Market Perspective for April 14, 2017

Equities remained in a trading range during the holiday-shortened week, despite blowout bank earnings. The S&P 500 Index slipped 1.1 percent. The 5-, 10-, and 30-year Treasury yields fell to their lowest levels in 2017, benefiting corporate and investment grade bonds. Fidelity Select Corporate Bond (FCBFX) climbed to its highest level since November 2016.

J.P. Morgan (JPM) earned $1.65 per share versus estimates of $1.52. Revenues also beat forecasts. The trading division drove results with revenues coming in $1 billion higher than expected. Loan growth was 9 percent. Citigroup (C) beat consensus earnings estimates by 11 cents, earning $1.35 per share. Its bond trading division saw revenue climb 19 percent.

Earnings at Wells Fargo (WFC) were strong, but revenues were hurt by the accounts scandal. The bank earned $1.00 in the first quarter, 3 cents better than forecast. Revenue came in 1 percent below estimates, however, as growth in the consumer divisions remains weak.

Regional bank earnings were also strong. PNC Financial (PNC) reported $1.96 per share in earnings, 14 cents better than estimates. Commerce Bancshares (CBSH) reported earnings growth of 9.7 percent. The solid start to bank earnings lifted the first quarter S&P 500 earnings growth estimate from 9.0 percent to 9.2 percent.

Delta Air Lines (DAL) earned $0.77 per share, 2 cents better than estimates. Revenue missed slightly. The firm guided lower in the second quarter due to early April storms in the Atlanta area. Delta also used United Continental’s (UAL) customer service nightmare to highlight its success with handling overbookings.

Initial claims for unemployment fell back to near 44-year lows last week. At 234,000, claims were below the consensus forecast of 245,000, The University of Michigan Consumer Sentiment Index hit 98, the highest level since November 2000. It confirms the jump in sentiment recorded by the Conference Board’s March survey.

Producer and consumer prices fell in March according to the Bureau of Labor Statistics. Headline producer prices declined 0.1 percent for the month and 2.3 percent in the past year. Core producer prices climbed 1.7 percent over the past 12 months. With the energy comparisons fading, producer prices should moderate and converge with core prices in the coming months.

Consumer prices also fell in March, the first monthly decline since February 2016. Here as well, the year-on-year gains in energy are dissipating, as falling gasoline prices helped pull the headline number lower. Core inflation also declined 0.1 percent during March. The 12-month headline CPI was 2.4 percent, with core inflation rising 2.0 percent. Chinese inflation numbers out this week also showed a similar deceleration in inflation.

Retail sales beat estimates in March. Economists forecast a decline of 0.3 percent, but sales only dipped 0.2 percent. Weaker auto sales were the main reason for the slowdown.

West Texas Intermediate crude oil topped $53 a barrel this past week, bringing prices back into the December 2016 to March 2017 trading range. Equity investors weren’t buying the rally on Thursday though, sending SPDR Energy (XLE) down 1.83 percent on the day.

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