February 26, 2018 – Weekly Market Commentary



 

US Federal Reserve Logo - Market Commentary

Jeff Cox – CNBC
Fed minutes: All Signs Pointing to More Rate Hikes Ahead

Summary: According to the most recent meeting’s minutes, Federal Open Market Committee members plan to raise rates gradually moving forward, this is justified by increased economic growth and increased inflation. Investors are particularly keen on inflation rates as too high an increase in inflation could lead to quicker rate hikes.

 

Line Chart Computer Screen - Market Commentary

John Butters – FactSet
Record Number of S&P 500 Companies Issuing Positive EPS Guidance for 2018

Summary: Since the end of 2017, EPS estimates for the S&P 500 have increased by 7.0%, which is the largest increase in annual EPS estimates since 1996. Increased estimates are due in large part to the reduction in the corporate tax rate, as well as a weakened US dollar. Through February 15th 127 companies issued positive EPS guidance. That is more than double the 10-year average since 2007. 

 

Cargo Containers - Market Commentary

Chirs Williamson – IHS Markit
US Flash PMI Points to Economy Gaining Growth Momentum, but Prices Spike Higher

Summary: US business activity growth accelerated largely in February, which suggests the economy is at its fastest pace in over two years. The manufacturing sector showed robust growth but most of the expansion was driven by the service sector. The data indicate that inflation is set to accelerate alongside the upturn in the economy as higher input costs are passed onto consumers. 

 

CNBC Logo - Market Commentary

John Melloy – CNBC
Highlights from Warren Buffett’s Annual Letter to Berkshire Hathaway Shareholders

Summary: Berkshire Hathaway experienced a significant gain in net worth during 2017 that was $65.3 billion, largely attributed to tax reform. Buffet said that Berkshire passed on a doing a big deal in 2017 due to high prices, stating that it would be unnecessary to “risk what you have to attain what you don’t need.” Buffet while speaking on the markets said that market activity since 2007 could have been predicted and what’s important moving forward is for investors to “disregard mob fears and enthusiasms.” 

 

Bloomberg Markets Logo - Market Commentary

Chris Anstey – Bloomberg
Goldman Sees U.S. Interest-Cost Surge on Yield, Deficit Rise

Summary: Goldman Sachs predicts a surge in the cost of servicing US debt due to the expansion in borrowing during this period of economic growth coupled with rising bond yields. Typically, Congress has responded to a strengthening economy by raising taxes and cutting spending. This year the opposite has occurred. The US 10-year could peak around 3.75% which would significantly increase debt servicing costs. 

 

Shopping Mall - Market Commentary

Liz Ann Sonders – Charles Schwab
Take the Long Way Home: Economic Expansion Gets a Boost

Summary: Leading economic indicators suggest that the US is set up a higher and longer trajectory for economic growth. Higher inflation and potentially tighter financial conditions are likely to lead to a sustained increase in market volatility. While an increase in volatility may lead to more frequent price swings in the market, an increase in volatility measure does not historically signal a recession for the markets or the economy. 

 

BlackRock Logo - Market Commentary

Kate Moore, Chief Equity Strategist – BlackRock
Is Momentum’s Moment Over?

Summary: Momentum stocks led the way in early 2018 but fell more than the markets during the February selloff. BlackRock believes that momentum strategies still have enough of a runway to outperform this year. During periods of economic growth, momentum names tend to outperform and a solid earnings backdrop should also help support the strategy. 

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