Banks Highlight the Beginning of Earnings Season
Sources: Sources for data in tables: Equity Market and Fixed Income returns are from JP Morgan as of 07/13/18. Rates and Economic Calendar Data from Bloomberg as of 07/16/18. International developed markets measured by the MSCI EAFE Index, emerging markets measured by the MSCI EM Index. Sector performance is measured using GICS methodology.
Global equity markets rallied for the second consecutive week as we enter into the early innings of 2nd quarter 2018 earnings season, a sign that investors are again optimistic about what lies ahead. In the U.S., the Dow Jones Industrial Average led the way followed by the NASDAQ and S&P 500 Indexes, posting gains of 2.32%, 1.79%, and 1.55% respectively. The one exception for the major averages was the small-cap Russell 2000 Index, which retreated 0.39% over the course of the week, although, the index is still up an impressive 10.58% year-to-date (YTD). We would not be surprised to see Small Cap continue to outperform over the course of 2018 as companies with smaller capitalizations stand to benefit more from corporate tax rate cuts (repatriation aside) and are generally less exposed to potential trade war fallout than companies with larger capitalizations. However, we also anticipate seeing some selective Large Cap performance resurgence once some positive momentum on the trade negotiation front is reported.
With respect to fixed income, U.S. Treasuries continue to trade in a relatively tight range. Investors remain concerned about the flattening of the yield curve. We contend that although this is a valid concern, the Federal Reserve also has the tools to potentially affect the longer end of the curve (i.e. the assets on their balance sheet). We will be keeping an eye out on Tuesday morning as Fed Chair Powell delivers the Fed’s semi-annual monetary policy report to the Senate Banking Committee. This may give us a glimpse into the Fed’s rate hike trajectory and their balance sheet plans for the remainder of the year in addition to their current economic outlook.
As previously mentioned, second quarter earnings season is underway. Investors are expecting another quarter of solid numbers bolstered by tax-cuts and a healthy economic backdrop. Look for financials and tech to lead the way. Financials, namely banks, highlighted the early earnings releases with both JP Morgan and Bank of America beating earnings estimates. Goldman Sachs also reported on Tuesday morning, exceeding past analyst estimates in both earnings and revenues. Other interesting news out of Goldman was the formal announcement of the departure of Lloyd Blankfein as CEO. Finally, Morgan Stanley is set to report on Wednesday before the market open.
Outside of company earnings, we will continue monitor economic data releases and geopolitical events. On the U.S. economic front, investment by businesses has continued to grow at a healthy rate, consumers appear to be comfortable borrowing and spending, and job reports are generally positive. On the geopolitical front, President Trump met with Russian President, Vladimir Putin, on Monday and we would not be surprised to see more tariff and trade related uncertainties over the short term. There are many different factors that may affect the performance of an investment portfolio and we continue to urge investors to consider a strategy that is well-diversified and, as always, takes their specific investment objectives, timeframe and risk tolerance into consideration.
Disclosures: Past performance does not guarantee future results. We have taken this information from sources that we believe to be reliable and accurate. Hennion & Walsh cannot guarantee the accuracy of said information and cannot be held liable. This information is provided for informational purposes only and is not a solicitation to buy or sell any of the asset classes or sectors discussed.
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