Market Perspective for April 27, 2018

The S&P 500 Index was flat this week but led the major indexes. Earnings season and a potential breakthrough in North and South Korea relations boosted stocks.

First-quarter GDP growth was 2.3 percent according to the Bureau of Economic Analysis’ first estimate, better than the final consensus estimate of 2.0 percent. Lower personal consumption weighed on GDP growth. Wages and salaries increased 0.9 percent in the quarter, up from 0.6 percent in the prior quarter. This was the fastest quarterly wage growth in nearly 10 years.

Earnings growth for S&P 500 Index companies jumped from 18.3 percent last week to 23.2 percent this week as many companies smashed earning expectations. A healthy portion of the stronger earnings came from one-time tax gains as the tax cuts took effect in the first quarter. Energy earnings have risen 89.1 percent, technology 31.8 percent, financials 26.5 percent, industrials 23.5 percent.

Amazon (AMZN) highlighted the earnings strength in the technology sector. All of its major business segments reported stronger-than-expected earnings and faster than expected revenue growth. The company also raised guidance. Shares rallied more than 10 percent from the weekly low to the post-earnings high on Friday. SPDR Technology (XLK) fell 0.36 percent on the week. Amazon climbed 2.94 percent and lifted SPDR Consumer Discretionary (XLY) 1.10 percent.

Caterpillar (CAT) reported a strong first quarter and shares rallied. Then in the conference call with analysts, management said this might be the peak in earnings for 2018. Shares initially rallied on the positive earnings report, but then fell as much as 10 percent from those highs following the conference call.

Healthcare was the best performing of the large sectors this week. SPDR Healthcare (XLV) advanced 1.94 percent. Large-cap holdings in the fund such as AbbVie (ABBV), UnitedHealth Group (UNH) and Amgen (AMGN) drove results. All three delivered strong earnings report this week.

The 10-year Treasury yield cracked 3 percent this week, but it didn’t hit 3.05, the level being watched by many traders. The 10-year yield finished the week at 2.96 percent. Even though higher interest rates are bad news for real estate and utilities, they were two of the best performing sectors this week. SPDR Utilities (XLU) and SPDR Real Estate (XLRE) returned 2.72 and 2.61 percent, respectively.

Crude oil traded above $69 a barrel this week before ending at $68 and change. A bump in oil inventory surprised the market and kept crude from hitting $70 this week. SPDR Energy (XLE) was one of the better performing sector ETFs this week. It gained 0.63 percent.

The U.S. Dollar Index rallied 1.5 percent this week and broke out of a downtrend that stretches back to the end of 2016. The index also enjoyed its strongest two-week rally in the past year. Dollar strength didn’t affect international stock performance this week though. SPDR S&P 500 Index (SPY) gained 0.06 percent. iShares MSCI EAFE (EFA) fell 0.10 percent and iShares MSCI Emerging Markets (EEM) added 0.02 percent.

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