Monday, April 15, 2019

Week In Review | Apr 15 2019

Ross Mayfield, CFA
Author position
Correspondent Research Analyst

The Investment Strategy & Research team of Hilliard Lyons, A Baird Company, supports you and your Wealth Advisor with investment guidance to help you separate meaningful news from idle noise via timely market commentary.

Stocks Tick Up as Earnings Season Begins

  • US stocks finished higher last week on the back of a strong Friday session. Financials led, posting a ~2% gain Friday following strong JP Morgan earnings, while Healthcare sold off on political concerns. Meanwhile, the CBOE Volatility Index (VIX), the market’s “fear gauge,” hit a 2019 low.
  • The Hilliard Lyons View: Healthcare remains a laggard in 2019, pulled down by poor performance in pharmaceutical and healthcare-provider stocks. Fundamentals look solid, but it seems that political and regulatory woes are the headline narrative-driver in the sector. Drug pricing regulation looks like one of the few bi-partisan ideas left in Washington, and significant downside risk exists surrounding the 2020 elections. Earnings reports may influence sector moves over the coming weeks.

Meanwhile, the CBOE Volatility Index, the market’s “fear gauge,” hit a 2019 low.

European Check-in

  • After much ado, the EU finally granted a six-month extension for the UK to work toward a cleaner Brexit. Stateside, President Trump floated import tariffs on ~$11 billion worth of goods from the Euro-area, continuing a long-running dispute over airplane subsidies. Finally, the European Central Bank (ECB) held rates firm at their April meeting. Despite plans to begin tightening this year, it seems that weakening fundamentals in the Eurozone may actually lead to additional stimulus from the ECB.
  • The Hilliard Lyons View: Despite political turmoil, international stocks have held up well in 2019. Still, one could be forgiven for skepticism given their past decade of underperformance. And yet we remain firm believers in diversification. With attractive valuations, easy monetary policy, and (the contrarian’s favorite) negative sentiment, we’d advise diligence in ensuring investors are properly allocated to international markets.

FOMC Minutes Released; Yields Rise

  • Treasury yields rose broadly last week following the release of minutes from the Fed’s March meeting.
  • The Hilliard Lyons View: Nothing major to parse from the FOMC minutes. Still, while the market consensus for 2019 seems to be either a full pause in rate hikes (or even cuts), we would urge caution. Labor markets are quite healthy, the US consumer is strong, and a US-China deal seems more likely by the day. If equities hold up well during what could be a challenging earnings season, we would not rule out the possibility of at least one rate hike later in the year.

A Look Ahead

  • The Hilliard Lyons View: Mega-cap financials get earnings season going in earnest this week as Citigroup, Bank of America, and Goldman Sachs all report results. Additionally, Johnson & Johnson, Netflix, Abbott Labs, and PepsiCo deliver earnings, as 50 S&P 500 companies report this week. Elsewhere, investors get a mix of retail sales, housing, and trade data to parse, while the US & Japan kick off trade talks in Washington. Finally, as a reminder, markets are closed Friday 4/19 for Good Friday.

Key Definitions

  • S&P 500 – index composed of ~500 large-cap US equities listed on the NYSE or NASDAQ.
  • Russell 2000 Index – index composed of ~2000 small-cap US companies.
  • MSCI EAFE – index composed of large and mid-cap securities across 21 developed markets, including countries in Europe, Australasia and the Far East. This index does not include US or Canadian companies.
  • MSCI EM - index composed of large and mid-cap securities across 24 emerging markets.
  • Bclys US Agg – (Bloomberg Barclays US Aggregate Total Return Bond Index, Unhedged) total return bond index composed of taxable, dollar-denominated debt.
  • Oil--WTI – represents West Texas Intermediate Crude Oil, a grade of light crude oil used as the underlying commodity in many indices and futures contracts.
  • Oil--Brent – represents Brent Crude Oil, a grade of light crude from the North Sea used as a global benchmark price.
  • IG Spread – (Investment Grade Spread, Bloomberg Barclays USD Liquid IG Corp Average OAS) represents the yield difference between an index of investment-grade rated bonds and a spot Treasury bond curve.
  • HY Spread – (High Yield Spread, Bloomberg Barclays US Corporate HY Average OAS) represents the yield difference between an index of below investment-grade rated bonds and a spot Treasury bond curve.

Important Disclosures

Each client’s investment needs, risk tolerance, and goals are different. This newsletter is not meant to be advice for any specific investor. Nothing in it should be construed as an offer to sell, or a solicitation of an offer to buy, any securities. This should not be used as the sole basis for an investment decision. Any opinions or estimates are subject to change without notice. For information about how any of this information applies to your personal financial situation, please contact your Wealth Advisor.

Past performance is not a guarantee of future results.

Although the information provided to you in this newsletter was obtained or compiled from sources that we believe are reliable, J.J.B. Hilliard, W.L. Lyons, LLC, A Baird Company, cannot, and does not, guarantee that the information or data is accurate, timely, valid, or complete.

All investing involves risk, including the possible loss of principal. You should carefully consider investment objectives, risks, charges, and expenses of any investment before investing. Diversification and asset allocation do not guarantee a profit or guarantee against a loss.

Stock markets, especially foreign markets, are volatile and can decline significantly in response to adverse issuer, political, regulatory, market or economic developments. The bond market is also volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect can be more pronounced for longer-term securities.) Fixed income securities also carry inflation risk, liquidity risk, call risk, and credit and default risks.