The Weekly Speculator
April 8: It has been another two weeks of progress for the U.S. equity market, with the SPX index back above 2900 for the first time since its early October collapse. Not surprisingly, the index is starting to look a little stretched in recent sessions, and with it has come a quite violent dispersion in sector performance.
There has been a marked cyclical tilt which has come at the expense of “defensive” sectors, particularly health care and real estate. The former has also been destabilized by talk of Medicare for All in the “pre-primary promise” season, which has led to a surprisingly swift decline given the overall environment, taking the sector’s relative performance down to a six-year low against the SPX index. This is a reminder that despite the surface of calm it does not take much to destabilize markets once the news flow changes.
The NDX [Nasdaq-100] index managed to record a new all-time high during Wednesday’s session, something that we had not expected to see following the October and December declines. It is notable that this feat was completed without any of the prior leadership names recovering fully from their late 2018 plunges.
– Michael Shaoul, Timothy Brackett
Financials Step Up
Morning Briefing by Yardeni Research
April 18: The economy is doing just fine, according to recent earnings reports out of some of the nation’s largest banks. Credit quality is stable. Lenders are lending. The capital markets, which were quiet during the first quarter, have revived. And while a flattening yield curve could pinch profits a bit, it hasn’t been enough to make CEOs sweat. Not yet, anyway.
The optimistic outlook emerging from recent earnings reports has sparked a rally in the S&P 500 financials. Here’s the derby results of earnings by sector: financials (3.6%), industrials (2.2), communication services (2.1), consumer discretionary (1.9), information technology (1.7), consumer staples (1.4), materials (1.2), S&P 500 (1.0), energy (0.7), utilities (-0.7), real estate (-1.9), and health care (-3.7).
The financial sector’s outperformance is quite a reversal from its lagging performance earlier this year. The S&P 500 financial sector is up 14.7% year to date, compared with the S&P 500’s 16.0% gain, making it the fifth-worst-performing sector. If financials can continue its winning ways, that just might be enough to push the S&P 500 to new highs. The financial sector represents 12.8% of the S&P 500’s market capitalization, making it the third-largest of the S&P 500’s 11 sectors.
– Ed Yardeni
U.S. Trade Deficit Narrows
Commentary by Maria Fiorini Ramirez Inc.
April 17: The overall U.S. international trade deficit, measured in nominal terms, narrowed to $49.4 billion in February from an unrevised $51.1 billion gap in January (which was a considerable $6 billion narrower than expected at the time). The February gap was similarly much narrower than the median forecast of $53.5 billion. Earlier deficits were $59.9 billion in December, $50.5 billion in November, $56.5 billion in October, $55.7 billion in September, $54.9 billion in August, and $51.4 billion in July.
Nominal exports were up 1.1% on a month/month basis in February following a move up 1.0% in January, down 1.9% in December, down 0.7% in November, no change in October, up 1.5% in September, down 0.7% in August, and down 1.0% in July.
Nominal imports were up 0.2% on a month/month basis in February following -2.6% in January, +2.1% in December, -2.8% in November, +0.3% in October, +1.5% in September, +0.7% in August, and +0.9% in July.
These can be volatile data, and single-month results should not be extrapolated. In particular, it looks as if imports from China surged in December in anticipation of an expected tariff boost (which did not end up occurring on Jan. 1 as initially planned), and then fell back in January. The Lunar New Year holiday also tends to cause swings in the trade figures. As far as the nominal deficit is concerned, a three-month moving average gives a better indication of underlying trends than does any single monthly result.
Looking ahead, the underlying trend of the ISM manufacturing export orders subindex has softened, indicating a tougher environment for exporters than that enjoyed not too long ago. On the import side of the ledger, a reliable indication is given by the health of the domestic manufacturing sector, and the message there seems to be that the liveliest rate of import growth is probably behind us.
– Joshua Shapiro
Retail Bang-Bang
Economic Update by Regions Financial
April 18: While the month of March may or may not come in like a lion and go out like a lamb, U.S. consumers ended the first quarter with a roar, with the largest monthly increase in retail sales in over a year.
Total retail sales rose by 1.6% in March, blowing by our above-consensus forecast of a 1.1% increase. Ex-auto sales were up by 1.2% and control retail sales, a direct input into the GDP data on consumer spending, were up by 1.0%, both also topping our above-consensus calls. That the initial estimate of March retail sales topped expectations doesn’t alter our view of the relative worth of the initial estimate of retail sales in any given month, nor does the fact that revisions put total retail sales down 0.2% in February, matching the initial estimate. That the estimate of total sales in February did not change masks what were some sizable revisions to the initial estimates of the individual categories, and there will no doubt be similar revisions to the initial estimates of March sales. That said, that control retail sales came in stronger than expected in March poses upside risk to our forecast of consumer spending in the first-quarter GDP data. Also, with the level of control retail sales in March safely above the first-quarter average, we sense a firmer base under current-quarter spending growth than we had anticipated.
– Richard F. Moody
Liquidity Is the Lifeblood
Commentary by Cresset Wealth Management
April 18: If liquidity is the lifeblood of financial markets, then banks represent the circulatory system. Distilling bank earnings offers investors interesting clues to the underlying health of the financial markets.
First-quarter bank earnings came in mixed, as expected. JPMorgan Chase demonstrated its market leadership by delivering a bottom-line result that blew away analysts’ expectations. Wells Fargo, meanwhile, stumbled: It beat analysts’ profit forecasts, but witnessed declines in loans, deposits and assets. The beleaguered bank suffered a slew of Wall Street downgrades in response. Bank of America delivered a backdoor earnings improvement by lowering expenses and buying back $6.3 billion of BAC shares, but investors weren’t impressed. U.S. Bank came through the quarter in line with expectations.
– Jack Albin
SOURCE: https://www.marketwatch.com/articles/good-news-in-stocks-retail-and-trade-51555718400