Market Perspective for April 28, 2017

On Monday, the Russell 2000 and Nasdaq hit new all-time highs following France’s preliminary election results. Earnings were also positive throughout the week as Internet and oil giants all beat forecasts. The Nasdaq gained 2.3 percent on the week to lead major indexes. The Dow Jones Industrial Average and S&P 500 gained 1.9 and 1.5 percent, respectively.

Google parent Alphabet (GOOG) reported earnings of $7.73 per share in the first quarter versus a $7.39 consensus estimate. Revenue also beat estimates. Shares of GOOG climbed 4 percent at the open on Friday, sending shares above $900 for the first time. Amazon (AMZN) also beat estimates by a wide margin, earning $1.48 per share versus a consensus forecast of $1.08 per share. Amazon rallied 3 percent at the open, pushing past $950 per share.

Caterpillar (CAT) exceeded estimates with an earnings beat of more than 100 percent, sending shares to a new all-time high that broke the stock out of its 6-year trading range. McDonald’s (MCD), DuPont (DD), Northrop Grumman (NOC), Comcast (CMCSA) and Bristol-Myers Squibb (BMY) all beat their earnings estimates by double digits.

Exxon’s (XOM) first quarter profit climbed 122 percent from 2016 and it beat estimates by 11 percent. Chevron (CVX) recovered from a loss in the year-ago quarter and beat estimates by 42 percent. General Motors (GM) also beat earnings estimates by double-digits with a 33 percent profit increase from 2016.

Healthcare stocks rose 2.3 percent this week, pulled higher by the medical device sector. Financials benefited from rising rate hike odds, while utilities saw muted gains. In technology, the Internet subsector rallied 4 percent and social media shares advanced 5 percent.

Eurozone inflation moved higher in April, beating expectations. Headline inflation climbed 1.9 percent year-on-year and core inflation rose 1.2 percent. France’s election lifted the Eurozone stock markets by an average of 5 percent this past week.
The Canadian dollar lost ground this week due to a worsening housing bubble. Home Capital, Canada’s largest subprime lender, required a bailout after depositors pulled their money from the bank. iShares MSCI Canada (EWC) fell just 1 percent on the week, but well behind the gains in Europe and the United States.

Although energy sector earnings were strong, oil prices lost the $50 level amid strong U.S. production. Long-term interest rates held steady during the week, with the 10-year Treasury yield at 2.3 percent. Short-term rates were clearer, with three-month Libor hitting 1.17 percent as the odds of a June rate hike hit 70 percent early in the week.

New homes sales spiked to an annualized pace of 621,000 in March, well above estimates of 580,000. Weekly jobless claims remained near record lows, and a small decline in March consumer confidence still left the Conference Board and University of Michigan surveys near 17-year highs.

First-quarter GDP growth met expectations at 0.7 percent. Home construction, nonresidential fixed investment, exports and personal consumption contributed to growth, while changes in inventory, government spending and rising imports detracted. The weak first quarter figure should spur Congress and the President to move more quickly on issues such as tax reform.

Employment costs climbed 0.8 percent, well above expectations of 0.6 percent. The GDP price index climbed 2.2 percent, also above expectations and within the Fed’s 2 to 3 percent inflation range.

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