Global equity markets rallied last week on what the market deemed favorable results in the first round of the French Presidential election on April 23rd. As the polls predicted, Macron #1 and Le Pen #2, should translate to a higher likelihood of Euro-area stability. Most European market rallied nearly 5% while fixed income and commodities softened. U.S. markets traded higher in sympathy with Europe but were likely more focused on U.S. corporate earnings season.

Your Weekly Anecdotes:

  • Non-U.S. equity markets rallied sharply as Macron emerged as the favorite to win the May 7th runoff election in France. Polls show him leading with 60% of the vote. Non-U.S. markets have a long way to go to catch up with the U.S. Ten year returns for the US, Germany, France, and Japan are +59%, -5.4%, -26%, and -9.8% respectively.
  • The White House one-pager on tax reform was celebrated by the market – until it digested the price tag. A projected $7T increase in the federal deficit over the next 10 years is not in the realm of Congressional reality but perhaps squarely in the realm of DJT making a ‘deal.’ Neither the Democrats nor the Republican deficit hawks will support anything close to the proposal.
  • Of note that there was no mention of offsetting the cost of tax cuts with new revenue from a ‘border adjustment tax’ (BAT). It seems that opposition from Congress and economic advisors have worked to drop that potentially damaging policy from the conversation.
  • The NASDAQ breached the 6,000 mark last week. In a nod to the tech bubble, each 1,000 point threshold from 2,000 to 5,000 took 1,095-475-56-71 days respectively to travel the distance. Remarkably, the mere 20% increase from 5,000 to 6,000 took 6,256 days.
  • On a less encouraging note, CoreLogic noted that while loan performance across all four major loan types (business, consumer, agriculture, real estate) improved in the first five years of the expansion, everything except real estate has seen a rise in delinquency rates over the past 12 months.
  • Despite the drop in core inflation in March, futures are pricing in a 67% likelihood of a Fed rate hike in June given loose overall financial conditions and tight labor markets.
  • Blended (actual results blended with remaining forecasts) first quarter S&P 500 earnings growth is currently 12.5%. This tops a 9.0% estimated growth rate as of March 31st and equals the 12.5% growth rate in place at the start of the quarter. If 12.5% holds, it will mark the highest growth since Q3 2011 (16.7%) and the first double digit figure since Q4 2011 (11.6%).
  • Bespoke argues that rather than “Sell in May, and Go Away” the market axiom ought to read, “Hold in May, and Go Away.” This is because while the market doesn’t go up much during the summer months, it doesn’t tend to go down much either.
  • On April 25th, the U.S. Department of Commerce levied a 19.88% duty against Canadian softwood lumber exports to the United States amidst much speculation of potential consequences to U.S. jobs, wages, and government revenue.

Economic Updates:

  • Q1 U.S. GDP grew 0.7%, falling short of estimates for 1%. The quarter was held down by the weakest showing for consumer spending since the last recession, despite exceptionally strong business and consumer sentiment readings. In a strange data anecdote, Bespoke noted that the Q1 initial estimate rarely beats estimates – in only 4 of the past 19, 1 of the past 15, and 0 of the last 9 years has Q1 initial estimate beat expectations.
  • The Employment Costs Indicator (ECI) jumped 0.8% in the first quarter, the largest quarterly increase since Q4 2007.
  • The 0.7% m/m rise in durable goods orders in March was weaker than expected and largely driven by aircraft orders. March durable goods ex-transportation fell 0.2%.
  • Eurozone Purchasing Manager Index (PMI) registered 56.7 for March (a number above 50.0 indicates expansion), beating analysts’ expectations and reaching the highest levels since 2011. Employment growth rates also hit levels not seen in almost a decade; a particularly important sign for the ECB, which sees job creation as a key measure of the success of its stimulus policies.