WHAT MOVED THE MARKET THE BIGGEST STORIES THAT MATTERED FOR THE MARKET LAST MONTH...
“bang for their buck” in value stocks, which typically outperform when profits and interest rates raise. Two market bellwethers that did not fare well were Caterpillar and 3M. Caterpillar management thinks first-quarter results could be the highwater mark for the year, and 3M flat-out missed all estimates and guided 2018 lower. 3M’s struggles are not a surprise given that the bulk of consumer-staples stocks are in a bear market. Oil prices held and are up over 18% year to date. OPEC production cuts were extended and the inventory levels have consistently shown a weekly drawdown. Many oil bulls believe the summer driving season could push prices above $80 a barrel. U.S. withdrawal from the Iran nuclear accord and increased tensions in the region have acted as support for oil prices. Gold bugs tried to push the metal higher when equities sold off, but prices quickly fell back $1,300 an ounce. There are many reasons for gold apathy, the most salient of which are the ratcheting down of Korean tensions and a strong U.S. dollar. Bitcoin recovered after February’s lows, and there is some talk about Wall Street banks building out crypto trading desks. Markets are stuck. The battle between investors who embrace earnings growth, buybacks, and dividends are stymied by sellers focused on higher inflation and interest rates, which negatively impact future cash flows and force fund managers to reduce stock holdings in favor of bonds.
‘MARKETS ARE STUCK’ AS VOLATILITY AND INTEREST RATES RISE... The trade tensions that raged in March simmered down in April and May. The driving factors were the U.S. trade team’s trip to Beijing, and the return favor by China’s delegation to Washington, D.C. But investors are conditioned to be wary of the next China headline or Trump tweet and are quick to “sell first, ask questions later.” As for rates, the 10-year yield breached 3.1% and the spread between the 2- and 10-year yields was the tightest it’s been in five years, stoking fears of the dreaded inverted yield curve. When short-term rates are higher than long-term rates, the chances of an impending recession are elevated. The S&P 500 traded down to the 200-day moving average and held firm. Earnings have been all over the map, but, taken in aggregate, better than expected. Dow Jones Industrial leader Boeing delivered stellar results and guided higher. Facebook did the same and rallied, showing investors are beginning to get past the Cambridge Analytica debacle. Intel and Microsoft delivered beats across the board but then sold off quickly over concern that growth stocks have peaked. Investors saw more
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10 May 2018
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