Hello all - we hope you had a nice April.
The month was a relatively quiet one. The Dow gained 2.5%, the S&P 500 rose 1.5%, and the Nasdaq, which has a higher concentration of tech stocks, added just 0.1%.
The month was a relatively quiet one. The Dow gained 2.5%, the S&P 500 rose 1.5%, and the Nasdaq, which has a higher concentration of tech stocks, added just 0.1%.
Here’s a look at how the markets moved this month:
And here’s the sector performance for the month (Comm services is the communications sector, which includes names like Facebook and Google, who had solid gains near the end of the month):
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After the banking crisis sent markets all over the map last month, this month was looked incredibly tame. The market saw little volatility and there were few newsworthy headlines. The Fed was very quiet this month, too, and had no impact on the markets.
Economic data was generally lower, with most inflation lower, too.
The main topic this month was corporate earnings as results from the first quarter started coming in. We’ll discuss that next.
Economic data was generally lower, with most inflation lower, too.
The main topic this month was corporate earnings as results from the first quarter started coming in. We’ll discuss that next.
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EARNINGS
About half the companies in the S&P 500 have reported their earnings results so far. The results haven’t been that bad. Well, relatively speaking.
Analysts expected company earnings to be down about 6.8% on average, according to analytics company Factset. However, so far company earnings have been lower by about 3.7%. Lower earnings are never good, but its all about beating expectations, which they did.
Earnings results have varied by sector. Banks have not been as bad as thought, while sectors like energy and technology have fared pretty well.
One trend that continues is companies are selling less items, but have raised prices so much that they are actually earning more. This trend cannot last, but we’ve been saying that for a few quarters and this has yet to be the case. The image below is a headline highlighting this very subject.
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INFLATION
We’ll first look at inflation before getting into the other economic data. As you can see in the chart below, inflation continues to move lower.
However, that is looking at inflation on an annual basis. When you look at inflation month-by-month, inflation is still rising every month. It rose only slightly last month, but it’s still an increase.
Inflation is also steadily rising when we exclude food and energy from the calculation (which economists call the “core” measurement).
One bright spot is inflation at the business level, or PPI, took a sharp turn lower. This could mean lower prices for us soon.
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ECONOMIC DATA
The data released this month shows an economy that continues to slow.
We’ll first look at an indicator we’ve discussed a lot recently, which is the leading economic indicator index. It combines many other indicators that tend to signal the direction of the economy (like weekly unemployment numbers, building permits, etc.).
This index has been lower for 12-straight months. As you can see in the chart below, it never goes this low without a recession following (a recession is marked by the gray shaded areas in the chart).
We can see the economy slowing with the GDP report, which shows the strength of an economy. Last quarter saw the economy grow just 1.1%. Combine this low growth and high inflation and you can safely say we are in a “stagflation” period.
Both the manufacturing and service parts of our economy moved lower last month, with the manufacturing sector firmly contracting.
Retail sales fell again last month.
Durable goods (these are items with a longer life, like a phone or refrigerator) were the one bright spot. They showed a solid gain last month, although this was more due to some large airplane orders.
Consumer confidence moved lower last month after it looked like it might be starting to trend higher.
Confidence at small businesses continues to languish.
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Where does the market go from here?
In the very short term, stocks may have some room to pop higher, but we aren’t too enthusiastic. A big Fed policy meeting later this week may help set the tone for the month. Investors think the Fed will back away from their reduction in stimulus and will signal an end to their increases in interest rates. We aren’t so sure. It will be something to watch closely.
This commentary is for informational purposes and is not investment advice, an indicator of future performance, a solicitation, an offer to buy or sell, or a recommendation for any security. It should not be used as a primary basis for making investment decisions. Consider your own financial circumstances and goals carefully before investing. Past performance cannot guarantee results.
