May 1st – Weekly Update

  • U.S. equities finished the week higher with the Nasdaq, Dow Jones and S&P 500 all posting gains. The S&P 500 experienced its strongest one-day gain since March 1. Oil and gold both ended the week lower. The 10-year U.S. Treasury yield closed at approximately 2.28%.
  • With 58% of S&P 500 companies having reported first quarter results, 77% have beaten earnings expectations while 68% have beaten sales expectations. According to FactSet, the first quarter blended earnings growth rate estimate for the S&P 500 is 12.5%. If 12.5% is the actual growth rate for the quarter, it will mark the highest year-over-year earnings growth for the index since Q3 2011. Hasbro, Whole Foods and McDonald’s impressed this week; Kindred Healthcare, AK Steel and Barrick Gold Corporation were among the disappointments.
  • The Trump administration released the outlines of its tax-reform plan. As expected, the release was light on details, though National Economic Director Gary Cohn said that the specifics were being worked out in “very robust discussion” with the House and Senate. The plan largely matches up with what has been discussed recently in the press: a simplified income tax system with 10%/25%/35% brackets, a doubling of the standard deduction and 15% business tax rate that could apply to smaller businesses as well as large corporations.
  • Gross domestic product (GDP) grew at a 0.7% pace in the first quarter following a 2.1% expansion in the fourth quarter of last year. The result represented the slowest pace of growth in three years.
  • March CPI fell to 2.4% year-over-year from 2.7%; core CPI fell to 2% from 2.2%; core PPI dropped to 1.6% from 1.8%. Sluggish real wage growth and moderating inflation argues against the Federal Reserve hiking rates more than twice more in 2017.
  • April’s Chicago PMI came in at 58.3, better than March’s 57.7 level and consensus for 56.4. The release noted optimism has risen for three consecutive months and said new orders are nearing a three-year high.
  • The University of Michigan consumer sentiment reading came in at 97.0 for April in its final reading. This was below the prior reading of 98.0.

CPWM Weekly Market Monitor (2017.05.01)