Seesaw Effect on Equity Markets

Weekly Report - 30/04/2018

Up and Downs on Equities

rollercoaster-markets


The past week saw steep losses and about as equally steep returns from what was a roller coaster in the equity markets. A look at the S&P 500 from the last week saw  a decline from 2672 to 2612, a 2.24% decline and a return of just above to the current 2678.

Week that was


While in a 3 day upswing now (S&P 500) the secular trend is down and has been so since the beginning of February. Yes world markets in equities have stabilised, meaning they have stopped their precipitous falls of February and March, but they have not reinvigorated with anything like the bullishness prior to the beginning of February. Keep in mind that the earnings report season has been overall a big hit with firms reporting healthy and above expectation results, most of which the markets have largely ignored. The central banks (the nexus of government and commercial banks), have been slowing their stimulation in the form of buying bonds from the public. Called Quantitative Easing, aka money printing, has been curtailed completely in the US, and is being cut back in Europe. The US interest rate is on the upward march. The new tax plan for the US relies heavily on the worlds lenders to finance the largesse. All of this indicates higher expectations for inflation which has negative effects on the stock prices.

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Week ahead


Light week on the economic calendar front. We have the FOMC statement which will indicate the thoughts and contemplations of the committee that sets interest rates in the US. We also have some heavyweight earnings reports this week form Tesla and Apple. Marathon Petroleum which reports on the 2nd is in merger talks to acquire Andeavor. This will create the largest US refinery. No small feat for a middle sized oil firm like Marathon. This makes a good set up because Marathon is expected to report positively and the earnings report set up is that the stock will rise on the announcement. Coupled with the merger announcement, the stock is a terrific opportunity. The US labor statistics for April are due on Friday with the usual expectation of 185K new jobs added. The NFP is the most widely traded event on the monthly economic calendar because the report itself is an important and straight forward indicator of US economic health and performance as well as a leading indicator for future growth and spending. The results of a report that meet or exceed the expectation has a direct and immediate impact on the strength of the US dollar. Finally the expectations from the Kim/Trump summit are high. Mr. Kim has made some dramatic statements already and the expectation that the two leaders can make progress has captured the markets’ imagination.

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