Capital Market Implications for the Week of April 16 - 20, 2018
Last week’s economic releases were generally positive, as the housing market did better than anticipated in March while initial reports of industrial activity in April were also ahead of forecast. Although the housing market is facing affordability issues (i.e., higher mortgage rates and home prices) and tight inventory, housing starts, building permits and new home sales managed to rebound in March from February’s weakness. Additionally, March’s existing home sales were better than expected. Flash purchasing manager’s indexes for April (both manufacturing and service PMI’s registered above 54) suggested the economy got off to a strong start in the second quarter after experiencing some softness in the first. Finally, Philadelphia’s Federal Reserve Business Outlook Survey ticked up in April.
Although rising interest rates weighed on markets late last week, positive corporate earnings announcements helped stocks to post a small gain. For the week, both the S&P 500 Index and the Dow Jones Industrial Average rose 0.5%. Once again, energy stocks were the week’s strongest performers having increased 2.6%; while consumer staples lagged (off -4.2%) as surprisingly poor sales at Phillip Morris punished the stock and sector. International markets were mixed, with the MSCI EAFE Index higher by 0.5% while emerging markets declined slightly. As the ten-year Treasury yield surged to nearly 3.0%, longer-dated bond prices fell hard last week. Consequently, it was a tough week in the bond pits, with the Barclays U.S. Aggregate Bond Index losing -0.6% and U.S. corporates down nearly 1.0%. For the week, ten-year municipal bonds and high yield bonds suffered the least, off -0.2% and -0.1%, respectively.
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