Market Perspective for May 4, 2018

The Nasdaq climbed 1.26 percent this week and the Russell 2000 Index 0.60 percent. Apple (AAPL) powered technology gains with solid earnings, a 16-percent dividend hike and $100-billion stock buyback. Apple earned $2.73 per share versus the $2.67 consensus estimate and reported higher-than-expected revenue, despite disappointing iPhone sales. Apple rallied 13.25 percent on the week and hit a new all-time high. It is 11.9 percent of PowerShares QQQ (QQQ) and 14.7 percent of SPDR Technology (XLK).

McDonald’s (MCD) delivered strong earnings on Monday. DowDuPont (DWDP) and Mastercard (MA) also beat estimates.

The Bureau of Labor Statistics (BLS) reported 164,000 new jobs last month. This missed expectations of 192,000. The unemployment rate fell to 3.9 percent, beating forecasts of 4.0 percent and down from 4.1 percent in March. March’s job gains were revised higher to 135,000. Mining, healthcare and manufacturing were among the sectors adding jobs.

Wage growth missed expectations, but overtime hours hit a new post-2008 high. Friday’s jobs report lifted the 10-year treasury yield to 2.96 percent.

March factory orders increased 1.6 percent, beating estimates of 1.3 percent and February’s 1.2 percent. The trade deficit tumbled from $57.7 billion in February to $49 billion in March due to rising exports. This will result in an upward revision to first-quarter GDP estimates.

Auto sales hit an annualized pace of 17.2 million in April, ahead of forecasts of 17.0 million. The core personal consumption expenditures price index (PCE) hit 1.9 percent in March. Overall inflation was 2.0 percent. The Federal Reserve prefers the PCE to the more widely followed consumer price index (CPI).

The U.S. Dollar Index rallied 1.6 percent this week and 3.8 percent over the past three weeks. This is the dollar’s best rally since late 2016 and it has broken the downtrend in place since the start of 2017. This may be more than a counter-trend rally with speculators heavily positioned on the short side and U.S. interest rates well above the global competition. Serious weakness in foreign currencies could extend the dollar’s run. Hong Kong central bank may need to intervene with the Hong Kong dollar back near the bottom of its peg range. Argentina’s central bank hiked interest rates to 40 percent this week as its currency tumbled versus the dollar.

Developed markets outperformed after adjusting for currency changes last week. SPDR S&P 500 (SPY) slipped 0.19 percent, iShares MSCI EAFE (EFA) 0.06 percent and iShares MSCI Emerging Markets (EEM) 1.74 percent.

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