Week of April 18, 2016
US markets turned up last week and pushed year-to-date returns further into positive territory as investors reacted to corporate earnings and global economic data releases.
The Dow Jones Industrial Average, the S&P 500 and the NASDAQ Composite were all up over 1.6% last week with the Dow and the NASDAQ posting 1.8% each. International markets were positive across the board as well. European stocks, largely driven by financial companies, were up 2.47% as measured by the MSCI Europe Index and Asian equities also notched positive returns as investors digested improving export data from China.
Dow Hits a 2016 High
The Dow Jones Industrial Average closed at a 5-month high the middle of last week and the index is up just over 2.7% for the year. Analysts point to a rising financials sector after JP Morgan beat the market's earnings expectations. Corporate earnings, especially for the banking sector, were expected to be relatively muted so any results that beat the market's forecast can drive stocks upward. Indeed, going into corporate earnings season, analysts slashed their expectations on nearly 75% of the companies within the S&P 500 financials sector with year-over-year earnings expected to be down 8.5%. The main drivers? Continued low interest rates, regulatory hurdles and exposure to the battered energy sector. Ultimately, we would point out that this appears to be a situation where expectations were set too low rather than improving fundamentals. While both can lead to rallies, the former tends to lead to brief, shorter-term rallies when compared to those driven by a growing economy and constructive market conditions.
Source: Morningstar Direct
Crude YTD Performance
Oil hit a high last week on mixed data from the US government. Rising demand for gasoline and falling oil production provided the boost needed to hit the highest crude price for 2016 but greater-than-expected stockpiles weighed on the commodity as prices retreated. The US Energy Information Administration released data that pointed to a stockpile increase of 6.6 million barrels last week whereas gasoline fell 4.2 million barrels over the same time period. Production in the US also fell below 9 million barrels per day, marking the first time since 2014 that production has been this low. Analysts are pointing out that the falling oil rig count is finally starting to impact output. Brent Crude is actually 18.8% year-to-date but off more than 24% from its 12-month high.
Source: Morningstar Direct
IMF Cuts Global Growth Outlook
The International Monetary Fund (IMF), an organization of over 180 countries working to improve global economic conditions, was compelled to cut its global growth forecast from 3.4% to 3.2%. The IMF cites China's slowdown and lower commodity prices impacting emerging markets to a greater degree and more developed countries are still suffering from the effects of the financial crisis more than seven years ago. This downward adjustment is the fourth straight cut over the past year and, according to the IMF, a growth rate of 3.2% is just above the technical global recession mark of 3%. Of some of the countries the IMF is paying close attention to, Brazil and Russia are experiencing more pronounced recessions while oil exporters such as Venezuela, Canada and Saudi Arabia are also weathering the stiff headwinds that low oil prices bring. On the positive side, the IMF did upgrade its forecast for China's growth this year to 6.5%, a 0.2% increase. The organization cited China's services sector compensating for the slowdown in manufacturing. However, they believe China's growth plans won't meet the longer-term targets as the country's economic stimulus will likely end up supporting areas of their economy that are not as productive and are in a state of decline.
Fun Story of the Week
It's one thing to launch a rocket hundreds of thousands of feet in the air. It's something else entirely to launch said rocket and have its booster engine land back on Earth on a barge in the middle of the ocean. This isn't the first time a company has brought a rocket engine safely back to Earth; however, it is the first time a company has landed on a floating barge. The company to do so was SpaceX, a private firm akin to NASA. The implications of the feat are astronomical, pun intended. The primary reason is that the large, first-stage boosters that propel rockets through the thick atmosphere are one of the most expensive parts of the vehicle. The booster on the SpaceX rocket that just landed cost nearly $60 million so being able to retrieve that part can make space flight much, much more efficient. Aside from nailing the landing, the SpaceX's Falcon 9 rocket sent a capsule on course to the International Space Station that included new science experiments and an inflatable habitat for testing.
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Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Because of their narrow focus, sector investing will be subject to greater volatility than investing more broadly across many sectors and companies.
The Dow Jones Industrial Average is comprised of 30 stocks that are major factors in their industries and widely held by individuals and institutional investors.
The NASDAQ Composite Index measures all NASDAQ domestic and non-U.S. based common stocks listed on The NASDAQ Stock Market. The market value, the last sale price multiplied by total shares outstanding, is calculated throughout the trading day, and is related to the total value of the Index.
S&P 500 INDEX
The Standard & Poor’s 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
MSCI EUROPE INDEX
The MSCI Europe Index is a market capitalization weighted index which consists of stocks from 15 developed market countries within the European region.
Wall Street Journal, April 2016, http://www.wsj.com/articles/stocks-lifted-by-chinese-data-commodities-prices-1460533498
Wall Street Journal, April 2016, http://www.wsj.com/articles/global-oil-prices-slip-as-investors-re-examine-u-s-inventory-data-1460368896
Wall Street Journal, April 2016, http://www.wsj.com/articles/imf-cuts-2016-global-economic-growth-outlook-to-3-2-1460466006
Wired, April 2016, http://www.wired.com/2016/04/spacexs-rocket-victorious-robot-boat-last/
Wired, April 2016, http://www.wired.com/2016/04/spacex-just-stuck-historic-landing-now/