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Strong Results From Big Companies, GDP Push Stocks Higher For the week of April 29, 2019

Key Market Data

04/18/2019 04/26/2019 One Week Change YTD One Year
S&P 500 Index 2,905.03 2,939.88 +1.20% +18.00% +12.45%
MSCI EAFE Index 1,920.24 1,915.65 -0.24% +12.9% -2.64%
Barclays Capital U.S. Aggregate Bond Index 2,099.43 2,107.33 +0.38% +2.97% +5.62%
10-year Treasury Note Rate 2.561% 2.499% -6.2 basis points -18.6 basis points -48.3 basis points

The S&P 500 and Nasdaq both closed the week at new highs after the government said the economy grew 3.2 percent in the first quarter, above expectations and the best showing for the first three months of the year since 2015. In fact, those indexes set records twice last week (and the Dow was just 1.1 percent off its high) as first-quarter earnings continued to beat analysts’ forecasts and the odds of the Federal Reserve raising its rate remained, for now, slim.

Factoring in last year’s government shutdown, estimates for first-quarter growth had at one point fallen as low as low as 1 percent, but higher exports, reduced imports, and investment in inventories pushed the first estimate all the way to 3.2 percent. President Trump responded to the news by saying, “We’re the number one economy in the world now and it’s not even close.” But on Friday the market’s reaction to the report was somewhat muted because consumer spending, which accounts for more than two-thirds of economic growth, was up just 1.2 percent.

Q1 earnings news

Although first-quarter earnings may be down from a year earlier, which was expected, a number of big names issued upbeat reports last week, including Amazon, Caterpillar, Comcast, Starbucks, and Microsoft, which briefly became the third company, after Apple and Amazon, to have a market valuation of $1 trillion. Facebook also posted strong earnings, but the company said it was putting aside as much as $5 billion against a fine from the government for selling its users’ information, a settlement that’s still being negotiated. The list of high-profile companies whose earnings fell short included Exxon-Mobil, Boeing, AT&T, and 3M.

Oil’s ups and downs

The price of oil fluctuated last week, first rising sharply after the White House said that the waivers it had given to eight countries, including China, to buy oil from Iran would come to an end on May 2, 2019. Secretary of State Mike Pompeo said the goal was to bring Iran’s output “to zero” in an attempt to end that country’s support of terrorism. There’s some question as to whether China, among others, will comply, as a spokesman for that nation’s Foreign Ministry said China opposes America’s “unilateral sanctions and long-arm jurisdiction.” Prices fell on Friday after President Trump said he had “called up OPEC” to make sure that prices stay low.

Trade talks: China … and Japan

U.S. negotiators are in Beijing this week, and last week President Trump hinted that China’s President Xi Jinping would soon be visiting the White House, seen as a sign that the two sides are close to a deal. In a speech last week, Xi indicated, without mentioning the United States, that China would respond to some of America’s demands by increasing imports, protecting intellectual property, reducing subsidies to Chinese industries, stabilizing its currency and allowing foreign companies greater access to China’s markets. “A more open China will fully integrate itself into the world,” he said. Meanwhile, Japan’s Prime Minister Shinzo Abe met with President Trump, who indicated that a trade deal may be completed soon. Japan is part of the Trans-Pacific Partnership, from which Trump withdrew, but Abe is apparently willing to make a separate deal with the United States to avoid new tariffs on Japanese cars. The White House wants Japan to cut tariffs on American agricultural products.

Cain steps down

Just a week after saying he wouldn’t step down, Herman Cain said he didn’t want to be nominated to the Fed’s board of governors. Cain said that he wasn’t withdrawing because he’d lost the support of four GOP senators, which all but doomed his chances, but because, “It’s a big cut in pay”; the salary is $183,000.

Occidental moves in, German banks give up

Occidental outbid Chevron for Anadarko Petroleum, offering $38 billion compared to Chevron’s offer of $33 billion. It’s the fourth time that Occidental has tried to acquire Anadarko, but Occidental’s stock fell because it’s expected to lose a bidding war against Chevron, roughly four times its size. And Commerzbank and Deutsche Bank said they were abandoning plans to merge, a combination that had been endorsed by the German government.

The next unicorns

Uber said that its IPO price is expected to be between $44 and $50, giving it a market valuation of between $80 - $92 billion. And Slack, which makes office communications software, filed its IPO papers on Friday, with a valuation of about $15 billion (it will let the market determine the share price through a direct listing). Slack, whose stock will appear on the NYSE in about a month, follows Lyft, which is down 21 percent since its March IPO, and Zoom and Pinterest, which hit the market this month and have so far gained 84 percent and 57 percent, respectively. In other news, the National Association of Realtors said existing home sales fell 4.9 percent in March from February to 5.21 million and were down 5.4 percent from a year earlier. Sales of new homes rose for the third month straight, up 4.5 percent in March from February to 692,000; sales were 3 percent higher than in March of 2018. Orders for durable goods increased 2.7 percent in March from the month before, well above the forecast. New orders for nondefense capital goods excluding aircraft advanced 1.3 percent. The University of Michigan’s consumer sentiment index was 97.2 for April compared to 98.4 in March. And first-time jobless claims for the week ending Apr. 20, 2019 jumped 37,000 to 230,000, the biggest increase since September of 2017; the four-week moving average rose 4,500 to 206,000.

A look ahead

The coming week will be a big one for economic news. In addition to more first-quarter earnings reports, there will be updates on personal consumption expenditures and income, the S&P CoreLogic Case-Shiller home price index, pending home sales, consumer confidence, the Institute for Supply Management’s manufacturing and nonmanufacturing indexes, vehicle sales, nonfarm productivity, factory orders and retail inventories. The Federal Reserve will meet on Tuesday and Wednesday, it’s expected to leave its benchmark rate unchanged, and, on Friday, the Labor Department will announce the jobless rate for April, forecast to stay at 3.8 percent.

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.