Special Report: Quarterly Update

Last week, trade tensions with China lessened somewhat, while the 2nd quarter corporate earnings season started with mixed results. Against this backdrop, domestic stocks experienced sizable growth. By market's close on Friday, July 13th, the S&P 500 was above 2,800 for the first time since February 1st. Meanwhile, the Dow was above 25,000, and the NASDAQ had hit a new record.[1] For the week, the S&P 500 gained 1.50%; the Dow added 2.30%; and the NASDAQ was up 1.79%.[2]International stocks in the MSCI EAFE increased, as well, by 0.16%.[3]

We are now two weeks into July, which means the first half of 2018 is behind us. As we analyze what may be ahead in the markets, we'll also strive to understand what has happened so far this year. 

2nd Quarter Update: Key Details to Know

  • Domestic indexes had mixed results.  At the end of the 1st quarter, the NASDAQ was up by 2.3%, while both the S&P 500 and Dow were in negative territory for the year.[4] Fast-forward to the 2nd quarter's end, and the Dow was still down, with a 1.8% loss between January and June. During the same time period, the S&P 500 gained 1.7%, and the NASDAQ added 8.8%.[5]  
     
  • Trade tension persisted.  Global trade was a major topic throughout the 2nd quarter. In April, the U.S. proposed $50 billion of tariffs on Chinese products, and China announced its own tariffs in response.[6] The trade tension also extended to Canada, the EU, and Mexico, as the U.S. added tariffs to steel and aluminum imports from these countries.[7] While this situation attracted significant news coverage, investors were able to put much of their focus on economic details, such as corporate earnings, instead.[8]
     
  • Interest rates rose. In June, the Federal Reserve increased interest rates by 0.25%, which marks the second rate hike so far this year. The Fed gave an optimistic view of the economy and said that two more increases could be ahead in 2018.[9]
     
  • The labor market stayed strong. In May, unemployment hit its lowest level since 2000.[10] June's labor report showed unemployment increasing to 4% but for a positive reason: more people re-entering the job market. The latest report also showed better-than-expected job growth.[11] Wage increases missed expectations and still have room to expand more quickly.[12] At the same time, their steady pace should help keep inflation in check and interest rate increases continue gradually.[13]

Looking Ahead 

More 2nd-quarter data is still to come. Gross Domestic Product may have increased by as much as 5% annually between April and June. That growth rate would be more than twice what we experienced in the 1st quarter.[14] We are also at the very beginning of 2nd-quarter corporate earnings season, and analysts predict earnings growth of 20%.[15] 

Moving into the 3rd quarter, trade will likely continue to be a hot topic, but it's far from being the only detail worth following. As we gain more information about what happened in the 2nd quarter, we will combine those perspectives with the performance we're experiencing now. In the meantime, if you have any questions, we're here to talk. 

ECONOMIC CALENDAR

  • Monday: Retail Sales
  • Tuesday: Industrial Production, Housing Market Index
  • Wednesday: Housing Starts
  • Thursday: Jobless Claims

Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.

Diversification does not guarantee profit nor is it guaranteed to protect assets.

International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors.

The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.

The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ. The DJIA was invented by Charles Dow back in 1896.

The Nasdaq Composite is an index of the common stocks and similar securities listed on the NASDAQ stock market and is considered a broad indicator of the performance of stocks of technology companies and growth companies. 

The MSCI EAFE Index was created by Morgan Stanley Capital International (MSCI) that serves as a benchmark of the performance in major international equity markets as represented by 21 major MSCI indices from Europe, Australia, and Southeast Asia.

The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.

Gross Domestic Product (GDP) is a measure of output from U.S. factories and related consumption in the U.S. It does not include products made by U.S. companies in foreign markets.

The Federal Reserve System (also known as the Federal Reserve and, informally, as the Fed) is the central banking system of the United States. The Federal Reserve System is composed of 12 regional Reserve banks which supervise state member banks. The Federal Reserve System controls the Federal Funds Rate (aka Fed Funds Rate), an important benchmark in financial markets used to influence the supply of money in the U.S. economy.

Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

Past performance does not guarantee future results.

You cannot invest directly in an index.

Consult your financial professional before making any investment decision.

Fixed income investments are subject to various risks including changes in interest rates, credit quality, inflation risk, market valuations, prepayments, corporate events, tax ramifications and other factors.

These are the views of Platinum Advisor Strategies, LLC, and not necessarily those of the named Broker dealer or Investment Advisor, and should not be construed as investment advice. Neither the named Broker dealer or Investment Advisor gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your financial advisor for further information.

[1] www.cnbc.com/2018/07/13/us-stock-index-futures-banks-earnings-and-trade-woes-in-focus.html
www.bloomberg.com/news/articles/2018-07-12/asian-stocks-to-follow-u-s-gains-dollar-slips-markets-wrap
[2] http://performance.morningstar.com/Performance/index-c/performance-return.action?t=SPX®ion=usa&culture=en-US
http://performance.morningstar.com/Performance/index-c/performance-return.action?t=!DJI®ion=usa&culture=en-US
http://performance.morningstar.com/Performance/index-c/performance-return.action?t=@CCO
[3] www.msci.com/end-of-day-data-search
[4] www.cnbc.com/2018/03/29/us-stock-futures-dow-data-tech-and-politics-on-the-agenda.html
[5] www.cnbc.com/2018/06/29/us-futures-point-to-triple-digit-rally-at-the-open-despite-gloomy-mark.html
[6] www.bloomberg.com/news/articles/2018-07-06/the-trade-war-is-on-timeline-of-how-we-got-here-and-what-s-next
[7] www.cbsnews.com/news/canada-eu-steel-aluminum-tariffs-retaliate/
[8]  www.bloomberg.com/news/articles/2018-06-22/trade-is-an-afterthought-in-stock-market-still-glued-to-earnings
[9] www.nytimes.com/2018/06/13/us/politics/federal-reserve-raises-interest-rates.html
[10] www.npr.org/sections/thetwo-way/2018/06/01/615917917/unemployment-rate-drops-to-3-8-percent-lowest-since-2000
[11] wsj-us.econoday.com/byshoweventfull.asp?fid=485657&cust=wsj-us&year=2018&lid=0&prev=/byweek.asp#top
[12] www.bloomberg.com/news/articles/2018-07-06/u-s-jobs-report-shows-room-to-run-as-trade-war-threatens-gains
[13] www.reuters.com/article/us-usa-economy/u-s-job-growth-underscores-economys-strength-tariffs-a-threat-idUSKBN1JW0EI
[14] www.reuters.com/article/us-usa-economy/u-s-job-growth-underscores-economys-strength-tariffs-a-threat-idUSKBN1JW0EI
[15] www.cnbc.com/2018/07/13/us-stock-index-futures-banks-earnings-and-trade-woes-in-focus.html

Jobs Push Stocks Up

Domestic stocks only traded for four days last week, due to the Independence Day holiday. In that time, all three major domestic indexes posted positive results for the week. The S&P 500 added 1.52%; the Dow gained 0.76%; and the NASDAQ increased 2.37%.[1]International stocks in the MSCI EAFE were up, as well, by 0.56%.[2] 

Once again, trade and tariffs were a major topic on many people's minds. On Friday, July 6th, the U.S. and China placed $34 billion of duties on each other's imports.[3]  However, instead of focusing on the trade-war escalation, another topic captured many investors' attention: the latest jobs report.

What did we learn about the labor market?

This month's report about the employment situation provided several indications that the economy continues to be healthy and growing. 

1. The economy added more jobs than expected.

Economists predicted approximately 195,000 new jobs in June. Instead, the report showed that the economy added 213,000 new positions.[4] This positive performance indicates the labor market may be somewhat looser than people originally thought. As a result, the economy may have more ability to continue growing without inflation becoming a bigger concern.[5] 

2. More people tried to enter the labor market. 

Unemployment rose from 3.8% to 4% in June. On the surface, this result may seem negative. In reality, the increase comes from people who were sitting on the sidelines deciding to look for work once again. This choice indicates they feel more confident in their potential to find jobs.[6] 

3. Wage growth continued at a moderate pace.

The latest data revealed wage growth at a 2.7% annual pace, which was slightly below projections. Economists aren't certain why wages are growing at such a tepid rate, considering the labor market's strength.[7] However, with a record number of open jobs, wage growth should increase later this year. In addition, June's pace should help calm concerns about the economy growing too quickly.[8]  

One detail that June's employment report didn't show was any meaningful, negative impacts from tariffs. If the trade disputes continue, however, industries such as manufacturing and construction could suffer. For now, the economy is starting the 3rd quarter on relatively strong footing, after a 2nd quarter that experts say could have experienced economic growth as high as 5%.[9] 

We will continue to monitor ongoing trade developments for any lasting effects on the economy or our clients' financial lives. As always, if you have any questions, we're here to talk. 

ECONOMIC CALENDAR

  • Tuesday: JOLTS
  • Thursday: Consumer Price Index,Jobless Claims
  • Friday: Consumer Sentiment

 


Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.

Diversification does not guarantee profit nor is it guaranteed to protect assets.

International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors.

The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.

The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ. The DJIA was invented by Charles Dow back in 1896.

The Nasdaq Composite is an index of the common stocks and similar securities listed on the NASDAQ stock market and is considered a broad indicator of the performance of stocks of technology companies and growth companies. 

The MSCI EAFE Index was created by Morgan Stanley Capital International (MSCI) that serves as a benchmark of the performance in major international equity markets as represented by 21 major MSCI indices from Europe, Australia, and Southeast Asia.

The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.

Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

Past performance does not guarantee future results.

You cannot invest directly in an index.

Consult your financial professional before making any investment decision.

Fixed income investments are subject to various risks including changes in interest rates, credit quality, inflation risk, market valuations, prepayments, corporate events, tax ramifications and other factors.

These are the views of Platinum Advisor Strategies, LLC, and not necessarily those of the named Broker dealer or Investment Advisor, and should not be construed as investment advice. Neither the named Broker dealer or Investment Advisor gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your financial advisor for further information.

[1] http://performance.morningstar.com/Performance/index-c/performance-return.action?t=SPX®ion=usa&culture=en-US
http://performance.morningstar.com/Performance/index-c/performance-return.action?t=!DJI®ion=usa&culture=en-US
http://performance.morningstar.com/Performance/index-c/performance-return.action?t=@CCO
[2] www.msci.com/end-of-day-data-search
[3] www.reuters.com/article/us-usa-economy/u-s-job-growth-underscores-economys-strength-tariffs-a-threat-idUSKBN1JW0EI
[4] www.cnbc.com/2018/07/06/us-stock-futures-tariff-turmoil-and-jobs-report-in-focus.html
[5] www.bloomberg.com/news/articles/2018-07-06/u-s-jobs-report-shows-room-to-run-as-trade-war-threatens-gains
[6] wsj-us.econoday.com/byshoweventfull.asp?fid=485657&cust=wsj-us&year=2018&lid=0&prev=/byweek.asp#top
[7] www.bloomberg.com/news/articles/2018-07-06/u-s-jobs-report-shows-room-to-run-as-trade-war-threatens-gains
[8] www.reuters.com/article/us-usa-economy/u-s-job-growth-underscores-economys-strength-tariffs-a-threat-idUSKBN1JW0E
[9] www.reuters.com/article/us-usa-economy/u-s-job-growth-underscores-economys-strength-tariffs-a-threat-idUSKBN1JW0EI