Market Commentary, 04/26/18

Last week saw small gains for both the Dow and S&P, following an early week run-up and a later sell-off. This week started flat on Monday and the market fell sharply on Tuesday, with the Dow down 1.7% and the S&P off 1.3%. On a positive note, the volume for both the NYSE and Nasdaq rose sharply from trading levels on Monday, which indicates that investors are not overly fearful. Both the Dow and S&P turned positive over the last two days recouping 1.15% and 1.10% respectively. (Source: Investor’s Business Daily)

A potential concern in the bond market last week was the flattening of the yield curve. This represents the difference in the 2-year and the 10-year Treasuries, which hit a decade low of 0.41% last Tuesday. This is often quoted as a precursor to the start of a recession; however, new guidance indicates the concern is only valid when the yield curve inverts, i.e. when short term rates are higher than the longer term. On a positive note, since then the 10-year Treasury bond has climbed, closing last week at 2.95% and topping 3% today for the first time since 2014. This move has increased the yield curve spread reducing the potential concern. (Source: Bloomberg Markets)

The big news this week will continue to be corporate earnings reports, including Facebook, Twitter, EBay, AT&T, Comcast, and Ford reporting today. As of now, 80% of S&P 500 companies reported better than expected earnings per share; keep in mind that is with only 17% of companies reporting. Thus far the projection, using actual results and estimated results for companies who have not reported yet, is that the earnings growth rate for the first quarter of 2018 will be a record setting 18.3%. (Source: Factset)

As bond rates rise, the concern for an inflation increase and higher cost of dollars for corporations that rely on borrowed money are likely culprits in the recent market volatility. According to Greg Valliere of Horizon Investments, “As the Fed gradually tightens, it will take rates significantly higher than current levels to derail economic growth or the stock market, in our opinion. A recession isn’t remotely imminent, not with the unemployment rate headed below 4%.” Our opinion is that the thriving economy and the potential for all time high earnings growth enforce our overall bullish opinion of the market.

Regards,

Jeremiah Patterson, CFP®
Copelin Financial Advisors
514 Brooks Street
Sugar Land, TX 77478
Phone: 281 240-2902
Fax: 281 240-2856
jeremiah@copelinfinancial.com

Securities offered through ProEquities, Inc., a Registered Broker-Dealer and Member FINRA & SIPC Advisory Services offered through Harvest Investment Services, LLC., a Registered Investment Advisor Copelin Financial Advisors, Inc and Harvest Investment Services, LLC are independent of ProEquities, Inc.