Market Commentary
by Scott J. Brown, Ph.D., Chief Economist

Real GDP rose at a 2.3% annual rate in the advance estimate for 1Q18, a bit stronger than expected. Inflation-adjusted consumer spending (69% of GDP) rose 1.1%, vs. 4.0% in 4Q17 (a 2.5% average over the last two quarters and +2.6% y/y). Real disposable income grew modestly in the second half of 2017 (which may have been a factor in the sub-par reading for 1Q18), but picked up significantly in the first quarter (consistent with an expected pickup in spending in 2Q18). The Employment Cost Index rose 0.8% over the three months ending March 31 (+2.7% y/y), up 1.0% for private-sector workers (+2.8% y/y). That’s still relatively moderate by historical standards, but the trend is higher (and Fed policymakers will notice that).

Earnings reports remained supportive for equities. However, investors may be wondering if this is “as good as it gets.” The 10-year Treasury note yield flirted with 3%, but did not break higher.

Next week, the Federal Open Market Committee is widely expected to leave short-term interest rates unchanged following its policy meeting. There is no Powell press conference. No revised economic projections. No new dot plot. All we’ll have to go on is the wording of the policy statement, which should be little changed from the March 21 statement. The April Employment Report is expected to remain consistent with moderate growth and further Fed tightening. February’s mild weather appears to have pulled forward job gains from March (making February look stronger and March look weaker) – April payroll gains should provide a clearer picture (but remember that the change in payrolls is reported accurate to ±120,000). The unemployment rate should edge lower. Average hourly earnings, which tend to be choppy, are expected to rise moderately.


Indices

Last Last Week YTD return %
DJIA 24332.34 24664.89 -1.61%
NASDAQ 7118.68 7238.06 3.12%
S&P 500 2666.94 2696.13 -0.25%
MSCI EAFE 2036.38 2064.24 -0.70%
Russell 2000 1557.90 1573.82 1.46%


Consumer Money Rates

Last 1 year ago
Prime Rate 4.75 4.00
Fed Funds 1.68 0.82
30-year mortgage 4.64 4.09


Currencies

Last 1 year ago
Dollars per British Pound 1.392 1.290
Dollars per Euro 1.210 1.087
Japanese Yen per Dollar 109.30 111.26
Canadian Dollars per Dollar 1.287 1.363
Mexican Peso per Dollar 18.812 19.027


Commodities

Last 1 year ago
Crude Oil 68.19 48.97
Gold 1317.90 1265.90


Bond Rates

Last 1 month ago
2-year treasury 2.48 2.28
10-year treasury 2.97 2.77
10-year municipal (TEY) 3.94 3.82


Treasury Yield Curve – 04/27/2018

Chart
As of close of business 04/26/2018


S&P Sector Performance (YTD) – 04/27/2018

Chart
As of close of business 04/26/2018


Economic Calendar

April 30  — Personal Income and Spending (March)
May 1  — ISM Manufacturing Index (April)
May 2  — ADP Payroll Estimate (April)
 — FOMC Policy Decision (no press conference)
May 3  — Jobless Claims (week ending April 28)
 — Nonfarm Productivity (1Q18, preliminary)
 — Trade Balance (March)
 — Factory Orders (March)
 — ISM Non-Manufacturing Index (April)
May 4  — Employment Report (April)
May 9  — Producer Price Index (April)
May 10  — Consumer Price Index (April)
May 15  — Retail Sales (April)
May 28  — Memorial Day Holiday (Markets closed)
June 13  — FOMC Policy Decision (Powell press conference)

 

All expressions of opinion reflect the judgment of the Research Department of Raymond James & Associates, Inc. and are subject to change. There is no assurance any of the forecasts mentioned will occur or that any trends mentioned will continue in the future. Investing involves risks including the possible loss of capital. Past performance is not a guarantee of future results. International investing is subject to additional risks such as currency fluctuations, different financial accounting standards by country, and possible political and economic risks, which may be greater in emerging markets. While interest on municipal bonds is generally exempt from federal income tax, it may be subject to the federal alternative minimum tax, and state or local taxes. In addition, certain municipal bonds (such as Build America Bonds) are issued without a federal tax exemption, which subjects the related interest income to federal income tax. Municipal bonds may be subject to capital gains taxes if sold or redeemed at a profit. Taxable Equivalent Yield (TEY) assumes a 35% tax rate.

The Dow Jones Industrial Average is an unmanaged index of 30 widely held stocks. The NASDAQ Composite Index is an unmanaged index of all common stocks listed on the NASDAQ National Stock Market. The S&P 500 is an unmanaged index of 500 widely held stocks. The MSCI EAFE (Europe, Australia, Far East) index is an unmanaged index that is generally considered representative of the international stock market. The Russell 2000 index is an unmanaged index of small cap securities which generally involve greater risks. An investment cannot be made directly in these indexes. The performance noted does not include fees or charges, which would reduce an investor’s returns. U.S. government bonds and treasury bills are guaranteed by the US government and, if held to maturity, offer a fixed rate of return and guaranteed principal value. U.S. government bonds are issued and guaranteed as to the timely payment of principal and interest by the federal government. Treasury bills are certificates reflecting short-term (less than one year) obligations of the U.S. government.

Commodities trading is generally considered speculative because of the significant potential for investment loss. Markets for commodities are likely to be volatile and there may be sharp price fluctuations even during periods when prices overall are rising. Specific sector investing can be subject to different and greater risks than more diversified investments. Gross Domestic Product (GDP) is the annual total market value of all final goods and services produced domestically by the U.S. The federal funds rate (“Fed Funds”) is the interest rate at which banks and credit unions lend reserve balances to other depository institutions overnight. The prime rate is the underlying index for most credit cards, home equity loans and lines of credit, auto loans, and personal loans. Material prepared by Raymond James for use by financial advisors. Data source: Bloomberg, as of close of business April 26, 2018.

By | 2018-04-30T12:42:36+00:00 April 30th, 2018|Latest Articles, Weekly Market Snapshot|