I have had a number of clients tell me that the weather this spring and the market have been similar. They both have been very volatile! Last week we enjoyed spring, summer, fall, and winter in 48 hours. We also experienced flashes of both bull, and bear markets in the same time period. Earnings season will ultimately determine where the markets will go in the short term.
Markets closed out the holiday-shortened week on an upbeat note, with the S&P 500 posting its best week since July. For the week, the S&P 500 gained 2.71%, the Dow grew 2.38%, and the Nasdaq rose 2.39%.
Markets shook off the previous week’s losses and rallied on earnings data and a better-than-expected Gross Domestic Product (GDP) report from China. Though earnings season is still young, the overall picture is not as bad as investors had feared. Thomson Reuters estimates that first-quarter earnings increased 1.7% from a year ago, which is much lower than the high-flying estimates at the beginning of the year, but not too bad considering the rough winter.
Though China’s first-quarter GDP report is not rosy – it showed that economic growth slowed to 7.4% as compared to the previous year – analysts had expected it to drop even further to around 7.0%. The data shows that China’s economic growth is indeed slowing, but markets still counted it as a win (for now). China is a trading partner to many countries around the world, and its economic strength is a bellwether for the health of the global economy. A slowdown in China could have knock-on effects elsewhere in the world.
What’s Happening Here At Home:
On the domestic front, economic data is looking up. Retail sales surged in March, recording their largest gains in 1½ years as consumer demand came roaring back. Increasing consumer demand could indicate that economic growth is set to accelerate in the spring.
The number of new unemployment claims filed last week rose less than expected, staying close to the 6½ year low achieved the previous week. The four week moving average, a less volatile measure, fell to the lowest level since October 2007, indicating that labor market growth is accelerating.
Fed Chair Janet Yellen spoke last week and reiterated her opinion that the economy and labor market are still not fully recovered. She stated that future policy moves would not be based on a single indicator, but on a comprehensive analysis of the economy’s health.
Looking ahead, earnings season will kick into high gear this week when nearly one third of S&P 500 companies report. If investors see strong earnings performance, markets could shake off the doldrums and resume the rally. On the other hand, weak performance could lead to significant volatility.
“I’ve missed more than 9000 shots in my career. I’ve lost almost 300 games. 26 times I’ve been trusted to take the game winning shot and missed. I’ve failed over and over and over again in my life. And that is why I succeed.”
– Michael Jordan
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