Market Update: Monday, April 9, 2018

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Daily Insights

  • First quarter earnings season kicks off this week. Several financial companies will report results on April 12-13, marking the unofficial start of first quarter earnings season. The S&P 500 Index has grown earnings at a double-digit clip three out of the past four quarters, and we believe is likely to make it four out of five. S&P 500 earnings, which consensus expects to increase 18% year over year, should get a boost from the new tax law, on top of strong economic growth globally, robust U.S. manufacturing activity, and a weaker U.S. dollar. Gains are likely to be broad based, with increases expected in all 11 S&P sectors. Some key areas to watch include company announcements on planned uses of tax law proceeds, the impact of trade tensions on companies’ outlooks, and potential wage pressures. We preview the upcoming earnings season today on the LPL Research blog and in this week’s Weekly Market Commentary, due out later today.

  • Perspective on Friday’s weakness. An escalation of trade rhetoric and weakness in the March employment report were drivers of equity weakness on Friday, and the very public debate between the United States and China on trade introduces the potential for additional volatility in the weeks ahead. However, taking a step back from the day-to-day headlines, economic data continue to paint a positive picture of U.S. growth, and this fundamental underpinning continues to give us a positive view of U.S. markets in 2018. We discuss in more detail in this week’s Weekly Economic Commentary, due out later today.

  • What to watch on trade. Following the latest $100 billion tariff salvo from the United States in the ongoing U.S.-China trade dispute, we will be watching for evidence that negotiations are taking place and are progressing. We do not want to see China take a hard line stance on some of the areas of emphasis for the White House, including onerous requirements regarding transfers of technology and joint ventures, and Chinese market access for U.S. companies, particularly financial services. Markets will watch tomorrow’s speech from Chinese President Xi for signs that the Chinese remain open to negotiations on these fronts. Yuan devaluation is among the potential retaliatory actions being reportedly considered by Chinese leadership, in addition to the potential for more tariffs on U.S. exports to China. We continue to be reassured by the relative size of the tariffs to the amount of the fiscal stimulus being put into the U.S. economy (estimated $81 billion in tariffs and as much as $800 billion in potential stimulus, according to Strategas Research Partners). Tariffs as a percentage of U.S. gross domestic product (GDP) [0.8%] and world GDP (0.4%) are meaningful but not enough to derail U.S. and global growth in our view. Keep in mind, announced tariffs may simply be negotiating tactics and may not actually go into effect, a point reiterated by White House officials over the weekend.

  • Earnings and FOMC minutes highlight this week’s calendar. The start of earnings season and the Federal Reserve Open Market Committee (FOMC) meeting minutes for its March 21 meeting are the economic and market calendar highlights this week, but other U.S. data releases include producer and consumer inflation, import/export data, University of Michigan’s Consumer Sentiment report, and a series of appearances from Regional Federal Reserve Bank presidents. Overseas, manufacturing and industrial production figures out of the Eurozone and inflation readings from Germany, France, and China are on the docket.

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Click Here for our detailed Weekly Economic Calendar

Monday

  • Germany: Trade Balance (Feb)
  • China: New Loan Growth & Money Supply (Mar)

Tuesday

  • NFIB Small Business Optimism (Mar)
  • PPI (Mar)
  • Wholesale Trade & Inventories (Feb)
  • France: Industrial Production (Feb)
  • Italy: Industrial Production (Feb)
  • ECB: Visco
  • Japan: Machine Tool Orders (Mar)
  • Japan: Core Machine Orders (Feb)
  • Japan: PPI (Mar)
  • China: CPI & PPI (Mar)

Wednesday

Thursday

  • Weekly Jobless Claims (Apr 7)
  • France: CPI (Mar)
  • Eurozone: Industrial Production (Feb)
  • ECB: Monetary Policy Meeting Accounts
  • Bank of Mexico: Overnight Rate
  • BOE: Credit Conditions and Bank Liabilities Surveys
  • China: Trade Balance (Mar)
  • China: Imports & Exports (Mar)

Friday

  • Univ. of Michigan Sentiment (Apr)
  • Germany: CPI (Mar)
  • Eurozone: Trade Balance (Feb)

 

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