Market Commentary - May 11th, 2018
With over 90% of S&P 500 companies reporting, we've registered 24.9% earnings growth and 8.2% revenue growth. Wal-Mart's report this Thursday marks the "unofficial" end to Q1 earnings season. Technology, materials (44.1%), and energy (95%) are leading the way, helped meaningfully by their larger percentage of non-U.S. revenues.
Strong earnings guidance has been notable this quarter. The guidance spread (# raising/# lowering guidance) of +4.9 is one of the strongest readings over the past 17 years.
Strong earnings have taken the P/E ratio down to a respectable 17.2x from end January's peak of 19.2x. Equity market volatility is also declining, down 16% last week, now over 35% lower than the end of the first quarter.
Recent market technicals are looking stronger. The S&P 500 cumulative A/D line has made three new highs since the Jan/Feb correction and the Russell 2000 is back to within 1% of a new all-time high.
The announcement of a U.S. exit from the Iran deal and resulting sanctions took oil prices up over 3% to over $70 for the first time since 2014. WTI crude is +15% YTD and +50% over the past 12 months.
U.S. dollar (USD) strength is factoring into small cap relative outperformance over large caps given their smaller percentage of international exposure.
The Euro has been a mirror image to the USD, breaking below $1.20 last week for the first time since early January.
April's weaker inflation data has reduced some anxiety surrounding Fed policy looking forward. Last week's inflation data showed inflation accelerating but maybe not as fast as some feared.
Argentina is seeking support from the IMF, again. EM currencies are in a particularly difficult stretch here, now down nearly 7% since their February highs.
Lower than expected CPI (core 2.1%, headline 2.5%) and PPI (core 2.3%, headline 2.6%) eased inflationary concerns last week. Some one-offs factored into the muted result such as vehicle prices dropping 1.6%, the largest since the recession, accounting for 40% of the MoM CPI miss.
NFIB small business sentiment for April of 104.8 reinforced that small businesses have an exceptionally positive outlook at this time.
Jobless claims of 211,000 tied for the second lowest weekly reading since 1969. We are at 166 consecutive weeks below 300,000 claims and 25 consecutive weeks below 250,000 claims. Continuing claims dropped below 1.8mm, a 45-year low. The March JOLTS figure (Job Openings and Labor Turnover) revealed a much higher than expected 6.55mm job openings, the highest reading since 2000 - tight labor markets.
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