GDP, Earnings, Interest Rates
The first of 3 readings on Gross Domestic Product (GDP) came out a solid 2.3%, which was above the consensus “guessers” estimate of 2%. The first quarter is typically effected by winter weather conditions around the United States. The first quarter GDP in 2016, was 1.1% and in 2017 was .7%. I believe this is solid evidence that the US Economy is continuing the current expansionary stage.
On the earnings front, more than one-half of the companies in the S&P 500 have reported first-quarter results. Earnings growth, for the reported companies is tracking a 23% increase over the same quarter, one year ago. At the beginning of earnings season, profits were forecast to rise approximately 18%. This week brings many other companies, including Apple, reporting 1st quarter earnings.
Last Tuesday, for the first time since 2014, the yield on the 10 Year US Treasury reached 3%. On Wednesday it hit 3.03% before moderating to just below 3% by Friday. It will be worth a close watch to see where the new range settles this year for this important data point.
Markets
The Dow dropped over 400 points on Tuesday last week, most likely in response to the 10 year Treasury breaking 3%. However, solid corporate earnings pushed the Market back to the flat line for the week. Year to date, we find the Markets are also at a flat line for most indexes.
In April, for the first time in a while, we find Energy Stocks leading for the month, up approximately 9.4%. Interestingly, Financials are flat line for the month and for the year, so far. Most analysists expect Financial to do well in an interest rate rising cycle. We’ll see going forward. Often times, when we do come out of a corrective stock market period, we find that leadership changes. It will be very interesting to see what sectors lead going forward. Since January 2017, Technology has been the sector pulling the markets higher.
The Week Ahead
This week features Monthly Employment Reports between Wednesday and Friday. Friday’s Employment report is the big one, informing us of Job Creation, the Unemployment Rate, Private and Manufacturing Payrolls and changes to hourly earnings. Typically this is one of the most important reports of each month. This report can influence inflation and interest rates, so it will be watched closely.
Question of the Week?
What term describes a bond or bond funds interest rate sensitivity?
a) Coupon
b) Yield to Maturity
c) Duration
d) Discount Rate
Check in next Monday’s Blog for the answer, as well as the definitions to each of the multiple choice options.
