Market Perspective for April 6, 2018

Equities were choppy this week, with indexes gaining roughly 5 percent off their Monday lows, but closing lower on Friday as trade rhetoric escalated. Companies most exposed to potential Chinese retaliation such as Boeing (BA) and Caterpillar (CAT) declined sharply.

Smaller S&P 500 sectors saw marginal losses of less than 1 percent this week. SPDR Energy (XLE) declined 0.09 percent to lead major sectors. Consumer discretionary also fell less than 1 percent. Weakness was concentrated in financials, technology, healthcare and industrials.  SPDR Technology (XLK) fell 2.09 percent.

Economic data was strong this week. March manufacturing PMIs eased slightly from prior month levels, signaling robust expansion. February construction spending increased from a flat January. Auto sales beat expectations handily and increased to an annualized pace of 17.5 million vehicles. Factory orders increased 1.2 percent in February. The March ADP employment report and the services PMIs were all positive.

Weekly jobless claims hit 242,000 last week, but still near four-decade lows. The strengthening U.S. economy caused the trade deficit to expand to $57.6 billion in February. Employers added 103,000 employees in March. February’s new job total was revised significantly higher to 326,000. The unemployment rate held steady at 4.1 percent and average hourly earnings increased 0.3 percent, in line with forecasts.

China fired another shot at major U.S. exports. China buys 70 percent of soybeans sold in international markets and relies on U.S. imports to feed its livestock. The U.S. new tariffs on as much as $100 billion in Chinese imports, in addition to the previously announced $60 billion.

Despite volatile trade rhetoric from China and the United States, the U.S. dollar edged higher on the week. SPDR S&P 500 (SPY) declined 1.31 percent. iShares MSCI EAFE (EFA) slid 0.43 percent. iShares MSCI Emerging Markets (EEM) slid 2.51 percent and WisdomTree Emerging Currency (CEW) declined 0.71 percent. iShares China Large-Cap (FXI) slid 2.75 percent. China is South Korea’s largest trading partner. iShares MSCI South Korea (EWY) decreased 3.02 percent on the week.

Long-term bond yields increased this week on strong economic data and rebounding equities. The 10- and 30-year treasury yields rose to 2.78 and 3.02 percent. Short-term rates also climbed as rate hike expectations stabilized.

Lennar (LEN) crushed earnings forecasts this week and shares rallied more than 10 percent. iShares U.S. Home Construction (ITB) increased 1.85 percent. Monsanto (MON) missed earnings and revenue estimates, but positive guidance lifted shares. VanEck Agribusiness (MOO) slipped 1.97 percent.


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