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Financial Markets Commentary For the week of April 22, 2019

Key Market Data

04/12/2019 04/18/2019 One Week Change YTD One Year
S&P 500 Index 2,907.41 2,905.03 -0.08% +16.59% +9.41%
MSCI EAFE Index 1,915.67 1,920.24 +0.24% +13.07% -3.71%
Barclays Capital U.S. Aggregate Bond Index 2,098.12 2,099.43 +0.06% +2.58% +4.51%
10-year Treasury Note Rate 2.566% 2.561% -0.5 basis points -12.4 basis points -31.3 basis points

Last week’s two biggest stories, the fire at Notre Dame in Paris and the release of the Mueller report, had little impact on stocks as investors moved through the market’s four-day week on their way to celebrating Easter and Passover. Much of the market’s movement was the result of first-quarter earnings news (Also read: What Do Big Bank Earnings Signal for the Economy?). Even though most of the companies that have reported so far have exceeded analysts’ expectations, this is expected to be the first negative year for earnings since 2016. That said, this week will be the true test for earnings as 31 percent of the S&P 500’s companies and 40 percent of the Dow’s will report, including such big names as Amazon, Caterpillar, Exxon-Mobil, Facebook, and Microsoft.

China in the news: GDP, trade, and a national security risk

China made news on several fronts last week, including its GDP growth, the ongoing trade negotiations, the trade gap, and the possibility of the U.S. government taking another step to contain Chinese technology. The Chinese government said the country’s economy expanded 6.4 percent in the first quarter, better than expected. However, as is often the case, there’s some question about the extent to which government spending and policymaking spurred that growth. Meanwhile, with President Trump saying that the trade talks were “moving along quite well,” the two sides announced the next face-to-face rounds for negotiating a deal, one in Beijing and one in Washington. The goal is to reach an agreement by late May or early June. Also last week, the Commerce Department reported that the trade deficit fell 3.4 percent in February from January to $49.38 billion, well below the forecast, to its lowest level since last June. Exports were up 1.1 percent compared to a 0.2 percent increase in imports, while the closely watched trade gap with China tumbled 28.2 percent to $30.1 billion. The total trade gap hit a 10-year high of $59.9 billion in December. Finally, Ajit Pai, the Chairman of the Federal Communications Commission, said he’d oppose the request by China Mobile to provide cell service in the U.S. because the application, “raises substantial and serious national security and law enforcement risks.” The FCC will vote on the application in May.

Retail sales, industrial production, and Q1 GDP

The government announced that retail sales advanced 1.6 percent in March from February, the fastest pace since September. The March number was up 3.6 percent from a year earlier. That news, along with the trade gap report, led some analysts to raise their forecasts for first-quarter GDP growth, expected to come in at 2.2 percent when it’s released this week (the Atlanta Federal Reserve recently upped its forecast to 2.8 percent). However, earlier last week the government said that industrial production fell 0.1 percent in March and was down 0.3 percent for the first quarter compared to a gain of 4 percent for the last quarter of 2018, which will impact first-quarter GDP growth. Manufacturing was flat in March after having declined in both January and February.

Two views of the new NAFTA

A report from the bipartisan U.S. International Trade Commission (ITC) was interpreted very differently by those for and against the United States Mexico and Canada Agreement (USMCA) that the White House has proposed to replace the North American Free Trade Agreement (NAFTA). The ITC said the impact of the USMCA on the U.S. economy “is likely to be moderate,” adding 0.35 percent to GDP and 175,000 jobs. Kevin Hassett, Chairman of the White House Council of Economic Advisers, said of the ITC’s report, “I think that should be reassuring to anyone who is on the fence on this bill.” But Senator Ron Wyden (D, OR), countered, “Donald Trump’s NAFTA represents at best a minor update to NAFTA, which will offer only limited benefits to U.S. workers.”

Qualcomm, a merger on hold, and the latest unicorns

Qualcomm’s stock jumped 23 percent on Tuesday, its best day in 20 years, after the company announced that it had reached a settlement with Apple about profits on smartphones and signed a new, multi-year licensing agreement. The threat of litigation had sent Qualcomm’s stock south. The Justice Department said it was looking into the $26 billion T-Mobile and Sprint merger, informing the two companies that the deal would probably not be approved as structured. The stock of the ride-sharing company Lyft has fallen below its IPO price after an initial surge, but the latest of the so-called “unicorn” stocks soared when they debuted last week. Pinterest, the online bulletin board, saw its share price jump 28 percent on opening day as its valuation hit $16 billion, while Zoom, which manages online videoconferencing, did it one better as its stock soared 72 percent, the best opening since Twitter’s IPO in 2013, and closed with a market valuation of $19 billion.

In other news, housing starts fell 0.3 percent in March from February to an annual rate of 1.14 million, while building permits declined 1.7 percent to 1.27 million. For the first quarter, starts were off 9.7 percent from a year earlier, while building permits were down 5.4 percent. The National Association of Home Builders said builder confidence was 63 in April compared to 62 in March. Wholesale inventories were up 0.2 percent in February from January, while business inventories advanced 0.3 percent. The Conference Board’s Leading Index rose 0.4 percent in March from February. And first-time jobless claims for the week ending April 13th fell 5,000 to 192,000; the four-week moving average dropped 6,000 to 201,250.

A look ahead

This week’s releases will include updates on existing and new home sales, orders for durable and capital goods, consumer sentiment, and the initial estimate for first-quarter GDP.

Commentary is written to give you an overview of recent market and economic conditions, but it is only our opinion at a point in time and shouldn’t be used as a source to make investment decisions or to try to predict future market performance. To learn more, click here.