Markets turned in mixed results in a week where there were ample market and geopolitically oriented events. Equity markets received the week with mixed feelings as large caps moved mostly sideways while small caps lost tangible ground. European equities traded in sympathy with U.S. markets while Japanese stocks struggled in the face of a continued rally in the Yen. U.S. Interest rates continued to drift lower off their mid-March highs.

Your Weekly Anecdotes:

  • Thursday night the U.S. launched 50 Tomahawk missiles at two Syrian air bases, one of which was suspected to hold chemical weapons used by Syrian President Bashar al-Assad earlier in the week with tragic human consequence.
  • The March FOMC meeting minutes released on Wednesday seemed to have taken markets by surprise, revealing open deliberations surrounding ‘balance sheet normalization’, or the unwinding of the Fed’s $4.5t in bond holdings, in 2017.
  • Not to be forgotten, non-U.S. stimulus (QE) in Europe and Japan have been impactful in allowing the Fed to raise rates and discuss balance sheet normalization. Of note going forward, the BoE is expected to end corporate bond purchases and the ECB is at least considering what to do with their QE program.
  • Europe is contending with yet another impasse between Greece and her creditors over terms of a third bailout. With unemployment trending at 23.5% and Q1 GDP indicating the economy may have slipped back into recession, the bailout posturing seems again to be having negative economic consequences.
  • Bespoke noted the similarities (a clear sideways pattern) exhibited so far this year among Dow Transports, small caps, and the 10yr U.S. Treasury yield, all of which, historically, have been known as leading indicators.
  • Technology (11.7%) has been the clear winner this year while energy (-6.1%) and financials (1.6%), 2016’s winners, have taken a breather. 2017 has also seen the lowest P/E stocks perform poorly (-4.3%) while high international revenue stocks have done well (+1%).
  • Oil and the energy patch traded higher on the week. WTI breached $52, back near where it was at the beginning of the year.
  • EPFR reported that U.S. stock funds sustained their biggest weekly outflow in 18 months while cheaper European stocks continued to be on the receiving end.
  • Earnings season starts next week with earnings and sales expectations of 8.5% and 7.1% respectively. Technology (12.8%), materials (13.6%), and financials (13%) are expected to deliver most of the earnings growth while energy revenue is expected to jump 36.9% based on sub-$40 oil markets one year ago.

Your Weekly Economic Updates:

  • Friday’s March jobs report fell well short of expectations, registering only 98k versus expectations for 180k. Weather seems to have played a part in the March result. Despite the miss, U3 and U6 unemployment rates fell to 4.5% and 8.9% respectively, the lowest levels since May 2007.
  • The Citi Economic Surprise indexes show the U.S. and Eurozone both still beating expectations, but at a decelerating rate. Japan has been in negative net surprise readings for the past couple of months while the emerging markets are falling off multi-year highs.
  • The ISM Composite registered firmly in the expansionary (>50) range at 55.4. That said, the nonmanufacturing reading did miss expectations (55.2 vs 57).