Weekly Analysis

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VIA NOVA UPDATE: Stocks move further into record territory.

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The S&P 500 rose to another weekly record helped by positive economic reports and a lower than expected U.S. tariff on Chinese goods.  However, relative good news is not necessarily good news, and trade tensions will likely remain a cloud over the markets in the months ahead.

VIA NOVA UPDATE: Powell remarks help lift stocks to record highs.

Powell contends that, in the absence of precision surrounding the monetary policy objectives, a more gradual approach to raising interest rates is the most appropriate strategy.  His comments are consistent with Via Nova’s view that the Fed will not raise rates too rapidly and short-circuit the expansion.

VIA NOVA UPDATE: Optimism for renewed China negotiations helped lift markets.

The markets cheered the scheduled resumption of U.S. / China trade talks, lifting the S&P 500 0.66%. Within domestic stocks, there may be early signs that market leadership is shifting away from the long dominant technology sector, at least over the near term. The week’s performance shift was a clear win for the value style, which has been lagging the growth style by over 18% during the past three years.

VIA NOVA UPDATE: Tensions with Turkey prompt a flight to safety.

The week started off in a positive fashion, and stock indexes continued to edge up closer to the January market highs.  Likewise, the yield on the 10-year Treasury note looked ready to break up above 3%. Then came the news that President Trump planned even steeper tariffs on Turkey. The market reaction was predictable and reminiscent of the second quarter.

VIA NOVA UPDATE: Markets up but with a twist

Perhaps the most favorable factor influencing the markets in the week was a surprisingly good meeting on trade between President Trump and European Commission President Juncker. Via Nova’s take on the Trump/Junker meeting is that it helped defuse some of the escalating concerns surrounding trade, a welcomed positive, but it offered few immediate tangibles.

VIA NOVA UPDATE: Facts and fears battled to a draw.

Facts vs. Fears: The second quarter earnings season is off to a great start.  84% of reporting S&P 500 companies beat analyst expectations compared to a long-term average of 64%, according to Thomson Reuters.  Second quarter earnings are now expected to increase a very healthy 22.0% from Q2 2017.  Almost three-quarters of companies also beat revenue estimates which is above the long-term average.  Profit margins are at record highs, according to FactSet, thanks in large part to the cut in the corporate tax rate.  The strong increase in earnings so far in 2018 combined with sluggish stock prices lowered stock market valuations.  The forward four-quarter (3Q18 – 2Q19) P/E ratio for the S&P 500 is 16.5X, down from over 18.5X early in the year.

VIA NOVA UPDATE: Stocks climbing the wall of worry

From a stock market perspective, however, Via Nova believes rising interest rates are not currently a threat to the bull market.  Historically, in periods when the 10-year yield is below 5% but rising (as it is now), the S&P 500 is higher one year later 89% of the time with a median return of 10.67%, according to research from Chaikin Analytics.  The conclusion is that interest rising rates, on their own, are not a cause for concern for the equity market.  We continue to favor stocks over bonds.

VIA NOVA UPDATE: A draw in the battle between facts and fears.

HIGHLIGHTS:

  • The latest battle between facts and fears ended in a draw.

  • Healthy retail sales and improving manufacturing sentiment lifted second quarter growth estimates.

  • The FOMC lifted the federal funds rate by a quarter percent, as expected, citing economic strength.

  • Trade tariffs now more reality than fear, but still very much short of a trade “war.”

  • North Korea Summit was a start, but not a market mover.

  • Coming Week: Housing data will be the focus in the coming week along with the Philadelphia Fed business survey.  OPEC meets.

VIA NOVA UPDATE: WEEK ENDED 5/4/18

HIGHLIGHTS:

  • Lots of information, but not much market movement.  Stocks edged lower.  Bonds mostly flat.

  • The moderate employment report is consistent with FOMC’s “gradual” approach.

  • Q1 earnings growth is 80% complete and 79% of companies have beaten profit estimates.

  • Policy: More trade talks.  Fewer trade threats.  The negotiation phase appears to be underway.

  • Coming Week: More earnings.  More negotiations. The CPI is the only notable economic report.