- Stocks move higher to start week. U.S. equities are modestly higher this morning as investors look ahead to the start of first quarter earnings season, with several tier one banks set to report later this week. This after major indexes shook off a lackluster jobs report and pushed higher through midday, only to give back gains late in the session; the S&P 500 fell 0.1%. The telecom (+0.2%) and healthcare (+0.2%) sectors clung to modest gains, while financials (-0.3%) and energy (-0.4%) stocks were among the days’ laggards. Overseas, investors are focusing on political turmoil stemming from Syrian incidents amid light economic data; Asian markets were mixed overnight, with the Nikkei (+0.7%) advancing, and the Shanghai Composite (-0.5%) moving lower; while European indexes are near flat amid range-bound trading. Elsewhere, WTI crude oil ($52.80/barrel) continues to climb on regional turmoil in the middle east, COMEX gold ($1250/oz.) is lower, and Treasury yields are down slightly to 2.37% on the 10-year.
- Over the last month, the LPL Financial Current Conditions Index (CCI) fell 20 points to 235. The CCI remains in the middle of the range it has held since 2010. Falling shipping traffic and an increase in initial jobless claims off of near 40-year lows were the main detractors from the CCI in the last month, while fed fund rate expectations and credit spreads were the main positive contributors.
- Inflation and highlights from this week’s economic calendar. Despite Friday’s holiday, retail sales and the consumer price index (CPI) will be reported on that day (producer prices come Thursday) and will highlight what is otherwise a quiet week of data in the U.S. Two reports that deserve some attention, however, are National Federation of Independent Business (NFIB) Small Business Optimism and JOLTS (Job Openings and Labor Turnover) which will provide some insights into the policy-driven rise in business confidence and the job market, where Friday’s weak payroll employment report raised some concerns. Overseas, we get Chinese and Japanese trade data and G7 Finance Ministers will meet, while geopolitical risk will remain in focus following last week’s military strike in Syria.
- S&P 500 poised for double-digit earnings gain. The S&P 500 is likely to produce double-digit year-over-year earnings growth for the first quarter (Thomson-tracked consensus is +10.1%) as earnings season gets underway this week. Earnings growth would reach 12-14%, the best since 2011, should companies beat estimates by the average 4.1% seen over the last five years according to FactSet. Last year’s first quarter marked the trough of the earnings recession, setting up an easy comparison, though we have several other reasons to be optimistic. Growth is expected to be powered by energy’s rebound from the oil downturn that battered the sector early last year while solid macro data in recent months is also supportive.
- Fed balance sheet. Minutes from the recent Federal Reserve (Fed) meeting, released last Wednesday, signaled that the Fed intends to reduce its sizable $4.2 trillion balance sheet. We’ll analyze the options available to the Fed to accomplish a reduction of this size. In addition to how the balance sheet was built, we look at the structure of the assets within the portfolio for clues as to how the normalization may impact markets.
- Continued strong breadth. The New York Stock Exchange (NYSE) Composite Advance/Decline (A/D) line broke out to new highs last week. This is one of our favorite technical indicators, as it shows how many stocks are advancing versus declining at any given time. In other words, it measures overall market breadth. To see new highs occur suggests there is a good deal of investor participation and the overall equity rally could continue to have legs. Also, the NYSE A/D line broke out to new highs one year ago this week, well ahead of the eventual S&P 500 Index’s (SPX) new highs in July 2016.
- Eurozone: Industrial Production (Feb)
- Bank of Canada Rate Decision & Monetary Policy Report
- Initial Jobless Claims (Apr 1)
- Banks Open, Markets Closed
- CPI (Mar)
- Retail Sales (Mar)
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. Stock investing involves risk including loss of principal. 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) are subject to interest rate risk and opportunity risk. If interest rates rise, the value of your bond on the secondary market will likely fall. In periods of no or low inflation, other investments, including other Treasury bonds, may perform better. Bank loans are loans issued by below investment-grade companies for short-term funding purposes with higher yield than short-term debt and involve risk. Because of its narrow focus, sector investing will be subject to greater volatility than investing more broadly across many sectors and companies. Commodity-linked investments may be more volatile and less liquid than the underlying instruments or measures, and their value may be affected by the performance of the overall commodities baskets as well as weather, disease, and regulatory developments.
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