The Markets This Week

by Connor Darrell CFA, Assistant Vice President – Head of Investments
Most major stock indexes posted small gains for the week, with U.S. stocks (as measured by the S&P 500) slightly outperforming their international counterparts. Q1 earnings season officially kicked off with some high-profile earnings beats, including encouraging results from Walt Disney and JP Morgan. The current earnings season is being tabbed as one of the more important in recent years, as analyst surveys have pointed to a general expectation that corporate profits may actually post negative growth when compared to the data from Q1 2018. The expectations for limited earnings growth stem from two primary factors. First, the benefits of tax reform are no longer boosting the year-over-year comparison since companies now are likely to have the same effective tax rates as last year. Secondly, rising wages and raw materials costs are putting downward pressure on profit margins. Across the market, analysts are calling for 5% growth in revenues, but for that growth to be offset by increases in the cost of doing business.

Labor Market Remains the Strongest Aspect of a Still Healthy Economy
On Thursday, the Labor Department reported that weekly jobless claims had fallen to their lowest level since 1969. Jobless claims are reported as an absolute measure, meaning that they are just a running tally of total new claims for unemployment insurance. What makes the most recent measure particularly impressive is that the last time jobless claims were this low, the labor market (total eligible workers within the economy that are either working or looking for work) was only 60% of its current size. The labor market continues to be an area of strength for the U.S. economy, and the Fed has made note of this in recent meeting notes. In fact, the minutes from the Fed’s most recent policy meeting were released on Wednesday and made specific reference to the tightness in the labor market, pointing out that it was “noteworthy” that the health of the labor market has not led to higher inflation.

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