U.S. earnings came to the rescue last week, enabling equity markets to post decent gains. Higher beta (Nasdaq, Mid Caps, Small Caps) and cyclicals (Industrials, Consumer Discretionary, Technology) led the way. Interest rates stayed relatively flat and commodity markets were in the red across energy, metals, grains, and softs. Interestingly, the Pound and the Euro posted gains against the U.S. dollar despite the looming first round of French elections over the weekend. Equity markets also brushed aside concerns of the POTUS revisiting his nationalist sentiments regarding tariffs to protect the steel industry.

Your Weekly Anecdotes:

  • Early indications on the French election on Sunday show Marine Le Pen and Emmanuel Macron on top. Le Pen, the far-right anti-immigrant and anti-European Union will square off against Macron, the centrist candidate, on a May 7th runoff for the presidency.
  • Positive narratives on the week included corporate earnings, talk of tax reform, diminished tensions with North Korea, and rekindled conversations on health care reform solutions.
  • Seasonality may have factored into the rally as Bespoke noted the strong tendency of the S&P 500 to perform well following the April tax deadline.
  • An encouraging data point on the housing market is how depressed housing starts have been since the GFC, speaking to supply constraints and pent up demand looking forward. At a level of 1.215 million, housing starts are still more than 200K below their historical average going back to 1959, and haven’t seen even an average monthly reading once during the current expansion – a point made even more remarkable when accounting for the larger population of the country today relative to the past 50 years.
  • WTI crude oil fell 6.7% to below $50 for the first time since late March. Energy stocks felt the brunt. In a bullish note, Core Labs estimated that demand is outpacing supply by 2mm barrels per day.
  • There are less than two months left until the expiration of the agreed upon oil production cuts across OPEC and non-OPEC nations. Only ten of 21 countries stayed within their pledged output limits in March versus five in February. Expect some strained conversations in the room if they decide to extend production cuts into the summer.
  • 19% of S&P 500 companies have reported. Updated expectations are forecasting 6.9% growth in sales and 9.6% in earnings, both would mark the fastest pace since Q4 2011.

Economic Updates:

  • Last week was a very light economic calendar with much of the data coming in slightly weaker than expected but still indicative of growth. Seven data points were weaker, four exceeded, and three were in line.
  • The Empire and Philly Fed manufacturing reports retreated from multi-year highs and fell more than expected. However, cap-ex and tech spending plans both increased; and the cap-ex measure rose to a two-year high.
  • Weekly initial jobless claims came in below 300k for the 111th straight week. Continuing jobless claims are at their lowest level since April 2000 and before that, you’d have to go back to 1988 to find a lower print.
  • Bespoke reported that in the case of Continuing Claims, they were lower relative to population and the labor force back in 1969, but are the lowest on record relative to employment as-of the most recent release.