The S&P 500 climbed 1.2% last week, and the index rallied to an all-time high even when dividends are excluded. Continued optimism the U.S. and China will reach a new trade deal and solid earnings helped support the move to new highs.
The global MSCI ACWI gained 0.4% as international stocks failed to keep pace with gains in the U.S. The Bloomberg BarCap Aggregate Bond Index climbed 0.4% as economic data from the U.S. government showed inflation is well-controlled.
Key Points for the Week
- GDP exceeded expectations through a series of short-term boosts to output.
- Earnings continued to beat expectations, while companies that missed saw bigger declines than normal.
- Markets hit new highs on a strong first quarter.
The U.S. gross domestic product (GDP), which measures total economic output, rose 3.2%. As discussed in the next section, the gains were boosted by a number of short-term factors, suggesting growth remains a concern. Corporations continued to deliver profits that exceeded expectations, although companies that missed estimates fell more than normal. Based on companies continuing to beat expectations, earnings should finish relatively close to unchanged from one year ago and may even end positive. Earnings were expected to drop based on initial estimates.
First quarter U.S. GDP surpassed expectations by 0.7%, posting a robust 3.2% annualized growth rate. Expectations had recently been revised upward from below 2% based on trade data. The report eased concerns of a global growth slowdown.
The underlying measures that construct overall GDP were less jovial. The data showed the 3.2% growth was supported by a number of short-term boosts. Trade data added 1% to GDP, and the combination of increased inventories and state and local government spending added a combined 1.1%. Negative effects from the government shutdown subtracted 0.3%. The net of these numbers put core growth below 2% as consumer spending slowed from the previous quarter.
Business investment remained a bright spot in the data. Spending on software and other intellectual property continued to be strong. The ongoing strength in business investment cancels out some of the weakness in the housing market. If the improvements in trade can be sustained, then growth could remain above 2%.
Like many recent economic reports, the data was strong enough to push concerns of a recession out to the next report, but not strong enough to help investors feel confident economic growth is on solid ground. If the trend continues, the current U.S. economic expansion will likely end up being the longest ever.
A family in Lincoln, California, discovered around 100 uninvited sheep in their backyard last week. The sheep snuck in the backyard gate after the resident forgot to latch it. Apparently, the sheep were among several hundred used by the city to cut down vegetation during fire season. The hilarity that ensued was caught on tape.
This newsletter was written and produced by CWM, LLC. Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The views stated in this letter are not necessarily the opinion of any other named entity and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results.
S&P 500 INDEX
The Standard & Poor’s 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
MSCI ACWI INDEX
The MSCI ACWI captures large- and mid-cap representation across 23 developed markets (DM) and 23 emerging markets (EM) countries*. With 2,480 constituents, the index covers approximately 85% of the global investable equity opportunity set.
Bloomberg U.S. Aggregate Bond Index
The Bloomberg U.S. Aggregate Bond Index is an index of the U.S. investment-grade fixed-rate bond market, including both government and corporate bonds.
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