaged index of 500 widely held stocks. The MSCI EAFE (Europe, Australia, Far East) index is an unmanaged index that is generally considered representative of the international stock market. The Russell 2000 index is an unmanaged index of small cap securities which generally involve greater risks. An investment cannot be made directly in these indexes. The performance noted does not include fees or charges, which would reduce an investor's returns. U.S. government bonds and treasury bills are guaranteed by the US government and, if held to maturity, offer a fixed rate of return and guaranteed principal value. U.S. government bonds are issued and guaranteed as to the timely payment of principal and interest by the federal government. Treasury bills are certificates reflecting short-term (less than one year) obligations of the U.S. government.

Commodities trading is generally considered speculative because of the significant potential for investment loss. Markets for commodities are likely to be volatile and there may be sharp price fluctuations even during periods when prices overall are rising. Specific sector investing can be subject to different and greater risks than more diversified investments. Gross Domestic Product (GDP) is the annual total market value of all final goods and services produced domestically by the U.S. The federal funds rate (“Fed Funds”) is the interest rate at which banks and credit unions lend reserve balances to other depository institutions overnight. The prime rate is the underlying index for most credit cards, home equity loans and lines of credit, auto loans, and personal loans. Material prepared by Raymond James for use by financial advisors. Data source: Bloomberg, as of close of business April 12, 2018.


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