Markets Stay Steady

WEEKLY UPDATE - MAY 8, 2017

Last week, stocks rose but floated within a narrow trading range. By Friday, however, both the S&P 500 and the NASDAQ reached record highs. [1] For the week, the S&P 500 gained 0.63%, the Dow finished up 0.32%, and the NASDAQ rose 0.88%. [2] The MSCI EAFE added 1.7%. [3]

Overall, we experienced another week of generally positive, but somewhat mixed, economic signals. Soft auto sales and tumbling oil prices offset increased job creation and the lowest unemployment recorded in a decade . [4]

POSITIVE MARKET NEWS

Increased Job Creation and Low Unemployment

In April, U.S. payrolls added 211,000 jobs, exceeding the 190,000 predicted and showing a significant bounce back from March's 79,000 increase. The jobless rate also dropped to 4.4% - the lowest it has been since May 2007.[5] The economy added jobs in several industries:[6]

Leisure and hospitality: +55,000 jobs
Health care: +20,000 jobs
Mining: +9,000 jobs
Professional and business services: +39,000 jobs
Government: +17,000 jobs

Strong Corporate Earnings

First quarter earnings season continued last week, and U.S. companies once again reported strong results. So far, companies with majority overseas profits are reporting an average revenue growth of 19.9%, outperforming S&P 500 companies with domestic earnings only. This difference helps explain how corporations are reporting strong Q1 earnings despite sluggish economic growth in the U.S. during the same period. [7]

Decent Manufacturing and Service Reports

The ISM Manufacturing Index fell in April to 54.8 but remains in positive territory. The report is above 2016's 51.5 average and suggests continued manufacturing growth. Meanwhile, the PMI Manufacturing Index reported a 0.5 loss in April at 52.8. [8] However, the PMI Services Index rose from 52.8 in March to 53.1 in April. [9] While the month-over-month declines may show a pause in manufacturing, numbers above 50 indicate growth. [10]

MIXED SIGNALS

Auto Sales Below Expectations

U.S. motor vehicle sales bounced up to an annualized rate of 16.9 million. Though April's report falls below the predicted 17.2 million, it improves on March's 16.6 million annualized rate. [11]

Oil Prices Tumble

Oil prices tumbled last week. Both June West Texas Intermediate (WTI) crude and July Brent crude finished the week down. WTI closed at $46.22 a barrel, falling approximately 6.3% below last week's close. Brent crude fell by about 5.6% for the week to $49.10 a barrel. [12]

LOOKING AHEAD

On Wednesday, May 3, the Federal Open Market Committee (FOMC) announced it would keep the federal funds target range at 0.75% to 1.00%. Nonetheless, the Fed remains encouraged that the second-quarter GDP will rebound, because they believe consumer fundamentals remain solid. [13] This sentiment may indicate the FOMC will raise rates in their June meeting. [14]

On Sunday, Emmanuel Macron won the French presidential election, as expected. Macron's win should ease European Market concerns, as he is a centrist who supports global trade, the euro, and France's continuing membership in the EU. [15]

As we look ahead to this week, our analysis will include a variety of international and domestic focuses. In particular, consumer prices, retail sales, and business inventories will highlight economic reports for the week while oil prices also should remain in focus for investors.

ECONOMIC CALENDAR

Tuesday: JOLTS (tracks monthly changes in job openings)

Thursday: Jobless Report, Producer Price Index

Friday: Consumer Price Index, Retail Sales, Business Inventories, Consumer Sentiment

Notes: All index returns (except S&P 500) exclude reinvested dividends, and the 5- year and 10-year returns are annualized. The total returns for the S&P 500 assume reinvestment of dividends on the last day of the month. This may account for differences between the index returns published on Morningstar.com and the index returns published elsewhere. International performance is represented by the MSCI EAFE Index. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly.

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[1] http://www.cnbc.com/2017/05/05/us-markets.html

[2] http://performance.morningstar.com/Performance/index-c/performance-return.action?t=SPX®ion=usa&culture=en-US

http://performance.morningstar.com/Performance/index-c/performance-return.action?t=%21DJI®ion=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] http://wsj-us.econoday.com/byshoweventfull.asp?fid=477107&cust=wsj-us&year=2017&lid=0&prev=/byweek.asp#top

http://www.marketwatch.com/story/oil-prices-slump-anew-in-fast-moving-markets-tumbling-another-3-2017-05-05

https://www.bloomberg.com/news/articles/2017-05-05/payrolls-in-u-s-rise-by-211-000-jobless-rate-falls-to-4-4

[5] https://www.bloomberg.com/news/articles/2017-05-05/payrolls-in-u-s-rise-by-211-000-jobless-rate-falls-to-4-4

[6] http://www.cnbc.com/2017/05/05/solid-jobs-number-means-fed-on-track-to-raise-interest-rates-and-worst-fears-for-the-economy-ease.html

http://wsj-us.econoday.com/byshoweventfull.asp?fid=477419&cust=wsj-us&year=2017&lid=0&prev=/byweek.asp#top

[7] http://www.cnbc.com/2017/04/30/heres-why-earnings-are-so-outstanding-even-while-the-us-economy-is-barely-growing.html?__source=newsletter%7Ceveningbrief