January 8, 2018 – Weekly Market Commentary



 

US Federal Reserve Crest - Market Commentary

Jeff Cox – CNBC
Tax Cuts Pushed Fed to Raise Economic Forecast

Summary: The December Fed minutes showed that officials expect tax reforms to boost consumer and business spending. Committee members raised their GDP projections for 2018 and 2019 based on those expectations. The minutes also showed that the Fed is not overly concerned about the flattening yield curve and is still struggling to determine why inflation seems to be stuck below its 2% target.

 

Stock Price Chart - Market Commentary

Elena Popina and Sarah Ponczek – Bloomberg Markets
It Was the Best Week for Stocks in a Year

Summary: The S&P 500 index posted its biggest weekly gain in a year to start 2018. The index was up 2.6% led by technology and materials companies. It was the best opening week return since 1999.  

 

Factset Logo - Market Commentary

John Butters – Factset
Smallest Cuts to EPS Estimates Since 2010 for S&P 500 Companies

Summary: Over the past 5-years the average decline in bottom-up EPS estimates has been 4.2%. For Q4 2017, analysts lowered S&P 500 Q4 earnings estimates by just 0.3%. The revision is the smallest since Q4 2010. Seven of the ten major S&P 500 sectors are expected to record a smaller decline or larger increase than their 5-year averages. 

 

American Flag - Market Commentary

Damian Paletta, Erica Werner, Mike DeBonis – The Washington Post
High-Stakes Budget Talks Begin as Deadline Approaches

Summary: Congressional leaders commenced with federal budget talks last week. House Speaker Paul Ryan said that it was a positive start to negotiations but noted that there are still disagreements on major issues. Republicans are vying for an increase in military spending and funding for a Mexican border wall. Democrats are pushing to keep funding in place for various social programs. If a deal is not made by January 19th the government will shut down until a budget is accepted. 

 

Mauldin Economics Logo - Market Commentary

Joachim Fels – PIMCO
Three Reasons the Global Economy Could Top Out in 2018

Summary: The current “Goldilocks” environment of growth and low inflation is likely to persist in 2018, but PIMCO believes that global growth could be nearing its peak based on three factors. First, fiscal reforms in the US are borrowing from the future by lowering expenses now but increasing the costs of future deficits. Second, cyclical pressures such as wage growth may finally catalyze higher inflation. Finally, the reduction of monetary accommodation may be too much for some economies to handle. 

 

Mauldin Economics Logo - Market Commentary

Russ Koesterich, CFA – BlackRock
Why Continued Calm for Stocks Depends on Credit Markets

Summary: Realized volatility for the S&P 500 has been near its lowest levels on record. Koesterich believes that low volatility in stocks is being driven by lower volatility in credit markets. Bond spreads, typically the difference between the yield of the 10-year US Treasury bonds and that of riskier bonds, are a good indicator of bond market volatility. High-yield spreads declined in 8 of the last 12 months which indicates that we are not nearing a recession and that equity markets may still have room to run. 

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