Weekly Market Update – April 16, 2018

Market volatility continues. Stocks slid on Friday, April 13, but still held on to gains for the week.1 The S&P 500 increased 1.99%, the Dow added 1.79%, and the NASDAQ was up 2.77%.2 International stocks in the MSCI EAFE also rose, gaining 1.45%.3

Similar to recent weeks, international events continued to sway markets: Concerns about trade disputes affected investor behavior. Meanwhile, escalating conflict in Syria may have weighed on people’s minds.4

As we track these developments, we want to share insight about another important occurrence from last week: the beginning of corporate earnings season.

1st Quarter Corporate Earnings Season

1. Expectations remain very high
Analysts anticipate a particularly strong earnings season. Thomson Reuters data predicts that S&P 500 companies’ profits were 18.6% higher in the 1st quarter of 2018 than in 2017. If accurate, this increase would be the largest since 2011.5

So far, data seems on track. According to The Earnings Scout, 1st-quarter earnings growth is currently at 26.8%.6

2. Banks outperform but stocks drop
On Friday, 3 major banks released their reports—and each beat projections for earnings and revenue. Despite this positive news, however, their stocks experienced sizable declines that contributed to overall market losses.

Why would strong quarterly results create stocks losses?

The markets anticipated this positive performance and had already priced it into the shares.7 As a result, any less-than-ideal news seemed to outweigh the expected earnings and revenue increases. In particular, 2 facts drove losses:8

  • 1 bank may have to pay a $1 billion penalty
  • All 3 banks experienced slow loan growth

We are in the early stages of earnings season, and many major corporations still need to release their reports. In the coming weeks, we’ll continue monitoring these developments to better understand our economy. As always, please contact us if you have questions about how the data affects your finances and life.

ECONOMIC CALENDAR

Monday: Retail Sales, Housing Market Index
Tuesday: Housing Starts, Industrial Production
Thursday: Jobless Claims


S&P 500 Index is an unmanaged group of securities considered to be representative of the stock market in general. The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ. The DJIA was invented by Charles Dow back in 1896. The Nasdaq Composite is an index of the common stocks and similar securities listed on the NASDAQ stock market and is considered a broad indicator of the performance of stocks of technology companies and growth companies. The MSCI EAFE Index was created by Morgan Stanley Capital International (MSCI) that serves as a benchmark of the performance in major international equity markets as represented by 21 major MSCI indices from Europe, Australia, and Southeast Asia. The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.

You cannot directly invest in an index. Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Diversification does not guarantee profit nor is it guaranteed to protect assets. Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance. Past performance does not guarantee future results. Consult your financial professional before making any investment decision. Fixed income investments are subject to various risks including changes in interest rates, credit quality, inflation risk, market valuations, prepayments, corporate events, tax ramifications and other factors. Drake & Associates does not offer tax or legal advice.

All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your financial advisor for further information.
Sources:
1 https://www.cnbc.com/2018/04/13/us-stock-futures-dow-data-earnings-tech-and-politics-on-the-agenda.html
2 http://performance.morningstar.com/Performance/index-c/performance-return.action?t=SPX&region=usa&culture=en-US
http://performance.morningstar.com/Performance/index-c/performance-return.action?t=%21DJI&region=usa&culture=en-US
http://performance.morningstar.com/Performance/index-c/performance-return.action?t=@CCO
3 https://www.msci.com/end-of-day-data-search
4 https://www.cnbc.com/2018/04/13/us-stock-futures-dow-data-earnings-tech-and-politics-on-the-agenda.html
https://www.reuters.com/article/us-usa-stocks/wall-street-falls-as-bank-stocks-syria-conflict-weigh-idUSKBN1HK1KH
5 https://www.reuters.com/article/us-usa-stocks/wall-street-falls-as-bank-stocks-syria-conflict-weigh-idUSKBN1HK1KH
6 https://www.cnbc.com/2018/04/13/us-stock-futures-dow-data-earnings-tech-and-politics-on-the-agenda.html
7 https://www.cnbc.com/2018/04/13/us-stock-futures-dow-data-earnings-tech-and-politics-on-the-agenda.html
https://www.cnbc.com/2018/04/15/from-geopolitics-to-earnings-what-will-move-markets-most-ahead.html
8 https://www.reuters.com/article/us-usa-stocks/wall-street-falls-as-bank-stocks-syria-conflict-weigh-idUSKBN1HK1KH