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Market Recap – Lack of Surprises in Q1 Earnings Yield Positive Start in Q2

Market Digest – Week Ending 4/15

Q1 earnings are expected to decline by over 8%, led by energy. So while it is tough to be enthusiastic heading into this quarter’s earnings season, the first week yielded positive market returns. Investors found support in a lack of surprises by major banks including JP Morgan, Bank of America and Wells Fargo. On the economic front, inflation numbers remained benign and the job market remains strong. International stocks outpaced the US and have nearly closed the gap for the year.

Weekly Returns:

S&P 500: 2,081 (+1.6%)
FTSE All-World ex-US: (+3.3%)
US 10 Year Treasury Yield: 1.75% (+0.04%)
Gold: $1,234 (-0.5%)
USD/EUR: $1.128 (-1.1%)

Major Events:

• Monday – Alcoa kicked off earnings season on a down note. Profit fell 92% due to lower aluminum prices and the company announced it will cut up to 2,000 jobs.
• Tuesday – The Wall Street Journal reported banks have over $140 billion in unfunded loans to energy companies but earnings announcements by major banks downplayed the issue.
• Wednesday – Peabody Energy filed for bankruptcy. It was the last major public coal company that had not already filed.
• Wednesday – Producer prices fell 0.1% in March, signaling inflation remains absent.
• Thursday – BP shareholders rejected an executive pay policy which would have given CEO Bob Dudley a 20% raise after a year where the company lost $5 billion.
• Thursday – Initial claims for jobless benefits fell to its lowest level since 1973, suggesting a strong labor market.
• Friday – Oil prices fell ahead of a highly anticipated weekend meeting between OPEC leaders and Russia in expectation that no major production limit deals will be announced.

Our take:

When it comes to the stock market, everyone has an opinion. Right now, almost no one is predicting a big up year for stocks. High valuations, fears of global economic slowdown, and uncertainty around China have undercut optimism. We’re included. For most of this bull market we highlighted major positive drivers for stocks. For this year, we see a balance of bullish and bearish factors and have no outlook on market direction.

The stock market often takes the least expected path. This makes sense because investors have already voted with their money. Expectations are therefore mostly already incorporated into current prices and the path of least resistance can be the one the fewest people are betting on.

None of this means stocks must go up. But don’t rule it out. Stocks rose this week on little news. That’s what bull markets like to do.

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