Monday, July 29, 2019

Week In Review | July 29 2019

Spencer Joyce, CFA
Author position
Vice President | Markets 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.

US Stocks Rally

  • US stocks were back in rally mode last week. The S&P 500 gained 1.7%. Domestic small-caps rallied as well, although international markets failed to keep pace during what was a strong week for the US dollar. Gold prices eased a bit last week while oil crept higher; rates were stable.
  • The Hilliard Lyons View: Equities here in the US were probably the most interesting asset class for us last week, which has not necessarily been the case recently with rates in focus and gold creating some buzz. News of a pending budget agreement seemed to support the market, and the net impact of earnings season last week was positive from our viewpoint. Markets also reacted well to Friday’s GDP estimate for Q2’19 (+2.1%).

Investment Grade credit spreads are at their tightest in the history of Week in Review.

Earnings Season Surprise

  • Nearly half of the S&P 500 has reported Q2 results. Aggregate sales and profits are both running ahead of expectations. Thus far, reported earnings for the S&P 500 are up 4.1% on sales growth of 4.7%. Financials and Industrials are the most-represented sectors in results right now. 10 of 11 sectors are beating profit expectations (Consumer Disc. the exception).
  • The Hilliard Lyons View: There is still time for the tenor of this season to turn, but we are pleased with the way earnings season is unfolding. Fears that our market would dip into ‘profit recession’ territory this quarter seem off target. The rate of year-over-year earnings growth for Q2 is actually pacing ahead of finalized growth for Q1 (+1.4%).

Stable Rates Ahead of Fed Meeting

  • Treasury yields were little changed last week. Total return on the Barclays Aggregate was a mere -0.03%. Corporate credit spreads tightened.
  • The Hilliard Lyons View: The Fed decision this week keeps us from taking a strong stance on last week’s Treasury market, but we do find the moves in credit spreads interesting. Investment grade spreads posted their lowest weekly close since October, which is tied for the narrowest spread since we started publishing Week in Reviews over a year ago. High Yield spreads are low by recent standards as well, but are a few basis points above other relative low points. Low spreads are generally a healthy/positive indicator for companies.

A Look Ahead

  • The Hilliard Lyons View: Earnings season rolls onward this week, with as many as 169 S&P 500 companies potentially reporting. Noteworthy companies confirmed for this week include: Procter & Gamble, Altria, Mastercard, Apple, Merck and Pfizer (Tuesday); Humana, GE and Qualcomm (Wednesday); YUM! Brands, Kraft Heinz, Verizon and GM (Thursday); Exxon Mobil (Friday). A contingent from the US is slated to visit Shanghai this week to resume trade negotiations with China, and the Fed is expected to cut rates on Wednesday. This is a relatively full week of economic data, but we expect the docket to be somewhat overshadowed by macro stories and earnings season. The exception is July Jobs data, which is due out Friday morning.

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. Note: It is not possible to invest directly in an index.   

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.