- Stocks in Asia were mostly higher with Nikkei & South Korea’s KOSPI surging +2.0% on positive vibes carrying over from U.S. jobs growth and Emmanuel Macron victory. South Korea’s election tomorrow looks to end a nine-year run for the ruling conservative party, which has been caught up in scandal. Hang Seng +0.4% while the Shanghai Composite slipped 0.8% to the lowest levels in more than six months amid Beijing’s efforts to rein in financial leverage.
- European stocks are holding steady after opening down slightly and two strong weekly gains that essentially priced in the Macron victory. The broader Euro Stoxx 600 is up ~+9.0% YTD. The euro slipped -0.5% to 1.09, but note that the common currency has climbed in five of the past six days and has been trading near its highest levels of the past six months.
- U.S. markets are slightly lower after the S&P 500 and Nasdaq closed Friday at record levels. The dollar is up +0.3% after four consecutive weekly declines. The 10-year yield is higher at 2.37%. Oil is holding on to $46/barrel and COMEX gold is up 0.3% after dropping more than 3% last week.
- Macron victory essentially eliminates fears of worst-case scenarios: wave of populist victories threatening viability of currency and European Union (EU).
- First election without either of two leading parties in Fifth Republic.
- Still plenty of challenges–Macron must form alliances with Socialists, the party he left, to offset alt-right anger, potential lack of cooperation heading into parliamentary elections in June.
- Euro-Stoxx 600 +2.0% last week and flat/down today.
- Euro (~1.09) down 50 basis points today but stronger vs. dollar and other currencies past month.
- Eurozone gross domestic product (GDP) and inflation both approaching +2.0% annual growth and this vote suggests trajectory can be maintained, accelerated with economic reforms in France.
- European Central Bank (ECB) must remain accommodative near term, though, because Italy is the next challenge.
- WTI fell -0.6% last week to $46/barrel as increased shale production in U.S. offsets Organization of the Petroleum Exporting Countries (OPEC) production cuts. To be sure, the announcement in November helped drive oil to ~$55, yet the increased profitability for higher cost producers in North America was evidently too good to pass up.
- We expect OPEC to extend their production cuts at the next meeting in Vienna on May 25. Wall Street consensus is still bullish, projecting a range of $50-55/barrel over the next twelve months.
- Recent sell-off largely technical in nature over supply concerns. WTI broke through 200-day moving average and failed to hold the new low for the year ($45) and a key Fibonacci retracement level. Frenzied trading in Asian markets ensued on Thursday, yet oil volatility was at its highest level in six months and relative strength (RSI) indicates oversold position.
- “It’s different this time” – the U.S., not Saudi Arabia, is now the world’s swing producer and although OPEC has largely held on production cuts, U.S. rig counts are up.
- We remain neutral on the energy sector as supply-demand adjustments still point toward a range of $50-$55 for WTI as OPEC cuts likely persist.
- Strong earnings season got even better last week. S&P 500 earnings for the first quarter rose more than 1% over the past week and are now tracking to a 14.7% year-over-year increase, compared with the 10.2% increase reflected in consensus estimates on April 1 (Thomson Reuters data). Both the earnings growth and beat rates (75%) are the best in more than five years. Excluding the rebounding energy sector, earnings are still on pace to grow a solid 10.5% year over year. About 40 S&P 500 companies will report results this week as earnings season winds down.
- Companies have delivered mostly upbeat guidance. Forward estimates inched fractionally higher last week and are down just 0.2% since earnings season began. Although the timetable for policy, particularly corporate tax reform, has been pushed out, we still see potential policy upside in 2018. The relatively bright outlook is helping support elevated valuations at an S&P 500 price-to-earnings ratio of 17.5 times.
Sell in May
- Time to go away? The well-known “Sell in May and go away” period is upon us. Although this is one of the most widely known investment clichés out there, since 1950, historically the next six months are indeed the worst six months of the year for the S&P 500. So should you sell and wait to buy in November? We take a closer look at this cliché and show why it doesn’t always work and might not work this year.
- Up three weeks in a row. On Friday, the S&P 500 closed at its first all-time high since March 1 and in the process rose for the third consecutive week. It was also the first green Friday for the S&P 500 in nearly two months (March 10). This was the second three-week win streak of the year, with the earlier streak making it all the way to six weeks in a row (ending in early March). There hasn’t been a year with two separate six-week win streaks since 2013.
- Eurozone: Sentix Investor Confidence (May)
- China: Foreign Direct Investment (Apr)
- China: Trade Balance (Apr)
- NFIB Small Business Optimism (Apr)
- Germany: Industrial Production (Mar)
- BOJ: Summary of Opinions at Apr 26-27 Meeting
- China: New Loan Growth & Money Supply
- China: Consumer Price Index (CPI) & Producer Price Index (PPI) (Apr)
- Monthly Budget Statement (Apr)
- ECB: Draghi Speaks
- Initial Jobless Claims (May 6)
- PPI (Apr)
- Eurozone: European Commission Economic Forecasts
- UK: Bank of England Rate & Inflation Report
- ECB: Publishes Economic Bulletin
- CPI (Apr)
- Retail Sales (Apr)
- Germany: GDP (Q1 Prelim.)
- Germany: CPI & PPI (Apr)
- Eurozone: Industrial Production (Mar)
 Please note: The modern design of the S&P 500 stock index was first launched in 1957. Performance back to 1950 incorporates the performance of predecessor index, the S&P 90.
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