The following economic awareness entry is based on short-term events and therefore should not be taken as information towards making investment decisions, which are of a long-term nature. It is only meant to provide clarity regarding current economic events, as there is often a large degree of incorrect information dispersed through the media or other sources.
We received numerous new data updates last week, and most provided positive news for the economy. Retail sales, housing starts, and industrial production all beat expectations and increased in March.
Amid last week's primarily positive data updates, two key occurrences also affected markets:
- Corporate earnings
- Treasury yields
A Closer Look
1. Earnings Season Continued
As of April 20, about 16% of S&P 500 companies shared their results for the 1st quarter, and over 80% of them beat earnings expectations. However, this solid performance has yet to impress investors. While most companies have exceeded earnings projections, their stocks haven't reflected the growth.
On the other hand, companies that have beaten their sales projections - but missed on earnings-per-share - have dropped an average of 4.4% on their release days.
Takeaway: So far, corporate earnings are on the rise, but any companies that don't beat estimates are experiencing considerable stock declines.
2. Treasury Yields Rose
The yield on 10-year Treasuries hit 2.96% - the highest point since 2014. At the same time, the 2-year yield climbed to its highest since 2008. When interest rates rise, companies have higher borrowing costs, and bonds become a more enticing alternative to stocks.
Some investors are also concerned that the difference between the two Treasuries' yields is too close. This occurrence, known as a flattening yield curve, can imply that investors are not confident in the long-term economic outlook.
Takeaway: Rising Treasury rates are worth paying attention to. If they are a symptom of a growing economy, the markets should be able to handle them. However, if questions about economic growth accompany the increases, investors may worry.
What Is Ahead
We are now in earnings season's busiest week, when more than a third of S&P companies will release their reports. Additionally, on Friday, April 27, the initial estimate of the 1st quarter Gross Domestic Product will come out.
All this information will help deepen our understanding of where the economy stands - and what may lie ahead. If you have any questions about current data or future projections, we are available to talk.
Tuesday: New Home Sales, Consumer Confidence
Thursday: Durable Goods Orders, Jobless Claims
Friday: GDP, Employment Cost Index, Consumer Sentiment
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The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.
The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ. The DJIA was invented by Charles Dow back in 1896.
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The MSCI EAFE Index was created by Morgan Stanley Capital International (MSCI) that serves as a benchmark of the performance in major international equity markets as represented by 21 major MSCI indexes from Europe, Australia and Southeast Asia.
The Dow Jones Corporate Bond Index is a 96-bond index designed to represent the market performance, on a total-return basis, of investment-grade bonds issued by leading U.S. companies. Bonds are equally weighted by maturity cell, industry sector, and the overall index.
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