Market Update: Monday, April 25, 2016

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  • Major averages split as Nasdaq underperforms. A series of disappointing quarterly reports from some of the technology sector’s largest companies led the Nasdaq lower on Friday, even as the S&P 500 and Dow finished with nominal gains. Financials and energy both advanced more than 1%, with financials led by a continued rise in the 10-year Treasury yield, which closed at 1.88%, up from 1.75% the previous Friday; energy was boosted by a 1.4% increase in the price of WTI crude oil. Meanwhile, COMEX gold dropped 1.6% to $1230.00/oz. Final tallies: Dow +21.23 to 18003.75, Nasdaq -39.66 to 4906.23, S&P 500 +0.10 (0.00%) to 2091.58.
  • Equities strike cautious tone ahead of FOMC meeting. U.S. stocks are trading modestly lower this morning, although no change to interest rates is expected from the Federal Open Market Committee (FOMC) announcement on Wednesday afternoon. Gold and Treasuries have advanced in the risk-off environment, and crude oil is trading lower along with stocks. Overseas, traders cashed in profits on last week’s rise in Japan’s Nikkei Index; the Bank of Japan meets later this week and is expected to continue quantitative easing (QE) measures. China’s Shanghai Composite also finished in the red and European indexes are trading lower across the board.

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  • Big earnings decline still likely despite solid beat rate. With 132 S&P 500 companies having reported results, Q1 S&P 500 earnings are tracking to a 7.1% year-over-year decline, according to Thomson Reuters data. A solid 77% of companies have exceeded consensus earnings estimates, leading to a reduction in the overall expected–and still large–decline. The more than 5% energy drag and small negative currency impact are the difference between a 7% decline and roughly flat.
  • Markets seem pleased with corporate guidance. The market has responded well to resilient estimates, as consensus estimates for the balance of 2016 have barely budged, falling less than 0.5% since earnings season began, buoyed by a weaker U.S. dollar and commodities stability. This week (April 25-29) is a busy one with 186 S&P 500 companies reporting first quarter results.

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  • FOMC, U.S. GDP headline a busy week ahead. Wednesday’s policy statement from the FOMC following its April meeting and Thursday’s release of the first estimate of U.S. gross domestic product (GDP) in the first quarter highlight a busy week on the economic calendar. Domestic reports also include new home sales for March, durable goods orders for March, and consumer spending for March. International data include March industrial production and retail sales for Japan, first quarter GDP for the U.K., March retail sales and the Ifo business expectations survey for April in Germany, and final March trade data for China.
  • When doves cry? The upcoming Weekly Economic Commentary, due out later today, discusses the economic and financial market conditions facing the FOMC members at this week’s meeting. Without a new set of economic or interest rate forecasts or a press conference from Federal Reserve Bank (Fed) Chair Yellen, the FOMC has only its post-meeting statement to relay its message on the economy and rates to markets.
  • Value stocks have staged a comeback versus growth after a long losing streak. Based on the Russell 1000 style indexes, growth has outpaced value for the better part of the last decade. Other than the period between April 2012 and July 2013, it’s been all growth all the time since 2006. But value has shown signs of life recently, causing some to speculate that we are at the beginning of a sustainable reversal in trend. In this week’s Weekly Market Commentary, due out later today, we discuss the sustainability of value’s comeback and share some reasons for our skepticism that it will continue.

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Monday:

  • New Home Sales (Mar)
  • Germany: Ifo (Apr)
  • South Korea: GDP (Q1)

 

Tuesday:

 

 

 

Wednesday:

 

  • Pending Home Sales (Mar)
  • FOMC Statement
  • UK: GDP (Q1)
  • Eurozone: Money Supply and Bank Lending (Mar)
  • Brazil: Central Bank Meeting (No Change Expected)
  • Japan: CPI (Mar)

 

 

Thursday:

 

  • GDP (Q1)
  • Germany: Unemployment Change (Apr)
  • Japan: Bank of Japan Meeting (More QE Expected)

 

 

Friday:

 

 

 

Saturday

 

  • China: Official Mfg. PMI (Apr)
  • China: Official Non-Mfg. PMI (Apr)

 

 

Sunday

 

Click Here for our detailed Weekly Economic Calendar

Important Disclosures

Past performance is no guarantee of future results.

The economic forecasts set forth in the presentation may not develop as predicted.

The opinions voiced in this material are for general information only and are not intended to provide or be construed as providing specific investment advice or recommendations for any individual security. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly.

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Investing in foreign and emerging markets securities involves special additional risks. These risks include, but are not limited to, currency risk, political risk, and risk associated with varying accounting standards. Investing in emerging markets may accentuate these risks.

Treasury inflation-protected securities (TIPS) help eliminate inflation risk to your portfolio, as the principal is adjusted semiannually for inflation based on the Consumer Price Index (CPI)—while providing a real rate of return guaranteed by the U.S. government. However, a few things you need to be aware of is that the CPI might not accurately match the general inflation rate; so the principal balance on TIPS may not keep pace with the actual rate of inflation. The real interest yields on TIPS may rise, especially if there is a sharp spike in interest rates. If so, the rate of return on TIPS could lag behind other types of inflation-protected securities, like floating rate notes and T-bills. TIPs do not pay the inflation-adjusted balance until maturity, and the accrued principal on TIPS could decline, if there is deflation.

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