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Market Commentary - Week Ending 4/27/2019
- U.S. stocks post a strong week and close at record highs
- U.S. economic growth was much better than economists expected in the first quarter
- 3M, a global industrials giant, delivered a disappointing and weak first quarter results
Market Performance Summary
Notable Market Headlines
U.S. stocks have done it…fully recovering from the selloff in the fourth quarter last year to close at new all-time record highs as measured by both the S&P 500 and NASDAQ Composite. The Dow Jones Industrials were higher for the week as well but remain a little more than 1% below record highs.
At the close of the week U.S. large stocks were higher by +1.2% while small U.S. stocks did even better with a gain of +1.7%. The one sector dramatically lagging behind in 2019, healthcare, was the week’s best performer gaining +3.8%. This week’s gain only results in a year-to-date performance of +3.9% while the technology sector continues to be the year’s leader up +26.8%. Overall large U.S. stocks are higher in 2019 by +17.4% and small stocks by +18.2%.
International stocks disappointed this week with developed country stocks down -0.3%. European markets were mostly down while Australia and Japan’s markets both posted fractional gains. There was weakness throughout the emerging markets with the average being down -1.5%. Turkey’s market, still struggling to recover from huge losses during the first half of 2018, was down -4.2% for the week. South Korea’s market lost -3.4% on news that its economy surprising contracted in the most recent quarter. And the largest of the emerging markets, China, was lower by -2.5% but still holds onto a sold gain for the year up +14.1%.
The non-traditional asset classes were mixed with real estate being the best performer up +1.6% for the week and has a very solid gain for the year of +14.9%. It’s generally believed that as bond yields decline, as they did this week, it helps improve the value of real estate stocks due to the increased value of their high dividend yields. Gold posted a rare gain up +0.8% for the week pulling it out of negative territory for the year. Commodity prices fell by -1.5% due to lower oil prices this week but remain higher in 2019 by +16.3%.
Bond prices moved higher by +0.5% pushing yields down. The benchmark U.S. 10-year Treasury Bond yield decline to 2.499% from 2.564% a week earlier on news of lower than expected inflation.
Hasbro (HAS), a global toy company, reported strong first quarter results making its stock the best performer among the S&P 500 this week. Sales came in better than expected at $732.5 million with earnings per share of $0.21 compared to the average Wall Street estimate of a loss of $0.08. Both Hasbro and its biggest rival, Mattel (MAT), suffered in 2018 due to the Toys ‘R’ Us liquidation but seem to be making positive strides. Hasbro’s stock jumped +15.6% for the week and is higher by +26.3% in 2019.
Twitter (TWTR), with one of the most popular social media platforms, reported first quarter results that included a better-than-expected number of monthly active users, 330 million users versus an estimate of 318 million. This is a key metric for the company and investors that has disappointed in prior quarters. First quarter revenue grew by 24% over the same period last year fueled partially by advertising growth while earnings per share tripled. Investors reacted well with the stock gaining +12.4% for the week and now higher by +34.6% year-to-date. As the accompanying graph illustrate though the stock is still far off its record high hit in early 2014 just after it became a public company.
3M Co. (MMM), a diversified industrial giant with approximately 55,000 products including Post-it Notes, disappointed Wall Street with its quarterly numbers resulting in its stocks having one of its worst days in history. Total revenue fell by -5% during the quarter compared to the same period last year impacted largely by foreign currency translation combined with simply weak markets for its products. This was combined with earnings that came in below estimates and lowered guidance for the remainder of 2019. In spite of the rough week with the stock down -12.4%, the stock remains fractionally higher for the year.
Intel (INTC), the chip making giant, reported first quarter earnings per share that topped analyst estimates but disappointed on other fronts. Revenue was fractionally above last year’s level but its data center group revenue declined -6.3%. The bigger disappointment was the company cutting its full-year outlook for both revenue and earnings due to a decline in memory pricing that’s intensifying. As the accompanying graph shows the acceleration of quarterly revenue growth has stalled and turned marginally negative with this most recent report. Intel’s stock dropped -10.4% for the week, or a loss of more than $20 billion, but is still higher year-to-date by +11.7%.
Economic Indicator - Reported
Gross domestic product, or GDP, the total value of the country’s production, increased by an impressive and surprising +3.2% during the first quarter. This was double economists’ consensus estimate of just +1.6%. Driving growth was higher spending by local and state governments, a buildup in inventories, and better-than-expected final sales in the U.S. In addition to the strong growth inflation, measured by the personal consumption expenditure price index, fell to +1.4% from +1.9% in the prior quarter.
Existing home sales fell during the month of March to a rate of 5.21 million homes annually that was below the estimate of 5.30 million and -5.4% below last year’s level. This disappointing monthly report follows a spike higher in the previous month. New home sales during the month though came in better than expected at 692,000 as compared to the estimate of only 645,000. Helping boost sales was a steep -9.7% drop in the average selling price compared to the same month a year ago.
Durable goods orders, new orders placed with U.S. manufacturers for products that have a longer life span, jumped +2.7% in the most recent month which was well above the estimate of just +0.7% and a very healthy rebound from the -1.1% decline the prior month. Excluding the volatile transportation sector, the number was up +0.4% which was still double the estimate and a rebound from an also negative number the prior month.
Economic Indicators – Upcoming
The following economic data is expected in the coming week:
- The Employment Report is expected to show the economy adding 180,000 new jobs in April with the unemployment rate holding steady at 3.8%
- Economist forecast that the S&P Corelogic Case-Shiller Housing Price Index will showing home prices rising by +0.3% over the prior month and +3.2% year-over-year following last months report showing a decline.
- Consumer Confidence is expected to tick higher in April.
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