Market Strategy Radar Screen Weekly April 16, 2018

Anything But Comfortably Numb

Stocks resilient as investors choose the signal over the noise

Stocks stateside advanced on the week ending last Friday, even as headlines grabbed plenty of uneasy attention touting risks of higher interest rates, the potential of higher inflation, a disruption of global trade flows, the escalation of hostilities in the Middle East, the CBO’s (Congressional Budget Office) projection of trillion-dollar deficits in the not too distant future, and the announcement of the Speaker of the House’s retirement plans, which served to underscore other prominent level departures announced earlier this year that could prove vulnerable to the Republican party in a mid-term election year.

All the aforementioned, and the growls of frustrated Wall Street bears notwithstanding, the Dow Jones Industrials, the S&P 500, the S&P 400 (mid-caps) , the Russell 2000 (small caps) and the Nasdaq Composite (over forty-percent weighted in technology-related shares) respectively advanced 1.8%, 2%, 1.6%, 2.4%, and 2.8% for the week ended last Friday.

Outside of the US foreign developed markets also rallied, as MSCI EAFE (developed markets ex-US and Canada) added 1.4% in the same time period. Elsewhere around the globe results were mixed with the MSCI Emerging markets tacking on a gain of 0.7% on the week while the MSCI frontier markets slid 1.0%.

Last week the S&P 500’s energy sector caught a bid from investors and jumped 6% to lead the other ten sectors of the benchmark.

While a combination of a cheaper dollar, a global economic recovery, geopolitical risk and production discipline practiced by producers stateside and abroad (led by OPEC) has boosted the price of oil (we reference West Texas Intermediate) some 26.9% over the course of the past 12 months and 10.6% in the year to date, the S&P 500 energy sector has risen just 3.4% in the past 12 months and slipped 1.1% on a year to date basis. Last week’s jump will likely be tested should tensions in the Middle East ease over the course of the next few days and weeks.

Social Media Stocks Find a Bid

Technology stocks got a boost last week as investors’ earlier fears about social media’s future were eased some as Facebook’s chairman and founder appeared on Capitol Hill and testified before Congress. The importance of in person meetings and dialogue between human beings seemed to remind most involved that social media is not the first innovation to change the way individuals and corporations interact nor the first new invention whose universal use might “need a touch of regulation” to protect the user whether it be the general public, business or government.

We could imagine Alexander Graham Bell, Thomas Edison, Henry Ford, and John D. Rockefeller among a host of other innovative and societally disruptive luminaries of years gone by shaking their heads, chuckling and likely thinking, “the more things change, the more they stay the same.”

Earnings Season Gets Underway

Last Friday several of the major banks reported earnings results that exceeded the Street’s expectations by large measure but investors focused on the US response to Syria didn’t show much enthusiasm to bid stocks higher. We’d expect a lessening of geopolitical tensions and trade war worries might result in a boost to investor sentiment, particularly if more companies follow suit with upside surprises.

Over the course of the next three weeks three quarters of the companies in the S&P 500 will be reporting first-quarter results. This week will feature another brace of major banks, regional banks, health care and technology-related stocks.

The week will also bring a full calendar of economic data including that related to housing; regional manufacturing, industrial production and the Fed’s Beige Book which provides an anecdotal view of the shape of the economies that the Fed’s 12 regional banks oversee.

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