Weekly Update 4/20/18 – Stocks Turn Midweek as Volatility Continues

US: S&P 500 Index +0.5%, Dow +.04%, Nasdaq +0.6%
Europe: STOXX Europe 600 +0.7%, German DAX +0.8%, France CAC 40 +1.8%, U.K. FTSE 100 +0.9%
Asia: Japan Nikkei +1.8%, China Shanghai Composite -2.8%, Korea KOSPI +0.9%
Rates/Commodities: 10-Year Treasury yield +13 basis points to 2.96%, WTI crude oil +1.5%, COMEX gold -0.8%

Global equities sold off Thursday and Friday after a hot start to the week, leaving stocks only modestly higher for the period. Earnings drove investor confidence early on, though reception to reports from major financials sector players was mixed. Continue reading

The Longer The Base, The Higher In Space

Emerging markets (EM) is one area we contine to like in 2018 as a place to pursue alpha. As we noted in our Outlook 2018: Return of the Business Cycle, this group has solid fundamentals, modest valuations, and an opportunistic demographic backdrop.

The country breakdown of the MSCI Emerging Markets Index shows that China is the largest component, followed by South Korea and Taiwan. Continue reading

Market Update: Friday, April 20, 2018

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Daily Insights

  • Leading indicators remains strong. The Leading Economic Index (LEI) jumped 0.3% in March, after being up 0.7% in February and 0.8% in January. This index comprises 10 components (e.g., jobless claims, factory orders, and confidence) to show a picture of future economic health. This is one of Five Forecasters that we use as a warning sign for a pending economic slowdown, and fortunately we see little reason to expect a recession over the next 12 months. Year over year, this index is up +6.2%, well above the negative year-over-year signal that has preceded every recession going back to the early 1970s.

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Market Update: Thursday, April 19, 2018

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Daily Insights

  • Beige Book continues to show economic strength. The Federal Reserve (Fed) released its latest Beige Book yesterday, which provides information from the 12 Fed districts on current economic conditions. Respondents continued to report steady growth overall. Trade concerns were starting to pop up, including rising steel costs, but one district also noted that steel and aluminum manufacturers were starting to announce plans to reopen plants and rehire workers. Labor market tightness continued to be an issue, especially for highly skilled workers, but wage and price pressures remained limited.  We will discuss the Beige Book in more detail and will update our Beige Book Barometer in next week’s Weekly Economic Commentary.

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How Real Yields Help Paint the Volatility Picture

Real yields are an important barometer of monetary conditions within the economy. Chief Investment Strategist John Lynch explains, “Indications of higher levels of growth led to a sharp rise in real yields (yields adjusted for inflation) in early 2018. While real yields have rolled over recently, they continue to be a solid gauge of the true borrowing costs for companies, with significant implications for the direction of stock and bond markets alike.” Continue reading

Market Update: Wednesday, April 18, 2018

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Daily Insights

  • Market breadth appears to be in favor of the bull. As we laid out in our recent Weekly Market Commentary, there are signs that the 2018 bottom for U.S. equities has already taken place. Further building on that theme is overall market breadth, which continues to be quite strong. We like to look at advance/decline (A/D) lines to gauge overall market strength, as this shows how many stocks are going up versus down. In healthy markets, we want to see higher trending A/D lines as a sign of underlying market strength. Yesterday saw new all-time highs on the S&P Small Cap A/D line, the S&P Mid Cap A/D line, NYSE Common Stock Only A/D/ line, the OEX A/D line, and the S&P 500 Index A/D line. This broad-based market strength further supports higher equity prices in 2018.

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Market Update: Tuesday, April 17, 2018

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Daily Insights

  • The Federal Reserve (Fed) announced the nomination of Richard Clarida as vice chairman of the Board of Governors. The makeup of the Fed Board continues to suggest a moderate blend of “gradualists” that we believe will continue to support existing policy and the equity markets as the leadership transition continues from Janet Yellen to Jay Powell. Remember, the “great rotation” from bonds to equities has not yet begun.

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