April 23, 2018 – Weekly Market Commentary



 

10-2 spread tightening - weekly market commentary

David Scutt – Business Insider
Yield Curve Flattening Keeping Investors Cautious

Summary: The spread between the 10-year and 2-year US Treasuries hit its lowest level since 2007 at 0.41%. Shorter-dated yields have advanced at a rapid pace as the Fed has been raising rates and inflationary pressures are showing up in the economy. Investors may be wary of taking too much risk as the spread tightens because a negative yield curve has been a leading indicator of past recessions. 

 

Myra Saefong – MarketWatch
Global Oil Supply Surplus May Soon Become a Shortage

Summary: Oil prices may be set to rise as supply moves back in line with demand. Recent reports show that stockpiles of oil in OECD countries have fallen to only 30 million barrels above their five-year average. The data indicate that production cuts by OPEC production cuts along with the rebound in global growth have led to a normalization of supply and demand dynamics in the oil industry. The International Energy Industry estimates that first quarter energy demand was 98.1 million barrels per day.

 

Federal Reserve Logo - weekly market commentary

Donna Borak – CNN Money
Trump Names Two More Picks to Fill Fed Board

Summary: President Trump announced plans to nominate Richard Clarida as vice chairman of the Fed and Michelle Bowman as a Fed governor. Clarida previously worked for the Bush administration and was a senior economist on President Reagan’s Council of Economic Advisers. Bowman previously served at the Department of Homeland Security and the Federal Emergency Management Agency before running Farmers & Drovers Bank.

 

John Butters – Factset
S&P 500 Reporting Record-High Net Profit Margin for Q1

Summary: The blended earnings growth rate for the S&P 500 is over 18% to date and the blended net profit margin is tracking at just over 11%. The measure would be the highest net profit margin for the index since 2008.The increase has been driven by strong consumer spending and savings from tax-reforms offsetting higher wage and input costs. 

 

Charles Schwab Logo - Weekly Market Commentary

Liz Ann Sonders – Charles Schwab
Don’t Fear the Yield Curve Reaper

Summary: An inverted yield curve has been an indicator of past recessions, but the lag between the inversion and the market reversal is typically more than one and a half years. Sonders points out that stocks tend to perform well leading up to a yield curve inversion, and that many other factors that have historically signalled recessions are not flashing warnings signs. Overall, late-cycle indicators may be scaring investors, but they are not signalling a recession. 

 

Blackrock Logo - weekly market commentary

Rick Rieder – BlackRock
Fed Can Follow Two Possible Paths 

Summary: The economy has entered normal territory for the first time since the financial crisis and the results are changing the investment and policy landscape. Rieder believes that the Fed has two paths it can take, each with different risks and strengths. First, the Fed could follow the “dot-plot” path and deliver consistent rate hikes through 2019. The risk is that inflation could run too hot and rising costs could lead to a pullback in consumer activity. Secondly, the Fed could hike three more times and end balance sheet runoffs in 2019. This scenario would give the Fed more flexibility but could worry the markets and lead to a pullback in cyclical growth. 

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