Earnings Season Finally Begins for Q1

Markets rebounded this week as trade tensions eased.  China’s President Xi Jinping’s speech this week at the Boao Forum reiterated past promises to increase imports, reduce import duties on automobiles, expand access to the country’s financial sector, and enforce intellectual property rights for foreign firms.  Investors also responded positively to the prospect of a negotiated resolution to the tariff dispute; reports revealed that the U.S. and China had engaged in (unsuccessful) trade negotiations as recently as last week.  In other trade related news, President Trump ordered officials to look into rejoining the Trans Pacific Partnership, a trade agreement with eleven other countries to lower tariffs and counter China’s growing influence in the region.  Other political developments this week included the possible re-escalation of the Syrian conflict in response to the country’s use of chemical weapons; the FBI’s investigation of Michael Cohen, President Trump’s personal lawyer; and the announcement by House Speaker Paul Ryan that he will not seek re-election.  These events, though, had a negligible impact on markets.

Energy was the strongest performing sector this week; oil prices rose in reaction to the re-emergence of geopolitical risks in Syria and reports that Saudi Arabia is targeting $80 per barrel ahead of the IPO of state oil giant Saudi Aramco later this year or in 2019.  Technology also outperformed following Facebook CEO Mark Zuckerberg’s appearance before Congress; his testimony outlined steps the company is taking to better handle third party access to user data.  Still, the industry faces the prospect of digital privacy regulations as well as increased expenses for monitoring potentially illicit activities.  Meanwhile, consumer and producer price increases were roughly in line with expectations.

First quarter earnings season started with Delta Airlines and financial companies JP Morgan, Citigroup, Wells Fargo, and BlackRock exceeding analysts’ sales and earnings per share (EPS) estimates.  Jamie Dimon, CEO of JP Morgan, noted, “The global economy continues to do well, and we remain optimistic about the positive impact of tax reform in the U.S. as business sentiment remains upbeat, and consumers benefit from job and wage growth.”  Glen Hauenstein, President of Delta Airlines, commented, “We are seeing our strongest revenue momentum since 2014, driven by improvements in all geographic regions, strong corporate results, and double-digit increases in loyalty revenue.”  The positive results bode well for the market.  Indeed, stocks have appreciated during every earnings season since 2013 as investors reacted positively to improving corporate performance and optimistic management outlooks.  The first quarter earnings reporting period may continue the trend as analysts expect earnings to grow at their fastest pace in seven years and business and consumer confidence are at their highest levels since 2004.

*Source:  Pacific Global Investment Management Company

Chart reflects price changes, not total return.  Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

 

Last Week's Headlines

1. The Producer Price Index for final demand advanced 0.3 percent in March, seasonally adjusted, the U.S. Bureau of Labor Statistics reported. Final demand prices rose 0.2 percent in February and 0.4 percent in January. In March, 70 percent of the rise in the final demand index is attributable to a 0.3-percent advance in prices for final demand services. The index for final demand goods also climbed 0.3 percent. For the 12 months ended in March, prices for final demand less foods, energy, and trade services increased 2.9 percent, the largest advance since 12-month percent change data were available in August 2014. - Bureau of Labor Statistics

2. Total inventories of merchant wholesalers, except manufacturers’ sales branches and offices, after adjustment for seasonal variations but not for price changes, were $625.6 billion at the end of February, up 1.0 percent (±0.2 percent) from the revised January level. Total inventories were up 5.5 percent (±0.9 percent) from the revised February 2017 level. The January 2018 to February 2018 percent change was revised from the advance estimate of up 1.1 percent (±0.2 percent) to up 1.0 percent (±0.2 percent). - www.census.gov 

3.  The Consumer Price Index for All Urban Consumers (CPI-U) decreased 0.1 percent in March on a seasonally adjusted basis after rising 0.2 percent in February, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index rose 2.4 percent before seasonal adjustment. 

4.  The number of job openings was little changed at 6.1 million on the last business day of February, the U.S. Bureau of Labor Statistics reported today. Over the month, hires and separations were little changed at 5.5 million and 5.2 million, respectively. Within separations, the quits rate was unchanged at 2.2 percent and the layoffs and discharges rate was little changed at 1.1 percent. - Bureau of Labor Statistics 

5.  Consumer sentiment slipped in early April, largely reversing the gains recorded in the prior two months. The small decline was widely shared by all age and income subgroups and across all regions of the country. Importantly, confidence still remains relatively high, despite the recent losses that were mainly due to concerns about the potential impact of Trump's trade policies on the domestic economy. Uncertainty surrounding the evolving trade policy has caused many small (and at times inconsistent) changes in expectations. Spontaneous references to trade policies were made by 29% of all consumers in early April, with nearly all the mentions negative (27% out of 29%). 

6.  Business activity grew robustly in New York State, according to firms responding to the March 2018 Empire State Manufacturing Survey. The headline general business conditions index climbed nine points to 22.5. The new orders index rose to 16.8 and the shipments index advanced to 27.0—readings that pointed to strong growth in orders and shipments. Unfilled orders increased, delivery times lengthened, and inventories edged higher. Labor market indicators showed an increase in employment and hours worked. After reaching a multiyear high last month, the prices paid index moved up further, reflecting ongoing and widespread increases in input prices. 

 

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Brian Amidei, along with Partners Joseph Romano and Brett D'Orlando have also been named *2014, 2015, 2016, 2017, 2018 Five Star Wealth Managers!

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