Financial Week in Review
Week Ending: Friday, May 17, 2019
Recap & Commentary
Equity markets experienced a second week of losses as concerns about trade tensions remained elevated. The magnitude of losses, however, was more muted. Trade-related developments for the week could best be described as two steps forward, one step back.
Step forward number one, President Trump announced that the U.S. will lift tariffs on steel and aluminum imports from Canada and Mexico that it enacted nearly a year ago. In return, Canada and Mexico will remove retaliatory tariffs. The move is intended to encourage lawmakers in all three countries to ratify the revised NAFTA, known as the USMCA.
Step forward number two, President Trump announced that he will delay tariffs on imported vehicles for at least six months. The move provides time for the U.S., Europe, and Japan to reach broader trade agreements.
Step back, U.S./China trade talks have effectively stalled. Complicating matters, President Trump signed an executive order banning companies from buying telecom equipment from Chinese firm Huawei, the world’s largest provider of such equipment.
Through Friday, 92% of S&P 500 companies had reported first quarter earnings, effectively bringing earnings season to an end. Thus far, 76% of companies have beaten their earnings estimates, while 59% have beaten their revenue estimates. Currently, earnings growth is on track to decline -0.5% for the quarter, which would mark the first year-over-year decline since 2Q16.
Retail Sales—After a 1.7% surge in March, which was among the largest monthly increases in a decade, retail sales fell -0.2% in April. However, control group sales, which serve as a proxy for personal consumption in the GDP report, were unchanged in the month after a slight upward revision to the March print. The M/M slowdown indicates an underlying weakening in consumer spending, which is in-line with expectations of slower economic growth this year. As an aside, E-commerce sales increased by 3.6% in Q1 and were up 12.4% Y/Y. Their share of total retail sales has climbed to a fresh record high of 10.2%, reflecting the structural shift in retail trade from brick and mortar to online activity.
Manufacturing—Amid trade tensions, industrial production declined -0.5% in April. Additionally, manufacturing, which accounts for ¾ of the industrial production print, also fell -0.5%. On a Y/Y basis, industrial production continues to cool, posting a less than 1.0% increase, the slowest pace since February 2017.
Housing Starts jumped a higher-than-expected 5.7% in April as the pace of new residential construction has picked up alongside improving buying conditions. Despite the increase, starts remain below last year’s level.
Sentiment—Both consumer and business sentiment reports remain extremely positive. Tariffs were not a significant factor; however, most of the responses were gathered before the collapse of US-China trade negotiations late last week.
The U.S. birthrate declined for a fourth consecutive year in 2018, falling to its lowest level in 32-years, with 3.79M births.
Market Indices Week of 05/17
S&P 500 -0.8%
Small Caps -2.4%
Intl. Developed 0.2%
Intl. Emerging -2.2%
U.S. Bond Market 0.3%
10-Year Treas. Yield 2.39%
US Dollar 0.7%
WTI Oil ($/bl) $63
Gold ($/oz) $1,278
The Week Ahead
- Existing Home Sales
- New Home Sales
- Durable Goods Orders